Daniel G. Jacobs

Monday, 22 July 2002 09:36

The right call

Horror novelist Stephen King and Ameritech Ohio President Jacqueline F. Woods have a common bond.

King chose to release his latest novel piece by piece over the Internet, where fans of the best-selling author can download segments and are asked to send $1 a pop for the privilege. There is no guarantee of payment, but early returns reveal that 75 percent of the readers have ponied up the money.

So what does that have to do with a huge telecommunications company that was gobbled up last October by the larger SBC Communications?

Innovation.

"(King) is literally rewriting the publishing business," explains Woods. "He is circumventing publishers."

It's too early to determine whether this is good or bad for the industry, if it will become widespread or even if it will ultimately succeed. But it must have some executives in the publishing industry biting their nails.

"What's important is these things are going on," Woods says. "I don't think as business leaders we can afford to ignore that. We need to recognize that this kind of change (exists) and people are taking risks and shifting the game. How are business leaders going to respond? What things can they do in their own world that shift and change?"

It is Woods' job to make sure Ameritech Ohio leads the telecom industry in innovation and does so by responding to the needs of its customers. The company began to take the innovative approach right about the time Woods took the presidential post.

"My career really explains or tracks the change that went on in this industry, particularly at Ameritech and SBC," she says. "When I was named to come out here in '93, I was the first person in the Ameritech group to be named to the head of an operating unit that wasn't an engineer. We viewed ourselves as an engineering and technology company. I had a marketing background and customer service background. That was really kind of a watershed."

Woods took that mandate and has directed the company through a number of changes.

Serve your customers

Innovation is not about finding the latest technology.

Although Ameritech has plenty of engineers and programmers to do just that, Woods wants to make sure that her company serves customers' needs quickly and adeptly. It was with that approach in mind that Ameritech divided into business units, with each new entity focusing on a particular clientele.

"At Ameritech/SBC, we have a group that only worries about small business customers," Woods says. "(We look at) how to meet their needs, what products to provide them, the way they want to do business, the way they want to interact with us, how they want to be sold to, how they want to be billed."

Changes in call waiting and the voice mail services reflect the company's approach. When voice mail first came out, customers looked for more flexibility and more options. The company responded.

"One of the things that we view as both an opportunity and a responsibility in dealing with businesses is to help them view technology as an enabler for their business plan and for their strategy," she says. "How can we help them make the technology methods transparent? Too often, businesses focus on the how of the technology and the what of the technology rather than the product."

Take risks

"Both innovation and risk are essential ingredients," Woods says. "They've always been there, it's just I see them more today throughout the market. Whether you're a one-person start-up or a several-billion-dollar conglomerate, it seems that both innovation and risk now really are on the forefront. I relate that to the tech stocks and how they rise and fall with almost kind of a whim.

"Technology is causing us to rewrite the rules. It certainly brings tremendous opportunity. What we see is that it really breaks down, and this is really an advantage to small businesses, the barriers of time and distance. You have the ability through technology to be everywhere, improve productivity and create all kinds of new services and try them in the market pretty quickly. (Companies today) go out with these products on the Web, and if it is something that doesn't work, they'll they yank it off tomorrow."

It wasn't always that way. Deregulation changed the market.

"If we looked back prior to the early '90s, we never put a product on the shelf that we ever took off," Woods says. "It was the regulatory process. Once you went through getting it all filed, the tariffs and approved, you just left it there even if people didn't buy it.

"Now we say, let's put products out there and if, in fact, it isn't something somebody wants, we're going to take it out. We'll remove it or we'll change it."

Know where to look

Woods recognizes that innovation comes from a variety of sources.

"You don't just have a group of smart people that are going to sit around and be the innovators," she says. "We have all kinds of innovative ideas that come from front line workers."

SBC has more than 200,000 employees. When you add in retirees, families and customers, there are many minds to tap. But even with all that, the company does not try to do everything itself.

"Rather than building up the whole United States, we partnered with Bell South and so together we can put our capabilities, our resources together and provide better services to a larger group of customers," Woods says. "(Also) we do have a technology lab, where we work with manufacturers and with software people and with our application specialists and bring them all into a laboratory environment. We'll even let customers come in if they want to try some of what they're doing and help them work through, 'How's this going to all work together?'

"Customers are looking at what they need to do. And they're saying, 'Help me come up with this. Don't stand here and tell me you don't provide part of this or you don't know how I would get from here to here.

"If you're going to be my primary partner in this, then you go figure out how to do this.'" How to reach: Ameritech Ohio/SBC, (216) 822-8300

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:36

Leveraging the little guy

Bradley Kowit and Steven Passov founded Kowit & Passov Real Estate Group five years ago to serve the local retail real estate market. It's a strategy that has served them well.

But as the venture grew, eventually making Kowit & Passov the largest retail brokerage firm in the Cleveland area, customers started requesting more than the pair was capable of delivering.

Passov says he and Kowit found themselves standing at an unfamiliar crossroads. It's the type of crossroads small business owners must face when their companies grow beyond their original intent. There are many "boutique" firms that serve specific market areas, but their owners can't just wake up one day and shift around their expertise to make their respective companies dominant players on all fronts.

Kowit's answer: a merger.

K&P was looking to expand its services; crosstown giant Collier's International wanted to strengthen its local retail reach. It was a match made in real estate heaven.

Says Kowit, "The changing face of the retail real estate market -- with national firms targeting the local market and businesses looking to employ one company for all their real estate and property management needs -- was a significant factor in our decision to merge with a larger firm. We saw a national company with strong local roots that we'd able to blend into and take advantage of."

The merger gives K&P access to Collier's International's 245 offices in 52 countries, while adding a local feel to Collier's.

"The addition of Kowit & Passov strengthens our presence and service offering," says Dennis Burnside, executive managing director of the Cleveland office of Collier's.

So while the Collier's International name and logo replace Kowit and Passov on the business cards and signage, the things that made the smaller company unique will be retained, Passov says.

"We saw the need to attach with someone who had a first class organization that would still allow us to do what we do," he says.

The advantages

As a whole, Collier's, Burnside admits, was not particularly effective when it came to retail space. The move gives the company expertise it never had in a local market.

And, it wasn't unusual for a regional broker -- someone who might be covering 15 states -- to be shunned by the local market, Burnside says. The merger not only lowers the overhead, it also it provides the company with brokers who focus their attention locally, where they have better information about their customers, and, in turn, can better serve them.

There are other benefits as well.

Three or four companies did 80 percent of the retail real estate work in the area, and Cleveland never had a full-service firm that did retail work. Now it does. The former Kowit & Passov can offer appraisal services and other benefits for which it didn't have the capacity by itself. And, of course, the merger gives K&P access to other markets and exposure to many more clients.

Finding a way for both organizations to gain was the ultimate goal.

"They didn't have to do this and neither did we," Kowit says. "So far, so great. It's better than we thought. We still do what we do." How to reach: Collier's International/Kowit & Passov, (216) 861-5413

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:36

Crystal clear

Dan Kellogg and Joseph Tzeng tackled a daunting task: They set themselves up as the investment leaders to back companies doing business in a field -- the Internet -- that stomps out old innovation nearly as quickly as it is produced.

As a result, Crystal Internet Venture Fund LP was the first of its kind in Northeast Ohio to invest solely in Internet and Internet infrastructure-related companies.

"We felt the Internet was going to be the big thing," says Kellogg, the firm's managing director. "When we started our fund three years ago, I don't know if there was even another fund that was focused on the Internet. That just tells you how fast that world has evolved."

That was 1997, when Tzeng, president, and Kellogg raised $40 million to create Crystal Internet. Last year, a second fund raised $200 million. The company staffs offices in Silicon Valley and Taipei and soon will add another in Singapore. Within 12 months, the pair plans a third fund, "north of $500 million," that will focus on businesses in Europe and Israel.

"Since we have operations here, California and China, it's not unusual for us to be working almost a 24-hour day," Kellogg says. "It makes for an interesting lifestyle, but it's a fun business. The people you deal with, the exciting things that you help get to start, you get to see some of the cleverest ideas going on around the world.

"Crystal Internet is 100 percent focused on Internet-related investment, and that is right now one of the exciting areas."

Investing is a hit or miss process, but Kellogg and Tzeng try to increase their odds by looking for three things when deciding where to place their bets.

Invest in the future

"If I could predict the future, I'd invest in it," Kellogg says.

But since there is no crystal ball, the two must make their best educated guess.

"The Internet is a dynamic environment," Kellogg says. "The hardest thing is to try and figure out where markets are going, where the technologies are going, where the needs are going and how they will evolve. We must always analyze where to be in that evolutionary process. There's no definitive answer. If there was, this would be an easy business."

With the proliferation of investment companies and companies in which to invest, the problem isn't finding ideas, or even finding good ideas, it's weeding through thousands of proposals to uncover the enterprises that have the best chance at success. So far, Crystal's bet on three winning horses -- www.about.com; www.babycenter.com, which was acquired by eToys in April 1999; and www.cobaltnet.com -- and has several more in its stable hoping to make a little noise.

Invest in people

A good idea. The right market. A drive to succeed. These are all necessities for a business to succeed, but they can't stand by themselves.

"I have been approached by people whose sole purpose for starting a company is absolute, unmitigated greed," Kellogg says. "And, unfortunately, when the going gets tough, and it always does, greed is insufficient to make a company a success."

So what is the single most important factor Crystal looks for in a project?

"Whether it's Rust Belt investing, Internet investing or biotech investing, you invest in people," Kellogg says. "I don't care whether you're building engine blocks or whether you're building database engines, people make the difference."

Invest in potential market leaders

"We see a tremendous number of business plans," Kellogg says. "We see a tremendous number of entrepreneurs who are thinking about putting together business plans. In that process, we continue to be at the cutting edge of great ideas.

"You get an opportunity to meet great people and ask them questions and to hear them. That keeps you in tune with where things are going."

When considering which projects to throw Crystal's considerable financial support behind, it's imperative to pick the ones that have the best chance to lead their respective industries.

"Do we miss opportunities? Everyone misses opportunities," Kellogg says. "You don't worry about the ones you miss. You worry about the ones you invest in. On the whole, though, staying in touch with where things are going is a large portion of our business."

And when does Crystal choose to invest?

"We tend to invest in the first stage, first true institutional rounds where the entrepreneurs have probably worked with angel money, family money, their own personal money to get it to that stage," Kellogg says.

But there are exceptions.

"We have actually seeded companies," he says. "But that is very rare. It's a harder thing to do because it takes too much time. Time is, of course, the one thing we're all very limited on.

"There's no way to whip up another 10 hours in a day, whereas you can always try and find more money." How to reach: Crystal Internet Venture Fund LP, (216) 263-5515

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:35

Setting the right tone

Tom Pons strongly adheres to a quid pro quo approach to doing business. So when friend Dick Granger, the majority owner of cellular company Roach Reid, needed some help, the owner of The Cuyahoga Cos. Inc. opened his checkbook.

"We believed in the buddy system, so that anything he could do to help me in business he would do, and I did the same thing," Pons says. "Dick got into some financial problem and that started a scenario of my lending money and it would be returned and I would lend.

"Then it got to a point where I would lend and the money didn't return, but then he needed more help so I lent more."

Several hundreds of thousand of dollars later, the 90-year-old Roach Reid, which started out selling dictating machines, was a lost cause and the fate of Pons' largesse was in doubt.

"I can remember very vividly saying, 'Dick, I know more about your company today than you do. And when I run the numbers and how many people you're trying to pay, out of making one sale, there's nothing left. You've spent it all and then some. So the math doesn't work,'" Pons says.

Pons' only chance to get a return on his investment was to buy the company and turn it around. But that wouldn't be easy.

The downfall

The problem, as Pons saw it, was pretty simple: Each sale cost Roach Reid more than it brought in.

Too much middle management and a poorly designed compensation structure sent the company into a vicious tailspin. The more it sold, the deeper it went into debt and the more it needed to borrow.

Faced with the prospect of losing his business, Pons saw only one alternative.

"In the mid-'90s, his situation got more critical, and at one point, he was asking me to buy the business," Pons recalls. "I looked into it and came close to doing that, but he had some minority stockholders who didn't like the idea. They ended up nixing the deal. Fortunately for myself, I had taken the proper steps to protect my interests where there were legal documents prepared and signed that covered my butt."

Then the minority stockholders discovered that Granger had pledged some of his stock to another lender.

"They found out then that they, as the minority stockholders, all of a sudden had majority control of the company," Pons says. "They fired Dick and then turned around and put the company into Chapter 11 bankruptcy. They operated under Chapter 11 for a little over a year and could not come up with a plan that could pay me back monies owed me and get out of bankruptcy.

"The bankruptcy judge put the company into Chapter 7, which was liquidation. I was able to negotiate with the trustee to purchase the assets in order to try and save my investment."

The rise

Pons now had the company, but success was far from assured.

Roach Reid's employees were accustomed to payroll problems. At times, they were paid normally, and occasionally, when they did receive checks, they bounced. Pons took steps to smooth the transition weeks before he officially received control of the company.

"People who were there then, a lot of them knew me because of my association with Dick over the years," Pons says. "I guess there was a certain comfort level because of the business success I've had in Cuyahoga Companies, and took my word that it was going to be (OK)."

But knowing that good will and being a nice guy can take you only so far, Pons took steps to take care of Roach Reid's employees even before the bankruptcy trustee allowed Pons his opportunity with the company.

"Before the deal was consummated with the courts, I put up payroll money so that we wouldn't lose people in that transition period," he says. "I was paying employees, I think, for probably six to eight weeks before the transaction finally closed. (That) gave them a comfort level that here, I didn't officially own the company, was working toward that, but was paying them."

With a sales force in place, Pons turned his attention to the issues that got the company in trouble in the first place.

"I got the costs in line better and put together some inventory management programs," he says. "In general, it was the case managing inventory and the coming and going of it. And if people became nonproductive, rather than continue to pay, unfortunately, you get that situation where you cut some people loose. Cut your losses."

Then he turned his attention to the pay scales.

"(I) formally changed the compensation structure for all, because it wasn't working," he says. "If this company were to survive, that, too, was a no-brainer. It had to change. Did people like it? No. But in most cases, they learned to live with it."

Another change involved the sales territory. Granger opened an office in Mansfield, one that from the start was a money loser.

"It was nonproductive, (and) bleeding the company," Pons says. "After trying to make it work for a year, (I) threw the towel in on that. We don't operate in that market any longer. And now, of course, in time we've added a second location, by doing phones out of our Lakewood office, as well as the office in Solon."

It's been four years since Pons turned Roach Reid into Cuyahoga Wireless, taking over the company in an effort to get back the money he'd put into it.

"Certainly there was the initial concern, the fear of the unknown," Pons says. "But being that the business was relatively simple, the basics came down to, you have to sell phones. Of course, there were times when the morale was so low prior that people got into doldrums and weren't selling. That compounded the problem.

"Being in sales all my life practically, it was kind of a no-brainer that if you sell and you sell enough of the product and your expenses don't exceed the income, then it should be a self-rectifying situation. And it was." How to reach: The Cuyahoga Cos. Inc., (216) 228-4700; Cuyahoga Wireless Inc., (440) 248-2880

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:34

A PEEP at the seedy side of HR

Rumors of layoffs fly about the company more radically than moths around a lamppost.

Management wants it stopped; the employees want the lowdown. They both turn to the HR professional for answers.

To illustrate just how difficult a task squelching misinformation can be without lying, the Employers Resource Council held a P.E.E.P. (Professionalism, Etiquette, Ethics and Politics) show with four veteran HR professionals. The program was sponsored by ProResource Inc. Randstad, Ulmer & Berne LLP and UnitedHealthcare.

The experts were Rose Ann Kay, a human resources project specialist with the ERC who has held HR positions with Steris Corp. and Curtis Industries; Margaret A. Rice, director of HR for NetGenics Inc.; Kenneth C. Roberts, vice president, HR and equal opportunity at United Way Services; and Albert J. Tusek Jr., vice president of HR at Marine Mechanical Corp.

Before the program began, to show how difficult rumors can be to thwart, Brenda Blackmer, director of training and special events for the ERC, played a game of telephone, the children's game in which one person starts a message and it's whispered from person to person. By the time it gets to the last person, more often than not, the message is hopelessly garbled.

The original message? "Seven people from the customer service department are going to get 5 1/2 percent raises in two months."

By the time the program started, the message had traveled less than half way around the room. Its translation? "There's a contest and we're going to get 10 percent."

Like the rumors circulating around your company, it makes little sense, but that doesn't stop them from propagating as quickly as the I Love You e-mail virus and creating as much damage. Here are four scenarios companies face every day and what the experts say can be done about them.

The neighbor

Your next-door neighbor of several years works as an engineer at your company. Your kids go to school with his kids, you attend neighborhood picnics together and your spouses golf together on the weekends. During the last couple of days, word has spread about your company losing a major government contract and rumors have been circulating about a possible downsizing.

After work one day, your neighbor comes across the lawn and begins grilling you about the possibility of losing his job. What do you say?

"I'll listen," says Kay.

While sometimes just letting someone vent is enough of an issue, Kay says, "It's not appropriate to comment on the matter." The problem an employee faces in this situation is fear of the unknown.

"It's about power and empowerment of individuals," she says.

Practical tips

  • Think before you speak. It's OK to pause and collect your thoughts before responding. Don't feel compelled to answer immediately with a response you may regret later.

  • Acknowledge the emotion involved. Remember, your employees are people, too.

  • When you don't know, say you don't know.

  • Don't lie. It may come back to haunt you. If the truth is unacceptable, keep your response simple and vague.

The relative

It's springtime -- time to take advantage of the student employee population to get some landscaping done around the company grounds. You have several qualified applicants who have some great experience. However, your CEO approaches you with the idea of not just interviewing -- but hiring -- his nephew for the job.

You've worked at the company for a long time and you know this kid. He has a reputation as a huge troublemaker and you know he's never done a drop of yard work in his life. You've got all these other qualified applicants. Do you hire him?

Rice suggests saying the youth would be put through the same process as the other candidates. If the company holds to its values and ethics, it shouldn't be a problem.

Tusek agrees. As an HR professional, you have a responsibility to be frank and honest with the CEO, he says.

At that moment, a voice from the audience illustrated the frustration, and perhaps a bit of the real life situation at many companies with, "That kid's hired in my world."

Recognizing that the directive of the CEO can be much more than a "suggestion," Roberts suggests trying to find room in the budget to hire two candidates, the nephew and the applicant who truly deserves the position.

Practical tips

  • Recognize that one of the most crucial aspects of your job is professionalism. Practice it every day.

  • Recognize when you're in over your head. Utilize other resources when appropriate, such as legal counsel.

The manager

Morale is low in the accounting department. Several employees have been e-mailing back and forth with biting remarks about the department manager. One of these communications gets inadvertently e-mailed to the department manager himself.

He reads it and sends a copy to you, demanding that you fire all these people immediately. What kind of suggestions do you give the department manager about how to handle the situation?

The first thing that needs to be done is to neutralize the situation, Tusek says. A group meeting or some training might be in order.

Rice suggests sitting down the with supervisor and trying to get the individual to look at it as an opportunity for learning more about what his or her workers need. Putting it a little more colorfully she said, "In a pile of (crap), there's a pony in there somewhere."

Roberts also suggests making sure the company has standards for e-mail and Internet use and enforcing those rules.

Practical tips

  • Write out a script for the communication.

  • Practice the script several times in front of a mirror (at home, not at work).

The firing

Here comes the most dreaded part of your job. You have to terminate an employee for poor performance. It's Wednesday afternoon. You have a couple of choices about when to do this. Should you do it immediately to give the employee a couple of business days left in the week to start a job search? Or do you wait until Friday so the employee has time to "digest" what's happened?

"Be sure it's what you want to do," Kay says. "Wednesday is a better day because employees will need to ask questions. You need to be available."

Make sure you treat the employee with dignity, Tusek says.

Roberts agrees, suggesting that you tell the employee so that he or she can leave for lunch and just not come back to collect personal items until a prearranged time later in the day after everyone has gone home.

"If you're terminating an employee for poor performance, it better not be a surprise," Rice says.

Practical tips

Create a checklist:

  • What do you want to accomplish with your message?

  • What are the possible outcomes and reactions?

  • Whom will it impact?

  • What is the timing of the communication?
How to reach: Employers Resource Council, (216) 696-3636; NetGenics Inc., (216) 861-4007; United Way Services, (216) 436-2100; Marine Mechanical Corp., (216) 692-6300

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:34

Clicks and temporary bricks

It was a cold winter day in January when Stu Fishman and R.K. Khosla laid out plans for their next business.

The pair, who worked together in Fishman's last venture, toy retailer All Wound Up, kept of a log of ideas from which they intended to make their next millions. As they met, they considered which of those possibilities -- jotted down over the years -- made sense to pursue.

"Stuart and I were arguing," recalls Khosla. "He liked three of the 32 and I liked three of the 32, but there was no overlap. As we were explaining to each other what we liked about the ideas, this idea really came down between us and sat down on the table and said, 'I'm here. I'm the one.'

"We looked at each other and said, 'OK, we'll break for 24 hours, because this one seems too obvious, because it incorporates the skill sets that we've learned and it's in an area which is a very large market and fragmented.'"

The idea that evolved, No. 33, was to create a Web site that sold high-quality furniture at prices well below what any ordinary retailer could offer, while at the same time still giving customers an opportunity to sit on and touch the merchandise.

"It's really the convergence of standard retailing and Internet retailing in the most cost effective manner," Khosla says of the company, OneWorld2U.com.

In the process, co-founders Fishman and Khosla developed a new e-business model. Recognizing that the Internet creates a cheaper, faster and more efficient operation, they routed all orders through that medium.

And by setting up temporary showrooms at two-week intervals at cities around the country, where people can view the furniture they are buying online, Fishman and Khosla avoided the huge overhead normally associated with running bricks-and-mortar retail operations. As Khosla says, they are now in the business of "clicks and temporary bricks."

They launched their first showroom on July 29 in Cleveland at Tower City Center. This month, they are scheduled to set up shop in Schaumberg, Ill., and will bring the showroom to Columbus City Center beginning Dec. 2.

The business model

In the mad rush to turn the Internet into their business gold mine, many entrepreneurs forget one basic tenet: A business is expected to turn a profit. With very few exceptions, the only companies able to make a financially successful foray into e-commerce are those with solid bricks-and-mortar histories.

Fishman and Khosla think they can join that select group. Apparently, so do others. Before they ever launched a site, the model received validation. The initial round of capital was oversubscribed. And those who were able to get in early include some pretty heavy hitters.

"You've got the absolute best horse you could probably ride to this kind of party," says Boake Sells, former CEO of Revco Drug Stores and COO of Dayton Hudson [now Target].

Sells is an investor in OneWorld2U and previously held a stake in All Wound Up.

The OneWorld2U site offers, direct from the factories, hundreds of pieces of furniture made around the world. By eliminating the middleman markups, they can offer furniture at rates far below those of other retailers with whom they compete.

In fact, they expect the cost of their merchandise "to end up somewhere around 42 to 45 percent of discounted retail in a typical store," Fishman says. "So if something in a typical store [retails for] $1,000 and they say their price is $800, we're going to shoot to be 42 to 45 percent of that $800.

"One of our real concerns is that most people [think] when a deal seems too good to be true, it usually is," Fishman says.

That was the reasoning behind the Temporary Internet Mobile Showroom. The ability to see and feel the value is key.

"The way we look at it is that it is just a more efficient business model," Khosla says. "If our consumers are given the opportunity to understand the business model, they will understand what the brand is. The brand is the business model. Get it at the factory, use third party inspection, check the hell out of it, make sure it's of the quality level that we want and ship it directly to the consumer. It's a very efficient model."

The ability to effectively set up and market a temporary showroom is a skill Fishman and Khosla learned at All Wound Up, which in most markets is only open during the Christmas selling season. The stores would be quickly opened and closed as needed.

"Those are the two things [retailers] hate," Khosla says. "That's what we've done for the last five years is open and shut down stores. That's really what these Temporary Internet Mobile Showrooms are."

They believe the skill set is so unique that they've followed in the footsteps of Amazon.com with its one-click technology and applied for a business process patent on the Temporary Internet Mobile Showroom concept.

Learning from the past

Fishman lives for start-ups. It's a knot in his stomach fueled half by nerves and half by adrenaline.

It's that drive that led him to build All Wound Up into a national chain for which he gained recognition as an Ernst & Young Entrepreneur Of The Year before selling the company to Border's Books & Music.

"This is what I love doing," Fishman says. "What we're doing here today is the biggest kick because you envision something, you dream it and then you have to make it happen. It's scary. It's a little bit like riding a roller coaster. There are so many ups and downs and so many thrills.

"To me, starting up a business is the most creative process around. Everything is always changing, evolving. It's sort of like trying to get your arms around a giant amoeba; it's always changing shapes on you and you've got to run with the flow. It's intense. You get to make so many decisions that are going to really affect the future. That's really why it's so much fun."

It's also the reason Fishman left his position at Border's to start OneWorld2U with Khosla.

The business model is simple to understand yet difficult to execute. Fishman and Khosla were able to work back through the layers of middlemen: retailers, distributors, warehouses, importers and exporters that mark up the price of a product before it gets to the consumer.

It hasn't been easy to peel back the layers.

"For a while there, for a few years, it seems that every time we were up the river, we found out there's one more layer -- there's one more layer," Khosla says.

It took more than four years, and visits to countries around the world, for the pair to learn the process.

"We've been in towns that are so small it's shocking," Fishman says. "We've flown into cities and then have had to take little commuter planes back into the boondocks, and then, on this one particular trip, we took a 75-kilometer [46.5 miles] car ride that took us four hours.

"The reason it took us so long is because the road looked like it had been through a world war."

The result

"The real goal behind this is to develop a brand, a true Internet brand where when people think of OneWorld2U, they think of high quality, expensive goods that they pay rock-bottom prices for," Fishman says. "If we can really establish that brand, we'll have a huge operation here."

Fishman's optimism is well-founded. There is huge opportunity in the $201 billion fragmented furniture market industry for someone who can become a dominant player online.

"And we knew if we were going to work as hard as we were, we wanted to do something with a big vision," Fishman says. "We had lots of little ideas that would have been $10 [million] or $20 [million] or $50 million business, not that there's anything wrong with that, but we both wanted a shot at a brass ring.

"Neither one of us was born particularly lucky. We knew that we wouldn't be the people to take a company public, which is running $15 million in losses and have a $5 billion valuation. We figured by the time we got to market, we'd need to have a rock-solid business model." How to reach: OneWorld2U.com, www.oneworld2u.com

Dan Jacobs (djacobs@sbnnet.com) is a senior editor with SBN Cleveland.

Monday, 22 July 2002 09:34

The trade brigade

The members of your top management breathe a sigh of relief as they report the company has finally saturated the market -- you've reached every potential client.

They're wrong.

You may be reaching less than 5 percent of your potential customers, says Marjory E. Searing, acting assistant secretary and director general of the U.S. Commercial Service, part of the International Trade Administration.

"If you're going to survive in this global market, you've got to be competing internationally," she says. "It's a hard sale right now because the U.S. economy is doing so well. A lot of companies have more than enough business just by selling within their borders. But, the U.S. economy isn't always going to be what it is today, and 96 percent of the world's consumers are not in the United States."

Searing's immediate focus is on China -- a country she admits isn't among the most wealthy but which has huge potential with 1 billion people, 20 percent of the world's population.

"We're working hard to get companies that wouldn't necessarily think in terms of the export market to take a look," she says.

Here's why.

Take the plunge

The domestic market has matured and competition has slowly eroded your client base. You are ready to explore export, but you haven't a clue how to get started. This is one area where the government can help.

"We have an organization located in Cleveland, the U.S. Export Assistance Center, funded by the Commerce Department," Searing says. "We provide an opportunity for companies to link directly with some of our resources abroad."

Those resources include 60 people in China whose job it is to help American companies succeed.

The Commercial Service has a number of programs to help business owners learn more about exporting, including a virtual trade mission. Through the program, companies can demonstrate their products online. Several companies which have never been to China haven gotten hits and leads in that country with this program.

"Our biggest challenge is to get people to know it's there," she says. "China is not for the feint of heart. It's still a tough market."

Because of the difficulties, Searing doesn't recommend new exporters tackle Asia immediately.

"We have a program that we call Canada First," she says. "That's a great place to export and learn what you've got to have to successfully ship a product across a border. You can build on that."

Searing knows her efforts will take time. With a good economy and seminars that reach companies only 50 at a time, it will be a while before a significant number of businesses export. But, the agency has had an impact -- supporting $14 billion in exports, with much of that coming from companies doing $50,000 a year in cross-border sales.

Quick tips

Searing says there are four key components to any export plan.

1. Do your homework

The rules usually are not the same. Review laws to help sell your product and protect your investment. Some countries don't respect intellectual property rights as much as the United States.

2. Provide a product that meets specifications and interests of consumers in each country.

For example, Europeans prefer wood houses. Know who you are selling to and what they want.

3. Be strategic.

Business owners need to take it one step at a time. Don't pursue multiple markets at once. As Searing puts it, you need to "get your sea legs."

4. Don't ignore the obvious.

Just as in the States, customer service is important. Translate your product literature into the language of the country in which you plan to do business. Consider redesigning your product to fit your new customers' needs and desires. Searing suggests visiting www.usatrade.gov to learn more. How to reach: International Trade Administration U.S. Department of Commerce, www.ita.doc.gov or (800) USA-TRADE.

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Friday, 19 July 2002 05:50

The best lessons you can't buy

Most owners would be satisfied to be the largest seller of PCs to consumers, the largest seller of music and electronics and the third largest seller of major appliances in the United States.

But Dick Schulze, CEO of Best Buy Co. Inc., is concerned.

With more than 350 stores in 39 states and 75,000 employees, Schulze can reach 66 percent of U.S. consumers. Best Buy has averaged 35 percent annual sales growth and 50 percent earnings growth for a decade.

Still, Schulze -- who was named the 1999 National Entrepreneur Of The Year by Ernst & Young LLP -- plans to reinvent his operation. Schulze has developed a company that has mastered the moving of merchandise. But to become a success, Best Buy must transform into an infomediary.

The formula for success is simple: Combine an internally prepared culture with externally focused action. An internally prepared culture means that every one of the 75,000 employees has a shared vision, shared values, an entrepreneurial atmosphere and flexibility.

Vision and values

Customers, says Schulze, want total solutions. The key, he says, is to deliver on that vision in the store, on the Web and in the home. The basics are easy -- honesty and integrity. But the company must also display unwavering ethics.

Discussing vision and values is only one step in the process. The message must filter down to the employees on the floor, as well. That means getting them to understand the entrepreneurial thought process.

"We need leaders that are flexible and ready to reinvent at the drop of the hat," he says.

As one example, the company has experimented with four different floor plans in the past 10 years.

Maintain innovation

It might seem that in the world of big box retail, price is the most important factor. But to maintain its advantage, Schulze argues the company needs to develop an "entrepreneurial operating environment."

To do so, management must remove barriers to action, which leads to building talent. From there, employees are able to look outside the box. This leads to a continuously innovative organization, which Schulze says provides a competitive advantage.

"Our company anticipates what it needs to do in order to win."

Anticipation led to Best Buy's Web site design.

"We intend to pioneer e-commerce, and we believe the Internet business we're launching today does just that," a note on the site says. "Up until now, e-commerce sites have lagged behind consumer demand. We believe BestBuy.com is the first to fully anticipate what the consumer will want. We wanted to ensure a seamless shopping experience at launch time by providing consumers with total interaction between channels.

"By delivering a fun, easy-to-use Internet business, we are able to exceed consumers' expectations."

Talking about execution is one thing. Getting it done, Schulze knows, is another. Best Buy will cope with the coming changes by building partnerships with suppliers and customers, becoming an infomediary instead of an intermediary, providing total solutions for customers and untethering the brand, he says. It's a union of devices, applications, content and connectivity.

Simply put, Schulze says the goal is to "meet customers at the intersection of technology and life." How to reach: Best Buy Co. Inc., www.bestbuy.com

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN Magazine.

Friday, 24 November 2006 19:00

Something to crow about

When Mark Hildebrand took control of Crowe Chizek and Co. LLC in 1999, he faced the challenge of trying to make sure the 64-year-old accounting and consulting firm didn’t become just another company in a crowded competitive landscape.

The market was looking for alternatives to the Big Four accounting firms, and Hildebrand wanted to make sure Crowe Chizek stood out. “If our products and services stay the same, then they will quickly become commodities,” says Hildebrand, Crowe Chizek’s CEO. “The price will go down, and we will not enjoy making the returns on our investments that we want. We have to constantly be looking at change in the market and understand that change. Our ability to adapt to that change is directly related to us getting the kind of return we want on our business.”

For 40 years, the company had chugged along quite nicely, averaging 18 percent compound growth, but Hildebrand recognized the company’s structure prevented it from taking advantage of changes in the marketplace and could put an end to that prosperity. “Clients were looking for more thought leadership, richer solutions (and) the model wasn’t going to get us there,” Hildebrand says.

If Crowe Chizek wanted to keep growing, it had to change to react to the new demands of the marketplace. So Hildebrand created a new structure for Crowe Chizek that would allow it to fully take advantage of the company’s assets and utilize its resources more effectively.

Providing the foundation
Any reorganizing had to be accompanied by the codification of the company’s culture and values to define what Crowe Chizek is and what its purpose is. “Once you know who you are and what’s important to you, then you can make decisions on what direction you want to go,” Hildebrand says. “Our organizational structure and our strategy change all the time. You’ve got to be grounded. You’ve got to know who you are and what is important to you. In the service business, you hire smart people, and they’ve got to feel that connection.”

It was particularly important for Hildebrand to focus on the values while he was changing the business structure. The changes were taking place as the technology bubble was bursting, and it would have been very easy for the company to stray from its business model.

Defining the values and making sure everyone considered them when they made choices prevented the company from making poor business decisions. “We were getting a lot of pressure from the markets, staff and clients to do some pretty crazy stuff — invest in certain types of businesses and do service for free (in exchange) for equity — all kinds of stuff,” Hildebrand says. “It was just a crazy time. My COO and I sat down just after we’d taken over. We just said, ‘You know, we really have to go back and fundamentally understand who we are.’ “We embarked on a process to really articulate what our core purpose is, what our values are and what our management philosophy was. We went back to our founding partners and we interviewed them. We interviewed some key partners that had been there awhile. We interviewed some key staff, and we came back and basically codified the essence of the values, the core purpose and the management philosophy within the firm.”

Hildebrand and his top managers developed 21 values, which Crowe Chizek summarizes as, “We care, we share, we invest and we grow.”

Those values are now used to help make decisions within the company. “When we articulated that to our people, they related to it at more of an emotional level,” Hildebrand says.

He constantly preaches the company’s culture and values, whether to new recruits or to veteran employees at the annual state-of-the-firm meeting. “People in this business work hard,” he says. “There has to be something more than a financial reward. People are motivated by a purpose.”

He also needed a way to measure progress and hold people accountable for the values the company adopted. While values can be hard to measure, Crowe Chizek employs a couple of surveys to gauge whether the company is hitting the marks it has set.

A third-party firm conducts a survey called the Secure Customer Index. It asks customers to assign a score to Crowe Chizek on a number of questions, including: Were they satisfied? Would they use Crowe Chizek again? Would they recommend the company to someone else? “If they give us top (score) in all three of those, the research shows they’re highly secure,” Hildebrand says. “We measure that every year. We publish that to our people and anybody that wants to see it. It’s not something we can influence other than by our behavior every day. “If we have a very low secure client rating, the stability of our business isn’t very good. We have close to 50 percent of clients that are highly secure. That’s a pretty high number. A number of clients would give us a four, so when you add up the 4s and the 5s, it’s quite high. We’re saying our goal is getting as many of them as possible to give us a 5 in all three of those categories.”

In addition to the annual survey, every time Crowe Chizek completes a project, the client is asked to fill out a Web-based survey. The long-term and immediate responses help Hildebrand know whether the company is staying focused on its values. “It’s important to us to know, is our client base secure, and are we doing the right things to improve that security?” Hildebrand says. “Building that long-term relationship with the client is real important to our business.”

Changing the way things are done
For years, Crowe Chizek — which has offices in eight states — was run on a geographic basis, with each office handling local clients. The leaders in various offices each created and offered new products and services for those clients, and while Hildebrand appreciated their initiative, the approach led to waste and duplication.

Hildebrand spent six months talking with leaders in Crowe Chizek offices around the country to figure out a better way to operate. “You’ve got to look at and understand where business is coming from and where you’re losing business,” he says. “What are the things that caused you to win the business? How are you positioned versus your competition? “Those are all things that have got to get funneled up at some point. You (need to) be able to sense. Am I in the right market position or not? Am I responding to those changes? Do I understand where that real value is going, and am I positioned to take advantage of it?’ It’s a lot of different sources that you have to look at.”

Hildebrand talked with a number of the firm’s clients to find out what their needs were. “Clients were looking for more thought leadership and richer solutions,” Hildebrand says. “The geographic model wasn’t going to get us there.”

In addition, Hildebrand made sure his top leaders were talking with their frontline people. “Our managing executives of each business unit have weekly sales meetings,” he says. “They talk about the business that we’re going after and how we position ourselves to get it, what business we lost and why we lost it. That’s where a lot of that happens.”

Those in direct contact with the customer are in the best position to understand when there is a need for change. “The people that are out there on the frontlines are dealing with clients every day,” Hildebrand says. “People that are selling, people that are delivering — a lot of different sources you have to listen to to make sure that we’re still relevant. That’s the art of it rather than the science. It is staying close to those things and being able to sense a pattern.”

After analyzing the data, Hildebrand moved the company from its geographic focus to one that could better serve its clients’ needs, which were identified during the process. “I instigated what I call strategic business units, which are more along lines of industry or functional specialties,” he says. “Organizations evolve. ... It all comes from the market. If you stay market-focused, you can see where the opportunities are in the market. If you look closely enough, you can see the pressures and changes that are being put on an organization and you can start to see how that organization needs to change. “It’s helped us get the right resources to the market and find the opportunities and to prevent the parochial behavior that develops when you’re more geographically focused.”

Getting buy-in
Changing how a 64-year-old firm did business was not an easy task.

Hildebrand knew that a successful reorganization required getting top managers to accept the changes. Involving them in the discussions helped, but Hildebrand also made sure he was sensitive to their concerns.

While many took to the change right away, others were slower to respond. “Our partners consult and work with their clients every day, so they have a lot of business knowledge,” Hildebrand says. “They have their own ideas about how to do things. It’s a very healthy and open environment. Those environments can be difficult at times to change. “You want to be empathetic, [but] there’s a point where you actually start to indulge people. It’s great when people dialogue and disagree on things, as long as they’re bringing forward suggestions on how we can constantly improve.”

If they’re resisting simply because they don’t like change, that’s when the CEO must step in. “You have people that just don’t want to change, and they don’t have any good suggestions for how to improve it,” Hildebrand says. “At some point, you’ve got to say, ‘I’ve been fair here. I’ve listened, but you’re not providing any solutions, so this is the direction we’re going.’”

Getting buy-in throughout the rest of the company wasn’t as hard as he thought. “When they saw it and understood it, they said, ‘Yeah, this is the right way to do it,’” Hildebrand says. “When you’ve got smart people and they see something they believe is right, they adopt it. People gravitated to it.”

Even so, Hildebrand takes every chance he can to reinforce the changes. “Every opportunity you have, from face-to-face, to newsletters, to e-mails to state-of-the-firm meetings — whatever communication vehicle you use — you’ve got to use it to reinforce those things,” he says.

Hildebrand meets regularly with the heads of each of the business lines and the company also conducts a yearly employee survey to gauge employee satisfaction. “We look at specifically the kinds of things we need to do on a firmwide basis to address firmwide issues that might come up from those surveys,” Hildebrand says.

Surveying customers and employees is not a new concept, but Crowe Chizek takes it one step further and publishes that data for anyone who wants to see it. “In the future, you are going to see businesses need to start to change the annual reporting that they do,” Hildebrand says. “They’re going to have to provide more information on the value to their customers, the security of their customer bases and the security or the engagement of their people. “I don’t see many businesses doing that today. I hope over time we will see the reporting model evolve. I’m pretty proud of it. We’re willing to put that out there, and we’re willing to live by it. It has a very profound impact on our people. They know we’re open about it and not afraid to deal with it. They respect us for that.”

Under Hildebrand’s leadership as CEO, the firm has experienced 190 percent revenue growth. For fiscal year 2006, which ended March 31, the company posted $423 million in net revenue. When Hildebrand became CEO of the company in fiscal year 1999, the revenue was $144.6 million. “It’s really critical that a CEO or anybody running a business makes sure that their business stays relevant with the changes of the market,” Hildebrand says. “And the market is changing faster than it ever has.”

HOW TO REACH: Crowe Chizek and Co. LLC, www.crowechizek.com

Saturday, 28 October 2006 20:00

Building blocks

 One of the more important business lessons a young Harold Skillman ever learned came from his next-door neighbor.

He “was an executive for a pharmaceutical company here in Indianapolis,” says Skillman, chairman and CEO of The Skillman Corp. “He had a good job. He was the most ornery son-of-a-bitch I ever saw in my life. I asked him one day, ‘Bob, what’s your problem?’

“He said, ‘I hate my boss; I hate my job.’

“Why don’t you leave? Life’s too short.’

“The compensation package is too good. I can’t go anywhere else and make the kind of money I’m making.”

At that moment, Skillman knew that was no way to live a life or run a business.

“It had to reflect in his job,” he says. “It reflected in his family relationship, his neighbor relationship.”

Skillman didn’t want employees who were miserable and felt trapped in a job they couldn’t leave. So he created a working environment that both he and his employees could enjoy while still being successful.

It’s one example of how he sets priorities to grow his company; his other keys to growth are communication and building relationships. Using these keys, he has built the company from nothing into one that provides about $300 million a year in administration and construction management services.

“If you don’t think in terms of growth, you go backwards,” he says. “When you get complacent, you feel like you’ve got everything going for you, and you don’t have to do anything else. The next thing you know, you’re losing market share, you’re losing people, you’re losing enthusiasm.”

Setting priorities
From his first day running a business, Skillman was aware that the company could take over his life if he let it.

“Your business becomes your mistress,” he says. “It’s hard.”

Skillman maintained that delicate balance by devoting himself to the business during the week, but weekends belonged to his young family.

“You have to establish priorities in your life of what is important to you,” Skillman says.

Working weeknights was part of his job, but the work didn’t spill over into the weekend.

“I didn’t go play golf with the boys; I didn’t go fishing with the boys,” he says. “I spent my time with my family. That was what was most important to me.”

What made it easier was having a sounding board, a peer who understood what he was going through and could offer advice, or at least empathy. When Skillman started, that peer didn’t exist because his company basically pioneered the construction management services industry. So he found a substitute.

“My wife was the greatest sounding board I’ve ever had in my life,” he says. “Our corporate success today, I link 50 percent to her or more.”

Wanting to save others from facing the same problems he did early on, Skillman became a charter member of the Construction Management Association of America when it was developed in 1982.

“I just felt like it was great to have somebody you could talk to that shared the same problems, shared the same experiences, and that was part of the reason for doing it,” he says. “At the same time, we were trying to build some support for some legislation that we needed to get passed. It’s much easier to do it with a group of people than one firm. If you’re doing it as an organization, you have a little more clout than as one corporate entity.”

Communication
For Skillman, everything begins with communication. If the company is going to grow, everyone must be working from the same script.

“It starts at the top,” Skillman says. “You communicate that to your management team all the way down. Over the years, I’ve tried to project that to the guys below, personally going out (into the field) at times.”

Several times a year, Skillman or one of his senior managers visits each of the company’s five outlying divisions to convey and reinforce the company vision.

“We do quarterly site manager meetings in our regions,” he says. “I push very strongly, because I think it’s very important for our senior management to participate in those meetings and take our stories again and again and again and again and again back to (workers) and talk to them about it.”

Skillman also uses those meetings to find out what’s on the minds of his employees.

“The communication needs to go down as well as it needs to come back up, so you know what people are thinking,” Skillman says. “We go to those meetings with the idea that we’re going try to give them as much information as we think they need to have to do a great job. (We talk) about where the company is going, what the marketing plan is, about our long-term plan, what we see in the marketplace. At the same time, we want input back from those people about what their concerns and wants and needs are.”

That two-way communication isn’t always easy.

“Sometimes it’s real difficult to get people to talk,” Skillman says. “One of the things we’ve instilled is an open door policy. I’ve had it ever since we started the company. No matter who you are, I don’t care what your position is, if you don’t think you can talk to your superior and get something (resolved), my door is always open. That doesn’t mean I’m going to do what you want. It only means I’m going to listen to what you say.

“I get letters from people who felt like they were treated unfairly. As a result of that, I set an appointment, they come in, and we talk about it or I go visit them and we talk about it.”

Whether it is delivering the message to employees or listening to their concerns, communication is a constant struggle for any executive team faces. And it’s something Skillman refuses to allow himself to be lazy about.

“Communication is the greatest tool in the world, and you’ve got to keep doing it,” he says. “It’s hard work. It’s real easy to say, ‘We did that.’ You’ve got to keep doing it on some kind of a periodic basis, all the time.”

Building relationships
Skillman never wants his employees going home at the end of the day unhappy, and he certainly doesn’t want a poor attitude conveyed to customers. As a result, building relationships with employees and customers has been key to his success.

“You’ve got to treat people the same way you want to be treated,” he says. “That’s the way I’ve always looked at it.”

Skillman can express that message to his managers, but it takes the right kind of person to be able to deliver it.

‘I think subjectivity plays a big role in that,” he says. “You look at people as best as you can. (You look for) someone who has the same kind of philosophies you do, treats people the same way you do. You know you’re never going to find anybody perfect. Our company started out with one person, me. It’s grown to a company doing in excess of $300 million of construction a year in 34 years. And we’ve done it with people. People made the company.

“I look for quality people who can delegate, who can look to people and treat them fairly, who have an understanding of our business.”

But no matter how good the people are, they will make mistakes.

“Everybody has subjectivity,” Skillman says. “If a guy’s got 40 site managers working for him and 10 project managers, they’re not all going to be treated equally. I know that. Somebody may get their feathers ruffled at times.”

But it’s not just the relationships among employees that Skillman worries about. One of the reasons he wants his people treated fairly is so they will treat customers well and strengthen that bond.

“We don’t build buildings,” Skillman says. “We build relationships, and as a result of those relationships, we build buildings. We try to emphasize that all the way down the line to our site people. We think our site people are the greatest marketers for our next project, because they are keeping our clients happy today.”

Relationships lead to repeat business, a key driver to Skillman’s long-term growth.

“If you look at our present workload, probably 70 percent of our business is repeat business,” Skillman says.

Happy customers require less of a sales job because they’re more comfortable with the company.

“The best salesman you can have is a happy client,” Skillman says. “He talks to his peer groups in their conferences and meetings, over the lunch table, wherever it might be. Somebody says, ‘I’m getting ready to build a building. Who should I talk to?’ and (the Skillman client) says, ‘We’re using Skillman,. We think they’re the greatest in the world.’ I can’t put enough marketing people in the street. That’s why it’s so important.”

And sometimes, building relationships means saying no.

“We did that with one of our clients,” Skillman says. “Eli Lilly came to us and they had two projects. Between the two, it was something like $36 million worth of work. They came to us and said, ‘We want this person, this person, this person and this person for these two jobs.”

If Skillman agreed to the request, the job was his.

“We came back and looked at the people they demanded,” he says. “They were all tied up for that period of time on other projects. We went back to them and said, ‘The people you want are not available, and we will not pull them off in the middle of a project. That’s not fair to that other client. If you’ll consider some other people, we’re very interested. If not, we’ll have to pass.’”

Skillman walked away without the job, but he gained something in the process.

“We built a lot of credibility with them by doing that,” Skillman says. “But you never know what the reaction is going to be. That’s the kind of decision you make in top management as a CEO. You hang your corporate reputation on the line.”

HOW TO REACH: The Skillman Corp. (317) 783-6151 or www.skillman.com