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Sunday, 14 May 2006 20:00

Driving growth

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Chip Brewer needed to cut 60 percent of costs his first year at Adams Golf, but two areas he refused to touch were people and resources.

He knew those were the things he needed to get the company back on track, so he chose to invest even more in them and found other areas in which to reduce costs.

“Getting the right people and making sure they have the right resources and environment is the primary way you orient for that growth,” Brewer says.

His strategy paid off, and the company ended 2005 with $56.4 million in revenue, a 49 percent increase over 2002. Smart Business spoke with Brewer about how he invested in his 125 employees to grow Adams Golf, a designer and distributor of premium golf clubs.

How do you prepare for growth?
It’s having the right people in the right places and allocating resources to those areas, because resources are never unlimited. Quality people are never as plentiful as you like, so you cherish every quality employee you can get.

Then you make decisions about how you’re going to allocate resources and what areas you’re going to focus on because you can’t focus on everything. If you do, you’ll be average at a lot of things, and if you chase every opportunity that runs at you, you might not catch any of them.

What do you look for in potential employees?
It’s hard to find good people because that’s such a key resource. It’s a challenge of any growing business, and it’s one of those classy problems that you like to have. We look for passion, integrity, drive, intelligence, a fit with the culture here.

We’re a relatively small business. Friends and friendships have developed, and you don’t want to interfere with that based on the quality of hires. We’ve had some people come through that were clearly bright people and excellent backgrounds, but they didn’t appear to fit with the culture. I wouldn’t support us hiring those individuals because the negative effects would outweigh what they could provide.

We’re better off to keep looking until we get that perfect fit. Getting the right people into the organization is probably the most important thing.

The only thing I know in my heart of hearts that I’ve done a good job at is attracting good people early on and retaining them during the bad years when the business was really struggling. We were able to keep and motivate some good people, so when we got our financial act back together, got our product line back together, those individuals were still here.

They were battling hard by then, and that allowed us to move forward.

How do you retain employees?
It’s about trust — treating them well, open environments. In a time of crisis, everybody wants leadership and direction, but you also need to identify and trust the individuals. It was mutual. They knew how highly I felt for them and how much respect I had for them, and trust, even though none of our results were that good at the time.

We would talk openly about the difficulties that we faced and what the other opportunities were for them, both personally and professionally, and we agreed to stay and stick it out together.

How do you differentiate your products from those of the competition?
We play two basic product games in our business. We play leapfrog, which is where there is a clear technological trend in the industry, such as the size of driver heads, and we try to use our size as an advantage to be faster to the market in the next evolution — just try to stay one step ahead of the competition.

The other area, which is more exciting and rewarding when you get it right, is delivering true innovation. Being the first to enter that category gives you a significant advantage.

We’ve identified a niche, innovated to deliver better product into that, moved aggressively into it, and we’ve committed fully.

How do you drive innovation?
We’re relatively aggressive. We will take some risks. We will push. We don’t want to take a lot of time and come out with a product that matches others. That isn’t the key to success. Each product we do has to have a clear reason why it exists in the world because the world doesn’t need another me-too product.

You have to make sure you put the resources in the right area. Product is a key area that we try to differentiate our business, and if you look at how we’ve spent our money, R&D is the primary area where we’re constantly funding.

How does investing in people and resources help you grow the business?
Happy consumers and market share, which then turn into top line and bottom line growth for the business. You can feel inside the organization when we’re getting stronger organizationally. You can tell when you’re on the right direction — the quality of people, what they’re working on, their attitudes.

Sooner or later, that turns into product and tour count growth. That turns into e-mails coming in from people who are using your product, and from there to market share, and from there to financial metrics.

How to reach: Adams Golf, www.adamsgolf.com

Tuesday, 25 April 2006 05:47

The changing energy landscape

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The well-documented facts are that crude oil production has peaked across the world and that countries — the United States included — must find alternative sources of energy before the supply of oil runs out.

Along with crude oil, North American natural gas has reached its peak. From this point, dwindling supply ultimately could affect the U.S. as critically as crude oil, given that importing natural gas is more difficult.

“We’re past the North American peak on crude,” says John Barnes, chair and CEO of B&R Energy in Dallas. “The U.S. has crested, and Canada seems to have just about passed its highest point. Current supply is barely even with demand on the rise.”

Smart Business spoke with Barnes about natural gas prices, its availability after two hurricanes in 2005 and alternative energy sources.

Why is natural gas so popular as an energy source?
For the past 15 years, as new electric utility power plants have been built, natural gas was abundant, cheap and cleaner than other types of energy. But those dynamics are changing. Today, 1,000 cubic feet of natural gas contains 1 million BTUs and costs around $7. Equivalent BTUs in coal sell for about $2.50. So, by the BTU, the price of coal is cheaper. The problem is that a coal-based plant costs five times more to put in. And natural gas is still cleaner and friendlier to the environment.

Where does the United States get its natural gas, and why is the supply weather-dependent?
The U.S. produced 80 percent of the natural gas it consumed until last year, with the rest being imported, primarily from Canada. After hurricanes Katrina and Rita hit the Gulf of Mexico last summer, much of the Gulf production was damaged and most of the treatment plants were destroyed. Before gas can be sold and run through pipelines, it must be treated — liquids and vapors removed, along with butane and propane gases. Twenty percent of the country’s supply comes from in or around the Gulf Coast, and it took five to six months before the platforms were back up and running online, and able to produce again.

How did the weather affect the supply and price of natural gas?
Since late last year, the price of 1,000 metric cubic feet (mcf) of natural gas actually dropped 50 percent. Just before the hurricanes hit, the price was $7/mcf to $8/mcf; after the storms, prices jumped into the teens. Today they’re back down to about $7/mcf. Several chemical manufacturing plants along the Coast depended on the natural gas, and many of those plants felt forced by the high prices to take their production overseas.

This year’s warm winter saved us from exhausting our stored supply of natural gas, which unquestionably would have sent costs sky high. We likely would have had to price-ration gas to places such as chemical and fertilizer plants — and eventually schools and businesses — and brought on serious economic dislocation.

On the residential front, we must maintain home gas supplies. You can’t shut down gas supply to homes. Therefore, severe conservation adjustments would be required based on limited supplies and increased costs. One can only hope residents would voluntarily adjust their thermostats to conserve energy and prevent heating “brownouts.”

Could liquefied natural gas (LNG) replace some natural gas?
You hear talk in this country about building LNG terminals that can buy overseas gas as LNG, but that takes time and money. Similar expensive plants must be built in a foreign country to convert natural gas to LNG. After LNG is converted into gas, putting it in the pipeline invites considerable expense of building huge specialized ships able to hold the LNG and keeping it highly pressurized and extremely cold. None of these is an overnight project — and everyone faces the NIMBY (not in my backyard) factor. To further complicate the situation, everybody is competing trying to buy the same LNG. A couple of years ago, for example, Australia discovered two new fields with more than a trillion cubic feet of gas in each: China bought both fields.

What are some alternatives to natural gas?
For our economy to grow, we need to find more sources of energy and be more efficient with what we find. As different forms of energy reach their limits, we need to explore different supply mechanisms. Coal can generate electricity, but we are still a ways from developing clean coal. Renewable energy technologies including biomass power, geothermal power, hydropower, ocean power, solar power and wind energy should factor in the equation.

Like any other situation, the difference between a problem and an opportunity is how a person reacts to the situation. Whoever can direct their solutions to this problem is going to win. You can be the victim or the victor.

JOHN BARNES is chairman and CEO of B&R Energy. Reach him at (972) 934-3800 or jbarnes@bandrenergy.com.

Tuesday, 25 April 2006 05:36

Thomas W. Stephenson Jr.

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Imagine running a company where your success depends almost entirely on what another industry manufactures and how consumers react to those products. Welcome to Thomas W. Stephenson Jr.’s world as president and CEO of movie theater chain Rave Motion Pictures. He has no control over the movies flowing out of Hollywood or how viewers will react to them, which presents a challenge to growing his company. But because he cannot choose his inventory or control the top line, he focuses on details to ensure customers can view movies in the best possible atmosphere and are treated to the highest level of service. This approach is paying off — the company is adding about six theaters each year, and annual revenue hit $115 million last year. Smart Business spoke with Stephenson about how he plans and manages Rave’s growth.

Know where you want to go.
To start a company and grow it, you have to have a vision and you have to know where you’re trying to take the company. But the world has a way of not working out exactly the way you plan it, so you have to have that vision, that passion, that goal for what you’re trying to do, but I think you also have to let the real world intrude on that.

You have to learn from what you’re doing, from your successes and your mistakes. You have to have a vision, but you have to temper that vision with real data from the world.

Try to do the best you can by your customers, by your employees, by your investors, by your vendors — the people that have a real vested interest in your franchise, the people that you have great relationships with. You do the best you can with each of those groups. If you do that well and conduct yourself as honestly and truthfully as you can, then you’re going to have a pretty good company.

Grow with a purpose.
You don’t want to ever grow for the sake of growth. You want to grow because you’re filling a market niche that exists. The best way to grow is because you’re answering or fulfilling a market void out there.

The first thing to look at is, are you really growing because there is something you’re doing better for the consumer than some other way he could get that good or service? If you are, that’s pretty healthy growth. If not, you have to scratch your head and ask why you’re trying to grow.

The second thing I think is equally important is you have to be able to manage that growth. There are all sorts of companies that had great ideas, that expanded too fast and couldn’t really manage the growth. When we grow, we look at two things. We look at new units, but we also look to get better and better performance out of our existing units so that we’re growing internally. You have to be able to manage that growth well and not just put up new units.

Managing growth is difficult because, by definition, you’re taking on more and more responsibility. Your people have to do more and more. You’re still looking outside to bring people into your organizations, so managing that process is not easy.

Success brings success. We’ve had all sorts of people come to us and want to join our company because they like what we’re doing and see what we’re doing in the markets. They say, ‘You do whatever it is better than my company, and I’d really love to be a part of the team.’

The better you did, the more people want to be a part of that process. I love getting e-mails from people saying, ‘I lived in Pensacola and I moved to Destin or Cincinnati or Fort Wayne, and I loved your theaters and I’m so happy to find you have a theater in the market I’m going to.’

Create a strong corporate culture.
We started from scratch. We started very small. We tried to grow internally as much as we can, but we’ve also tried to look around our industry at businesses that are similar in some way ways and try to attract the best people we can and bring them into the company.

We have to do a good job of training our people, helping them all step up to the next level but also looking around from time to time for people from the outside.

We try to recruit smart, aggressive, active people that really want to be a part of a great company. We provide them with terrific managers, with different seminars and management meetings during the course of the year, and then we have a group of senior managers that travel to all our theatres on a very regular basis.

We try to do as well as we can every day. We want to make this a great place to work. We want to make this a great place to go to the movies. We want to create the best environment that we can, so we try and create a really wonderful place to work.

Nobody has to come to work for us, or anybody else, every day, but that’s the difference between a really good company and a not so good company — they keep, they get and they retain really good people.

What we try to do is attract the best people we can and create the best working environment we can so the best people want to stay here and don’t want to go somewhere else. This is a great place to work if you want to be the best. It’s a lousy to place to work if you don’t.

It starts with the way you treat them. We try to treat everyone here with respect, with understanding, with compassion — you want a place where you feel good about coming to work every day. Beyond that, bonus programs, benefits programs, equity in the company, good working environment.

This is a great place to work if you want to be the best. It’s a lousy to place to work if you don’t.

How to reach: Rave Motion Pictures Inc., www.ravemotionpictures.com

Friday, 24 March 2006 09:08

Technology and the Sarbanes-Oxley Act of 2002

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Although the smallest, non-accelerated filers have been granted a deadline extension for complying with the requirements of Section 404 of the Sarbanes-Oxley Act, it remains clear that the SEC is intent on making top executives fulfill the spirit of the law.

Companies must be held accountable for maintaining an effective system of internal controls over financial reporting and making an annual assertion as to the system’s overall effectiveness as part of its annual report to the Securities and Exchange Commission. As such, many accelerated filers are now in the process of completing year two of compliance with Section 404 of the Sarbanes-Oxley Act.

“Many of these accelerated filers thought year two would actually be much more efficient than the fire-drill they experienced in completing the first year of compliance” notes John Gutierrez, a founding Principal of Avvantica Consulting in Dallas and the company’s SOX Practice leader.

Here’s what else Gutierrez told Smart Business:

Why aren’t we seeing more companies making SOX compliance more efficient and cost effective?
Internal staffing for year one compliance was mostly project-based and typically leveraged a high number of costly external resources. During the first half of 2005, most firms took a much deserved break before starting to think about year two. Often, the extended project team members were re-focused on their “real jobs” and dedicated compliance staffing was very lean. Once they started re-examining their results from year one, they realized they had to spend much more time cleaning-up disparate documentation and correcting problems throughout their organizations than they originally thought. They operated in project mode in year one by necessity and were not able to develop an effective compliance management process with the right supporting tools.

I believe the companies that were most successful in year two were able to develop a plan that strategically enabled them to transition from a project-based to process-based approach to achieving compliance, which solved these lingering issues from the first year.

How does a company go about making the transition from a project-based to a process-based approach?
The key to success lies in management’s ability to maintain the momentum they have already built while simultaneously transitioning focus such that compliance becomes part of the firm’s “corporate DNA” in the future. Executives should adopt best practices such as developing a compliance charter that establishes a corporate governance structure with supporting policies and procedures for how key process owners and stakeholders will routinely document, maintain and test the company’s system of internal controls as part of their ongoing job description.

In tandem, they need to implement a software solution as the technical foundation to enable ongoing compliance and achieve significant value for the organization. This combination should substantially increase the cost effectiveness of the compliance process and drive down the annual Total Cost of Compliance (TCC).

What would you consider the most key factors a company should consider when evaluating which software solution to implement?
Companies must find a solution that truly enables a seamless compliance process and delivers real cost savings. It should also provide executives with the right information to make key decisions and deliver compelling business value. It should be easy and inexpensive to implement. Implementations should be quick; measured in weeks not months. The software must have robust functionality designed to accelerate the data conversion process of a client’s existing compliance data, which is typically stored in numerous spreadsheets and various templates. It should also support the digitization, storage and retrieval of historical 404 documentation for audit record retention requirements and drive a significant ROI within the first year of compliance.

Once a company has chosen a compliance solution, what kind of advice would you give them on how to proceed?
Companies should develop specific solution implementation criteria and deadlines for their software vendor, and hold them accountable for delivery. If implemented properly, companies should be able to immediately leverage the solution to quickly identify controls optimization opportunities across the entire organization. Many executives don’t even realize how many controls they have until they see their data represented properly in the right (executive dashboard) reporting environment.

Finally, since even the best-planned transition takes time, companies usually will want to initially keep the controls maintenance function within a small group of employees such as the internal audit group. However, the executive team should push controls data maintenance accountability down to key process owners and stakeholders. Companies should facilitate more effective communication throughout the year by extending solution access to their external auditors, which should lead to lower SOX-related audit costs.

JOHN GUTIERREZ is a founding principal of Avvantica Consulting in Dallas and the company’s SOX Practice leader. Reach him at (214) 379-7904.

Thursday, 23 March 2006 19:00

Evaluating possible lenders

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When you are ready to take your company to the next level, you may also need to access capital. Do you go to a bank and apply for a business loan? Or do you look for an investor? The debt-versus-equity financing question looms large in many owners’ minds when thinking about accessing capital.

While focusing on the pros and cons of debt-versus-equity financing is an excellent starting point, business owners need to make sure that the people behind the financing commitment really understand your business, advises Patrick Ramsier, managing director of commercial lending for ViewPoint Bank of Plano, Texas.

Smart Business spoke with Ramsier about the questions a business owner needs to ask a lender to ensure that the financing process is successful.

 

What should a business owner evaluate when considering debt or equity?
There are significant differences between debt and equity for both the provider of capital and the business owner to consider. For the business owner, it is generally less risky to do the deal with equity because you will not have fixed debt services associated with the loan. Usually, you can’t provide the equity source with the returns required without layering in some debt. The obvious downside to equity is the cost. Equity will require preferred returns in excess of the rate you will pay on most bank loans and they will expect some ownership in the company and their share of profits. The downside to debt is that too much will suffocate the business. It’s the right blend of debt and equity that will serve you the best.

 

What are the criteria for selecting either a debt or equity lender?
A business owner needs to take similar steps to ensure success. There are many books written about this topic and how to get your financial ducks in a row, how to write a strong business plan, and how, generally, to ready yourself for either debt or equity financing. The SBA, for example, offers a lot of help on this topic.

But one step that is often overlooked is the criteria for selecting the right lender, which is the key to successful financing.

 

How can a business owner find the right lender?
While it may be tempting to jump at the first offer that comes your way, it is wise to step back. The process of finding a source of capital is a lot like a job interview. Yes, they are interviewing you, but you must also interview them. For financing to be successful, you and the capital source must have interests aligned, and you both need to know the business intimately.

If neither party knows what they are doing, that is a recipe for failure. If you know what you’re doing and the lender doesn’t, that’s setting yourself up for frustration, because you will spend most of your time educating the lender.

 

What are some questions to ask the lender to make sure it’s the right fit?
Say you want to expand your afghan manufacturing business. You need to ask, specifically, if the lender has ever financed an afghan manufacturing company before. Short of that, you need to ask if they have ever financed a manufacturing company in the past. It does not have to be exactly the same — same loan amount, exact same business — but close enough so that this lender knows your needs. Past deals, basically, should be in the same ballpark, or they should have the ability to do a pro rata analysis.

 

What are some specific questions to ask a lender?

 

  • Has your lending institution ever financed businesses like mine — successfully?
  • Have you financed within the range of what I’m asking?
  • How many of these businesses have you financed?
  • Do you consider yourself experienced in financing this type of business?
  • Do you think our interests are aligned?

These questions will help you narrow down the choice considerably. When you get several lenders that meet your standards, ask the lender for a list of similar customers that borrowed money from the institution.

When you meet with the customer, ask the following questions:

  • Did the lender understand their needs?
  • Was the lender flexible and willing to accommodate the business?
  • What were some of the negatives during the process?
  • What were the positives?

When you further narrow down the capital sources on your list and determine which lender is best prepared to handle your financing, you are well ahead of the game in helping your business obtain financing that is a win-win for you and the lender.

 

PATRICK RAMSIER is the managing director for commercial lending at ViewPoint Bank, Plano, Tex. Reach Ramsier at (972) 801-5832 or Patrick.ramsier@viewpointbank.com.

 

Wednesday, 22 March 2006 11:59

Terdema L. Ussery II

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Where Terdema L. Ussery II goes, success follows.

That caught the attention of the Dallas Mavericks, which brought him into its game nine years ago with one purpose — to lead change. And that he has done.

In his first year, he led the funding campaign and secured naming rights for American Airlines Center. Since his arrival, the franchise has grown to $117 million in annual revenue, according to Hoover’s Online, and increased its corporate sponsorships, ticket sales, television revenue and community activity.

On top of that, he and Mavericks owner Mark Cuban started HDNet, the nation’s first high-definition television network, of which he also serves as CEO. Ussery spoke with Smart Business about how to lead change and succeed in business.

On leading change: The most important thing to recognize when there is change is that it cannot be dictatorial because automatically, there’s going to be a lot of anxiety among staff. Change, by definition, brings anxiety because everyone wants to know, when the paradigm shifts, what does it mean for me?

Communication is critically important in letting people know, honestly, what the purpose of the change is, what the goals and objectives are, and how that person may or may not fit in, and then giving them the opportunity to show that they want to fit into the new paradigm. You really have to spend time talking to people, communicating with people, reassuring people, and for those that have a different agenda, getting them out before they create too much damage internally.

We’ve seen some of that, where people are not happy with change so they want to, in some ways, sabotage change, and that happens in different ways. It’s just being vigilant about knowing who your staff is and knowing people who are really trying to get after it and knowing those who aren’t happy about the change and are going to be disruptive.

On hiring and managing employees: Hire the best people that you can and give them as much room to run and do what they need to do. Multiple tasks require folks with multiple talents.

Instead of looking for people with an expertise in one area who can only operate in that area, you look for people who are extremely bright and agile, who may have his own expertise but have the ability to learn quickly and do other things you need. It’s more hiring people who are bright, that are passionate, who have the ability to go across zones if you need them to.

I don’t believe too much in micromanaging. It’s important to empower smart people so that they have a sense of accomplishment, of fulfillment, so we try very hard to let the people that are in this company run the company. We’re more of a forgiveness organization than a permission organization.

We’re not a company that sits around, has a lot of meetings, spends a lot of time betting whether or not this is or isn’t a good idea. If someone comes to the table with a good idea that we think is going to be impactful, we move pretty quickly. And if it fails, we can always ask for forgiveness, but we don’t want to stifle people’s creativity.

Bottom-line focus is fine, but at the end of the day, you want people who are fulfilled by their jobs because those people are going to do the best. When people aren’t being paid, when the 40 hours is up, are people still buzzing about what they’re doing? Are they still happy to be at work? Are they still trying to get their jobs finished, not because they’re going to be graded down or they’re going to get overtime, but because they’re enjoying what they’re doing and they’re excited?

It’s more than a bottom-line focus. It’s really enjoying having a sense of purpose and feeling as though you’re making a contribution to something larger than yourself that’s meaningful to people.

On balancing life and work: You can get so caught up in what it is you’re doing professionally that you forget about the other side. Something has usually happened that has jarred me and made me realize the importance of trying to have balance.

I try to stay cognizant of the fact that you’ve got to stay healthy, and not just physically but emotionally and psychologically, to be the best you can at work. I think I’m pretty good about telling guys to get away, to get out of the office, go take a long weekend, go do whatever to refresh yourself. Trying to remind them keeps me aware, as well.

When I was at Princeton, my first year there, myself and a couple guys pulled an all-nighter to prepare for an exam — that was a badge of honor, right? But I didn’t do well on the exam. One of my roommates, who had a different methodology of studying, which was just to study consistently, was doing a lot better than me, and it dawned on me that this whole idea of cramming and going til you can go no more is not a good thing.

In the workplace, it’s the same thing — you can work until you burn yourself out, but then you’re doing nobody any good.

On succeeding: The second you believe that there is some unalienable right to exist, it’s the second that the clock is ticking to your demise and ultimate downfall. Every day, one of the things we try to instill in people is a sense of urgency.

The second we start believing because we’re winning or because we’re good — and it doesn’t matter the industry — the second you start reading your own press and buying into it is the beginning of the end. You lose your competitive edge. You lose your ability to be flexible. You lose your ability to listen to your customers and what they’re saying.

It’s waking up every morning and being in an attack mode as opposed to a passive mode — aggressively going after the things that you need to get done that day to be successful, and when you get into that kind of pattern, it makes it easier to multitask. It’s trying to be better today than you were yesterday.

If you can do that, if you can slice your life that thinly, then it helps keep you going. I don’t look out six, seven months and say, ‘I have to get this done.’ I say, ‘How good was I today? What can I do to get better tomorrow?’

No one stands at the base of Everest, starts climbing it and stares at the top all the way up. They’d never make it. You come up with an effective plan and focus on execution.

Keep your head down and focus on taking great steps because any one misstep can cost you your life. Focus on executing every day the best you can, and eventually, the air gets thinner and it gets cooler, and one day you’re going to take that next step and it’s not there, and you’ve made it to the top.

Advice for new CEOs: Start off the job by doing nothing but listening. Spend the first few weeks just listening — the secretaries, the senior management, the middle management, your customers, all the constituents that are going to impact your life.

Just listen to what their concerns are, what their issues are, what their goals and objectives are. What are the issues? Are you having fun? Are we delivering the way you thought we would?

Then distill that information, and from there, start talking about planning for the future. You’d be surprise at some of the stuff you hear.

How to reach: Dallas Mavericks, www.dallasmavs.com

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