Daniel G. Jacobs

Tuesday, 24 October 2006 20:00

Errol Ginsberg

 For Errol Ginsberg, maintaining the culture of a company with more than 700 employees worldwide — particularly in the rapidly growing technology industry — is a particular challenge. It’s not an easy task, but you might expect a creative response from the president and CEO of Ixia, who named his company for a flower from his native South Africa. One way Ginsberg he maintains the culture and makes sure employees stay focused and engaged is by showcasing their creativity on the company’s Web site, which features employee photos taken both on their travels and in their backyards.

His dedication to maintaining the company culture has paid off. Ixia, a provider of performance test systems to IP-based infrastructure and services, has gone from start-up to $159 million in revenue in less than a decade.

Smart Business spoke with Ginsberg about the importance of trusting your gut, being flexible and knowing when to give up some of the control of your company.

Focus on what you know.
You’ve got to have a very clear, singular focus with very clear goals of what you are trying to achieve, build, sell, etc. That has to be very, very clear, very simple. You have to go after that in an unwavering way.

As an entrepreneur, you’re going to encounter all kinds of things where people will try to dislodge you or discourage you. If you have a good vision and a good focus, then you can stick with it. Then you can succeed.

Move to new areas carefully.
Ideally, there will be somebody who is intimate with whatever that opportunity is, who can help brief us on it. You get together and review it and try to come to a consensus about pursuing that opportunity.

There’s a fair element of gut feel on these things. You can do some analysis, try to understand the market opportunity, but a lot of these things don’t have that kind of data available. You have to ask enough questions, and at some point, you make a decision. A lot of times it’s based on prior experience, which is really instinctive, gut feel.

Act sooner, not later.
You don’t always realize you have a problem until it’s gone on for a while. They become the bottleneck for the company.

They want to be involved in every decision, every meeting. They work 24 hours a day, and it’s still not enough time. They stifle the company’s growth.

You kind of know it when you’re having problems. If you’re smart enough, you hire people before you have those problems. You think you’re doing OK, but you’re missing deadlines on releases. Maybe the quality of your product isn’t where it should be. You realize this isn’t working very well.

Find natural leaders.
A person may have been a very good technical person, was promoted to a position of management and failed miserably because they may do a poor job managing. It could be because you didn’t give him the right skills or, perhaps, he just can’t get the respect of the people, and the people don’t want to follow that person.

If people don’t believe in what you are saying and what you are telling them, then you can’t lead anybody. They have to believe in you to listen to you and follow you. Otherwise, they are going to go around you.

Make smart hiring decisions.
At the end of the day, you want to be careful about who you hire. You want to hire the best people you can find, the smartest people you can find, and you don’t want to make a mistake — not just for the company but also for that person. That person could be quitting another job, and if we end up with the wrong hire, it messes us up, but it messes that person up, too. He’s in the wrong job; it’s a mess for everybody.

Be willing to change direction.
A company may run into difficulties along the way — market issues, product issues. The first thing is to recognize that change is needed. Once you know that, you have to galvanize people, explain the problem and set a goal that you can get people to believe in and then execute.

Change is not always about building another product. Change can be somewhere within the company. You may have organizational issues, and you may have to deal with them. Acting on them quickly is a difficult thing.

Sometimes you may have people that you’ve worked with for years, and you start to realize that the company is outgrowing them. You have to make a change. That’s a difficult thing to do.

Insist that employees use new systems.
You start off by saying we’d like to do this and use the system, then we gave everybody training on the system. You can’t just say, ‘Here’s the system, go use it,’ even though it’s relatively straightforward to use.

We trained the folks on it. It still wasn’t effective. What we had do is say then, was, ‘You will use this system.’ At some point you have to be kind of forceful about it. This is now an integral part of how we run this company.

Once people started to understand, they weren’t just entering things into a database that nobody cared about, they started to take it seriously.

Track sales.
From a sales standpoint, we’ve actually done quite a lot. We have a much more rigorous system for tracking sales opportunity. We put in Salesforce.com about two years ago. We have gotten very effective in terms of how we use it.

They don’t like to be monitored in any way whatsoever. That’s why they become salespeople. They want that freedom of going about their day.

We don’t try to monitor their day, but we do need to know what kind of opportunities they’re working on.

HOW TO REACH: Ixia, (877) 367-4942 or www.ixiacom.com

Thursday, 21 September 2006 20:00

A healthy bottom line

Marc Stefanski keeps an eye on the health of his company’s bottom line, but the chairman and CEO of Third Federal Savings and Loan is also concerned with the health of his employees.

The company introduced its Commit to Fit program in March with the goal of keeping insurance costs down and health and morale up.

“If people are healthier, and usage of the insurance plans and programs are lower, logically, it’s going to keep health care costs down,” Stefanski says.

It’s already had an effect on employee health. Three months into the program, three employees who joined the smoking cessation part of the program had their blood pressure medication reduced and the third was off medication entirely.

Employees can earn up to $1,000 if they quit smoking for a year, with the money paid out in increasing amounts every three months that they’re smoke-free. About 8 percent of Third Federal’s employees have joined the smoking cessation program, which accounts for most of the smokers.

But the Commit to Fit program tackles worker health from a lifestyle standpoint, as well. Employees earn points for everything from getting a flu shot to participating in walk/run races around town. They can even earn points for bringing a healthy dish to one of the company’s potluck events.

As the point totals grow and employees get healthier, their wallets and purses get fatter. As with the smoking program, employees can earn up to $1,000 for their participation.

The results benefit Third Federal far beyond just saving money on insurance premiums.

“The fact that we’re showing an interest in one’s personal health here, we think people are going to think more of the company, more of Third Federal in general,” Stefanski says. “They can and will be more productive because management cares about them. We really do care about our associates.”

A healthier work force has been a long-standing goal at Third Federal. For several years, it has provided smoking cessation programs and workout rooms, as well as a number of other programs to help employees improve their health.

“This is not new to Third Federal,” Stefanski says. “This more recent go at it is more comprehensive and has been more effective than any other plan we’ve had before. Since 1987, annually we’ve had fun runs and walks. We published a recipe book for healthy eating that the associates contributed to. We’ve even sponsored onsite Jazzercise, when that was popular in the late ’80s and early ’90s.

What makes this program different is the impetus. It wasn’t created from the top and handed down; instead, Stefanski handed the task for creating the program to a team of employees.

“One of the reasons why all this has come together pretty well, I actually handed this off to a group of associates that have been here for awhile,” Stefanski says. “The team has taken this concept a lot further than I ever thought it would go. It’s really, really having a huge impact on the entire company.”

That impact is twofold as employee health will continue to improve and the company’s financial health is also strengthened.

“We value what they do and how they do it,” Stefanski says. “Now we’re saying, ‘If you do more, you’re going to create a situation where you have better health, that’s going to benefit Third Federal in the long run in terms of health care costs, we’ll (give you incentives) for that.’”

HOW TO REACH: Third Federal Savings & Loan (888) 844-7333 or www.thirdfederal.com

Wednesday, 30 August 2006 10:14

Tough choices

Back when he was chairman, president and CEO of ALLETE Inc., David Gartzke knew it was his job to create value for shareholders.

The company was profitable, but after spending a year talking with shareholders, Gartzke knew that ALLETE’s business model was simply too complicated for investors to really see the value. About half of the business was focused on energy assets such as electric utilities and coal, while the other half was focused on automobile auctions.

“The tough decision was made to separate all the businesses,” he says. “One of (a public company’s) bottom lines is shareholder value in a public marketplace. That value was not being recognized. The sum of its parts was significantly less than what the parts would be standing alone.”

Gartzke then decided to leave ALLETE to take the helm of ADESA Inc., the automobile-related business that was spun off from the parent company.

The tough decisions didn’t stop there. While ADESA had a lot of growth potential, Gartzke had to unlock it.

“Nowadays, the challenge and the opportunity is growth of this company, to continue to create value and get it recognized in the marketplace as a freestanding company,” says Gartzke, chairman and CEO.

Gartzke has grown ADESA from 2002 revenue of $823 million to more than $969 million last year.

The key to growth is being able to make the difficult decisions. For Gartzke, this meant getting the right mix of people, improving the company’s communications and putting together an aggressive acquisition strategy.

Choosing people
Gartzke needed to put together the right management team to help him unlock ADESA’s full potential.

To be successful as a standalone public company, he knew he needed an additional skill set. The people already there were familiar with running the automobile auction operation, but what they didn’t have were the skills to deal with the financial and legal regulations related to being publicly traded. To fill the gap, he had to move some people out of roles they were no longer equipped to handle.

“The most important thing is people,” Gartzke says. “Management and motivating people are probably more important in terms of providing a successful future than even acquisitions. With that, we looked at the management team that we had (with ALLETE). I had to rethink the kind of people that this organization needed to be successful.

“I had to formulate a team that had a mix of individuals that were part of the management of this company before, with no public company experience, with people from the outside that had public company experience.”

Gartzke brought in a new chief financial officer, chief administrative officer and chief information officer and new accounting and legal teams. While experience, leadership and skills can be objectively analyzed, Gartzke learned that those qualities don’t automatically make those people into a smooth operating unit.

“You pull that team together and then expect them to be able to communicate with one another, be able to anticipate one another’s needs,” he says. “(That) was expecting too much.”

When that didn’t happen, Gartzke realized the lack of teamwork wasn’t intentional; it was simply a familiarity issue. Gartzke had a solution, but it meant spending valuable time and money on something other than running the company.

“What we should have done, once I formed the team, was spend a lot of time on cultural alignment with the top management team as opposed to putting the team together and then start focusing on, ‘OK, let’s manage the business; let’s make sure we hit our margins, hit our numbers, sell the vehicles,’” Gartzke says. “That stuff’s important, no question about it. But I made the mistake of assuming that people would learn to trust one another, learn to work with one another, and they don’t.

“It wasn’t that they didn’t like each other or didn’t trust each other, they just didn’t know each other.”

So, Gartzke forced the issue.

“You have to take one group at a time, off-site — this is a huge financial commitment, but you have to do it — to spend the time to get to know one another,” he says. “And you have to do it in a formal structured way. You don’t go to a golf course for three-and-a-half days. You spend very valuable time at a hotel talking about the company, talking about the company’s values, talking about the company’s strengths and weaknesses so you are internalizing all the things we know we need to do so that everybody gets a chance to discuss it.

“The best part of it is the interaction you have with the management team discussing those things.”

It starts with the top managers, but the truly difficult and expensive challenge is to weave it through the entire company.

Gartzke conducted the first retreat with 20 of the top managers, including several senior field people. But it didn’t stop there.

“The field people have to do it again with their management people,” he says. “The legal team needs to come together so they’re all talking about the same thing.”

And to be truly effective, these retreats must have different departments interacting.

“You have to combine management of the operations with sales and marketing people, with the corporate staff, so that everybody truly believes that we’re all on the same page,” Gartzke says. “If companies don’t do that, maybe they’ll be successful in the short term, but they certainly won’t in the long term.”

Gartzke says it’s a very time-consuming process, and it is not a one-time project.

“It’s my responsibility to make it a way of life,” he says. “We don’t stop doing this. I expect we will get together as a group periodically to reinforce this stuff. It’s a part of our annual reviews.”

Committing money to communication
Managers may make the decisions, but it is the company’s 11,000 workers who carry out the company’s vision. With that in mind, Gartzke decided to spend a good deal of time on communication issues and has invested a lot of money to make sure everyone has the technology tools they need to do their jobs.

It’s also about making sure they don’t forget the importance of human-to-human contact.

“The investment that this company and others have to make in technology is an eye-opening experience,” Gartzke says. “My principle responsibility, as the CEO of this company going forward, certainly includes strategy and acquisitions, but probably more important than that is communications. (That includes) communications with employees in the field as to why we’re doing these things, why it’s in their best interests.”

Gartzke also has to make sure that his sales team is communicating with the company’s customers to keep them informed about what ADESA has to offer.

ADESA’s customers are licensed franchises and independent wholesale auto dealers. When someone trades in a car, the dealer makes an offer on the trade-in, which typically comes after consulting with a wholesale broker. Those dealers often don’t understand the increased value an auction may bring them. Getting them to understand what ADESA can offer is the key.

“If we can educate these people to the economic opportunity that they’re losing by not pushing those cars to a back lot and instead remarketing them through an auction, that is our challenge, but it is also our opportunity,” Gartzke says. “We need information to do that. We need talented people who can communicate with these types of customers, with the information in such a way that these people would be willing to pilot with us to sell their vehicles.”

The only way the customer can be educated is by having a work force that truly understands the value ADESA provides. There are the traditional communication solutions such e-mails, newsletters and soon, an Internet portal for employees where they can keep up-to-date with the company’s latest news. The challenge is communicating without technology.

“It’s also a lot of windshield time, and it’s a lot of face-to-face time,” Gartzke says. “The general managers get together two to three times a year, and I’m always with those people when they do this for a couple of days. There is a lot of communication there firsthand with me.

“Communications is a real asset for us. I have staff meetings with my management people; the operators are having staff meetings an hour later every week. On Fridays, the operating people in the field all get together telephonically to talk about the same things. Newsletters are nice and e-mails are nice, but voice-to-voice communication is much, much better, and face-to-face is best.”

Choosing acquisitions
Some of ADESA’s growth is organic. There are more cars coming into the market every year, which means there are more autos sold through used or salvaged vehicle auctions.

But ADESA’s primary vehicle for growth is acquisitions. Whether it’s basic due diligence, integrating a culture or just finding the right opportunities, Gartzke is constantly struggling with whether a particular company is the right acquisition for ADESA.

“The one thing I would mention to other CEOs that are aggressively or actively in acquisitions, if the business cultures are different, that is a significant part of the integration challenge and risk,” says Gartzke.

The key to easing the transition is the upfront work.

“We’ve acquired companies that are maybe vertical acquisitions to our core businesses in a technology way, like Autovin in Atlanta [a technology company that provides automotive-related support services], and like when we first got into the salvage business,” Gartzke says. “It’s a similar business model, but our customers are insurance companies and dismantlers, so it is a different culture. Being astutely aware of those cultural differences up front and addressing those in the integration process is very important.”

No matter what type of business it is, you can never forget the basics — checking the company’s value and cash flow. Gartzke also considers the talent of the management at the company being acquired, and perhaps most important, makes sure not to overpay for the company, no matter how appealing it seems.

“We all make that mistake once in awhile,” Gartzke says. “We fall in love with something, and you can’t back off. You get too close to it just before you close. You find some things in due diligence that surprise you, but you still want to do the transaction.”

Gartzke likes to get the employees of the newly acquired entity on the same page as existing employees as quickly as possible.

“We don’t make a lot of changes in their lives,” he says. “What we do is perhaps provide a different technology platform that they have to work with. We might change a general manager if there is a need to do so because the seller was the general manager. We want to make sure that everybody buys in to (the ADESA philosophy).”

When companies are acquired, they take on the ADESA name.

“We always attempt to retain the management,” says Gartzke. “We did our due diligence. We attempt to assess the quality of their management, the quality of the relationships with their customers. To the extent possible, we hope to retain everybody in those places.

“In some cases, it doesn’t work quite that well, but that’s something we attempt to do. What we don’t do is bring in our people and replace management as a policy or as a rule.”

The market ADESA operates in is wide open, and there is plenty of room for growth.

“There are a lot of vehicles out there changing hands that we think could be better served if they used our service,” Gartzke says. “There are about 258 million vehicles out there, and about 46 million used cars changing hands every year. About 10 million go through auctions. It’s a great industry.”

HOW TO REACH: ADESA Inc., (800) 923-3725 or www.adesainc.com

Friday, 28 July 2006 20:00

Charles Ogburn

 Charles Ogburn knows where to get a good cup of coffee. As executive director, Global Head of Corporate Investment of Atlanta-based Arcapita Inc., Ogburn led the team that purchased a controlling interest in Caribou Coffee Co. Inc. He has also overseen the acquisition of some well-known brands, including Church’s Chicken and off-price specialty retailer Loehmann’s Holdings Inc. His efforts have helped Arcapita, the investment arm of Bahrain-based Arcapita Bank B.S.C., post record net income of $104.3 million for 2005, an increase of 48 percent over 2004. Smart Business spoke with Ogburn about the difference between being an effective CEO and being a leader, creating a culture and focusing on your strategy.

Lead by example.
First there has to be clear communication of what the values of the organization are. That needs to be communicated and lived.

Try to lead by example, whether that is the willingness to stay late to do something or come in early — or more likely both — or to tackle any aspect of something.

Demonstrate there is not an aspect of any job that is beneath them. Everybody ought to be willing to do every aspect of the job and get it done right.

Know how to find the right people.
Part of it is attracting people who are really motivated high performers so that they don’t need a lot of direction. (We’re) populated with a lot of self-directed people, very ambitious people who don’t need a lot of motivation.

They want achievement. Sometimes you almost have to dial them back. That doesn’t happen by accident. You really have to work hard at creating an environment that attracts people like that, where they say, ‘The things that I want to do are going on there.’

Giving them the right work and the right financial incentives to make it rewarding to them is part of the whole puzzle.

Create a positive culture.
It’s building the wall one brick at a time. Every meeting you do, every deal that you work on, you try to do it in a way so people say, ‘I like the way they do business. That seems to me an attractive approach to the marketplace.’

Careers are long-term things that get built out of a countless numbers of small events. Each one of those events is an opportunity to do what I’m talking about - return every phone call, treat every meeting as important, deal with people the way you would want to be dealt with, with honesty and courtesy.

If every brick in the wall is that way, it’ll be a pretty nice wall.

Balance patience with action.
We’re in the deal business by some force of nature. It’s not like gravity. (Deals) happen because people decide to make them happen.

That’s going to be largely influenced by external events that we can’t control. It takes patience to wait for events to evolve to the right condition. It also takes persistence to make sure you’re in the right place at the right time when those external conditions now favor a deal happening.

That means staying in routine communication with the sources of those kinds of ideas and relationships so you know when the right time is to be more active. It’s networking and accumulated experience about how do you interpret where the landscape is today. ‘Should I push hard on this right now, or should I wait a year?’

Learn to lead.
It involves the willingness to do the hard work to get as much good information as you can, the willingness to make a decision based on less than perfect information and to live with the consequences.

Know your weaknesses.
I have enough accumulated experience to know where some of my strengths and weaknesses are. I’m just not very disciplined about time management - I do want to collect a lot of information and I do want to be available to people when they call or want to meet. I’ve learned to strike a balance that works for me.

Get the job done.
I might separate leadership from effective CEO performance. A CEO is there to deliver business results, and they might do it in a way that doesn’t have much in the way of leadership to it.

They clearly overlap, but at the end of the day, the CEO’s job is to deliver the results. If he can do that by being fairly remote or aloof from people in his company, that’s fine. Leadership is a component of that, because leadership is getting people to do what you want them to do, thing they might otherwise not do. That involves having a clear view of what you want to do and why what you want to do is a good thing and having people say, ‘Yeah, I want to be a part of that; I want to participate in that.’

Keep tabs on your strategy.
I gave a presentation to our investors in May, and I started with a quote from Charles Darwin that says, ‘The most important component of the survival of the species is not the intelligence of the species or the strength of the species, but the ability to adapt to change.’ Staying with the plan is fine, but the plan needs to evolve over time to change with the external reality.

Part of the leader’s job is to perceive how the external environment is changing and how the business needs to evolve to address that.

Build a brand.
In any business you’re going to operate in a competitive environment. You want to have the maximum positive impression in the minds of people out in the world when they encounter your business.

We want them to think of Arcapita as a good partner. The same thing is true in any other business, whether it’s the magazine business or the soft drink business.

Outside the organization, in the external world, there are myriad people who are forming impressions and making decisions about things. The brand is a way to try incrementally to influence that in your favor.

Do your due diligence.
There is no substitute for hard work. I learned early on not to make assumptions about the way things were or what other people might already know.

You have to verify everything. There are no shortcuts.

HOW TO REACH: Arcapita Inc. (404) 920-9000 or www.arcapita.com

Friday, 28 July 2006 20:00

Changing the flight plan

 The airline industry, like most others, goes through regular cycles. The problem comes when management fails to recognize the difference between an ebb in business and the results of a failing business plan.

That was the problem Bryan Bedford faced when he joined Republic Airways Holdings Inc. in 1999.

“The predecessor management team thought it was doing all the right things and that they were going through the typical cycle that airlines go through in terms of losing money, and sooner or later they’d start making money again,” says Bedford, chairman, president and CEO of the company. “You have to be realistic. There’s never a good time to lose money. If that market can’t perform, you have to be honest about your ability to add value to the market, and if you can’t get fair compensation for the service that you’re providing, then you need to exit the market.”

The previous management wouldn’t exit money-losing markets. But that wasn’t the only problem. Bedford’s approach was to quickly stabilize the company and restructure the business model while earning the trust of employees and rekindling their passion for the business.

“Going into 1999, two things were happening,” Bedford says. “One, the company had just executed a new union contract with its pilots that changed dramatically the way that the pilots would schedule their work for the company. That process put the company into a significant crew bind.”

Flight crews were suddenly in the wrong places, which led to poor reliability, and the company wasn’t able to complete some flights, which made customers and its one airline partner, U.S. Airways, unhappy.

“Moving into the back half of 1999, we were faced with two things,” Bedford says. “One was Y2K. And the second is what we can now look back on and see the beginning of the initial recession going into 1999, 2000. Revenues were already starting to deteriorate, yet costs were increasing by virtue of the new pilot agreement and the fact that the company had to play catch-up on its Y2K compliance.”

Bedford took an honest look at the situation, something previous administrators were unable to do.

“No matter how bad you think it is, it’s always worse,” Bedford says. “Make sure you’re not looking through the rose-colored glasses.”

As if those problems didn’t pose enough of a challenge, Bedford recognized that the company’s basic business model — flying turboprop planes in and out of small-town America — was destined to fail. So he chose to restructure the organization.

“Those exit decisions are very difficult to make for any business manager,” Bedford says. “You have to make a very realistic assessment of what your strengths and weaknesses are and try to move the business along to your strengths and away from the things that you’re not competitive doing.”

Bedford’s first step was to stabilize the company’s financial position. Suffering some significant operating losses, Republic’s cash position had been depleted to very low levels.

“We had all the classic worries of a business in financial distress — how do you make payroll?” Bedford says. “Step one was get the flights to complete, get them to complete on time and deliver the customers’ luggage at the end of the trip. We made some strong commitments to them in terms of our steps to remediate crew shortage and the quality concerns on the product.

“We put the money, the time and the management focus on accomplishing those goals. Within 90 days, we had accomplished that. We had to assess where the shortfalls were and why we were having a difficulty. We had to go out and hire more pilots, and we had to acquire simulator training for those pilots, which obviously took time and financial resources. That was an investment we had to make in order to return the operation to a stable, quality performance level.”

It takes eight to 10 weeks to train pilots and get them into the schedule.

“We were looking at ways we could utilize our existing resources more productively,” Bedford says. “You can’t just change pilot schedules. There’s a process by which schedules have to go out for bid and then ultimately be executed.”

With the business more stable, Bedford was able to turn his attention to diversifying the revenue stream.

“That’s not unique to our business,” he says. “If you’re in the automotive business, you prefer not to have one customer in General Motors; you prefer to serve as many customers as you can. Today, we have four. Obviously, five would be better. Six would be better than five. The goal has always been to develop new relationships that leverage our strengths.

“We knew we needed to do a more quantum change for the business. If we were talking football, that’s when we knew we needed to throw the Hail Mary pass. We decided we were going to exit the pro-rate flying (replacing it with a fixed-fee model) and exit the turboprop flying and concentrate solely on operating the regional jets.”

In a fixed-fee model, there is no revenue risk to the company, because the airline’s partners are guaranteeing a certain usage rate, and therefore, a fixed revenue, providing a much more consistent revenue stream. The company also began replacing the turboprops with jets, which made it more appealing as a potential partner to other airlines.

In February of 2000, Bedford inked a deal with the company’s second marketing partner — a point when the company really started turning around. Republic started making money in the second quarter of 2000 and hasn’t had a money-losing quarter since.

Getting buy-in
Prior to Bedford’s arrival, Republic Airways had gone through three CEO changes in two years. There was a lot of skepticism among the ranks, and employees wondered if Bedford was part of the system or simply another face that would pocket a fee and leave in a year.

“Try to make your employees partners in your business,” Bedford says. “As difficult as it is for management to change, it’s even harder for employees because they don’t have the same information that the management team has. Sometimes information is competitively sensitive; you can’t just broadcast it to your employees.

“To the extent you can, you need to make sure you’re being open and honest with your frontline people.”

One thing Republic did have going for it was a strong, dedicated group of employees. Bedford knew that for his changes to take root, he needed to win over the frontline workers.

“We discovered we had an airline that had a great corporate culture — [like] a family-run business, a small business, a company with a soul,” he says. “We needed to leverage these strengths with more of a financial discipline and a model that would provide the most value for its customers and still make a profit and return.”

Bedford knew trust and respect could only develop over time by being upfront with employees.

“Just being honest with them about the steps that we were going to take, realizing things weren’t going to change overnight,” he says. “Let’s take a 30-day view of the world, a 90-day view of the world and a one-year view of the world. Here’s what we’re going to do, when we’re going to do it, and then you can grade accordingly.

“As long as we were meeting or exceeding the deliverables, that was building the foundation for trust.”

E-mails weren’t going to cut it. Bedford knew he had to provide, at least in the beginning, face-to-face contact.

“I spent my first 90 days just going out visiting with all the employees,” Bedford says. “We took one of our small turboprops and flew it to all of our cities that we operate in and met all of our employees. Back then, we only had about 600 people, so we could do that. Then we tried to give them an assessment of where we were.”

Despite the fact that the company has grown much larger, Bedford still prefers to deliver his messages face-to-face. Whenever he and his executives travel on business, they make sure to visit with pilots, flight attendants and mechanics.

“In fairness, the employees were just as concerned about the quality of the service that we were operating as our partners and our customers were,” Bedford says. “So, making the commitment to fix the operation was something they needed to hear as well, and then delivering on the commitment.”

A greater purpose
How a business delivers its service is often as important as what the service actually is, so Bedford set out to give the employees some guidelines.

“We tried to enhance what was already a good corporate culture (by) setting ground rules on how we were going to work with one another,” Bedford says. “We put together our mission statement.”

That statement includes all the traditional ideas of commitment and respect. And although it was true to the company’s goals, Bedford recognized the statement wasn’t exactly motivating.

“We decided we needed something that was inspirational and yet true to what we were trying to become,” he says. “So we created what we call our vision statement, which was to recognize there was more here than flying airplanes.

“We did something that some people thought was controversial at the time. We recognized God as an important contributor to our business practices and our business success. There was some resistance to bringing God into the workplace, but it was important that our employees understand where the management team was coming from.”

Instilling the value throughout the company has had a profound effect on the entire organization.

“We do have a Christian value system, and we’re not ashamed of it,” Bedford says. “It’s not a marketing gimmick. I think it was stunning to many people both on the management team as well as the front line employees. By expressing those Christian ethics, it also puts some boundaries on how we do business. We’re not in the business to profit for the end of profit. This is a company that has a soul.

“It’s certainly not a hiring criteria; it’s not a box you check yes or no. People are smart when they’re making employment decisions. They generally make a decision that they want to go to work for somebody that has similar values and virtues that they do. We try to advertise what our virtues are, and we try to act on them.”

One way Bedford acted on the new ethic was by developing the Circle of Stars program to honor employees who go above and beyond the normal call of duty.

“We fly over 850 flights a day all over the United States, so most of our employees work remote,” Bedford says. “We don’t get to see the thousand good things our employees are going to do today. Their co-workers do. Thankfully, many of our customers write us and tell us about the great things our employees are doing.

“We created a program where employees can get together quarterly and look through the nominations for what we would consider our best and brightest employees based on real things that they’re doing.”

Take, for example, the flight attendant who noticed a passenger crying on a flight from Orlando to Columbus (Ohio). The passenger had missed her flight to Pittsburgh, where she was going to visit someone having emergency surgery.

When the plane landed, the flight attendant, concerned the passenger was too distraught to be alone, took the woman to the car rental counter, rented a car and drove her from Columbus to Pittsburgh.

That employee earned a $1,000 bonus for her actions. Republic honors 20 employees every quarter, and at the annual recognition dinner held in Indianapolis every August, Bedford selects President Award winners who receive a $5,000 bonus.

“If you give a person a choice of working at a place like this versus working at an identical company, but one without that soul, they’re going to choose this one every time,” Bedford says. “It does engender a loyalty and commitment that gives us a clear competitive advantage. It’s a nicer place to be. There’s more to life than work.

“If you’re going to have to work, let’s enjoy what we do. Let’s get the psychic income that we’re doing something more than just moving airplanes from point A to point B.

“It’s an absolutely vital component of this particular business, and not having had it, I’m not sure we’d be here at all quite frankly.”

Bedford’s vision has proven successful for the company. He has grown the operation from $85 million in revenue in 1999 to $905 million in 2005.

“Those early months, and even years, building that trust and rapport with employees has been difficult,” he says. “We can look back seven years and say with absolute confidence that we did everything we said we were going to do.

“Our employees are intensely proud of the airline that we’ve all created here. They realize we’re all in this together now.”

HOW TO REACH: Republic Airways (317) 484-6000 or http://www.rjet.com/

Monday, 26 June 2006 06:04

Don’t do it yourself

Outsourcing payroll can save your accounting department both time and aggravation, says Robert Gialamas, president of Paytime Inc.

“Payroll is not easy anymore, especially here in Ohio,” Gialamas says. “When you consider there are over 600 local [tax agencies] in Ohio, all these extra tax agencies add complexity. They all have their own special rules that you must follow, or the penalties can be very steep.”

Wolff Brothers Supply Inc. began using Paytime about four years ago after a previous outsourcer’s proprietary software repeatedly failed.

“We outsource payroll, and we’ve outsourced payroll for quite awhile,” says Irene Hill, secretary and treasurer of the board at the Medina-based distributor. “It’s a benefit because they do the taxes for us. They have somebody in-house to process the payroll.”

For Hill, it’s simply easier and cheaper to allow someone else to handle the task.

“I have people in-house who keep track of the hours, and we transmit the payroll to them on the Internet,” Hill says. “What we get back are the checks, and they’re all direct deposit.”

While the Internet is the most common way to enter data to a payroll company, Gialamas says there are still clients who send data via fax or even call their information in.

When choosing a provider, Gialamas says, employers should evaluate how long a service bureau has been in business and its employee turnover rate. Convenience is the most common reason a company will outsource its payroll function.

“The biggest issues that come are the savings of time, which ends up saving you money just from a processing standpoint,” Gialamas says. “Payroll companies can add value that you wouldn’t otherwise receive.”

But it can be in the area of complicated tax laws that outsourcing really pays off.

“If you get a (payroll) tax penalty and you’re on your own, there’s a good chance you can incur some pretty hefty fees that will affect your bottom line,” Gialamas says. “We get a lot of tax notices. More than 50 percent of our notices are invalid because the tax agencies are processing incorrectly. It’s nothing the client did.

“They’ve got computer systems like everybody else, and it’s not uncommon to receive a notice saying, ‘We did not receive your payment.’ We take care of that. We do the research. We show the agency proof the payment was made. The client doesn’t have to get involved; they don’t have to waste that time.”

A little more than a year ago, Ohio’s computer system mistakenly sent out improper tax notices to about a quarter of Paytime’s clients, a problem the company dealt with for those customers.

“Payroll is just one thing for an HR person you really want to outsource, unless you’ve only got two or three people working for you — sometimes I even question that,” Hill says.

Gialamas agrees.

“They don’t want to be processing payroll,” he says. “It’s not strategic. It’s more a hassle than anything else. You don’t need to waste the controller’s time or hire a payroll person. All you really need is someone to submit the time information.”

HOW TO REACH: Wolff Bros. Supply Inc., (330) 725-3451 or www.wolffbros.com

Thursday, 25 May 2006 13:16

Monumental success

Jim Milano knows it takes money to make money. Twice, the president of Milano Monuments has borrowed funds to give his enterprise the injection it needed to grow.

Seven years ago, Milano, president of the company started by his father in 1969, borrowed money to move into a new 50,000-square-foot shop just 100 yards down the road from the original Brookpark Road site.

“Our previous location was maybe a total of 3,500 square feet,” Milano says. We didn’t have room for the displays and everything inside. People were on top of each other. We utilized every part of the property. We had employees working outside in the parking lot — on the manufacturing side — because we ran out of space.

“We were hindered by the location and we were renting forever. My dad was a tenant there. The old landlord would not sell the property. He would not let us expand, so he was basically suffocating our business.”

Since the move, business has increased 100 percent, and it now produces about 3,000 monuments a year. But that wouldn’t have been possible without changes to the new facility.

Almost right away, Milano knew the size of the showroom was a problem. He had always wanted to add religious gifts to the already crowded showroom, and knew that if he wanted to continue growing, he had to invest in his company’s infrastructure. He did so to the tune of a $300,000 loan.

“One thing I really learned — presentation and display are so vitally important,” Milano says. “I learned that when we first moved in. The more I thought about it, I knew we had to take it to the next level. That’s why we did the refitting.”

Milano took out a combination fixed rate loan and a line of credit from Liberty Bank about five years ago.

“We were at a point where we had no choice,” he says.

The money has allowed Milano to add a religious gifts section, purchase new equipment and expand the crowded showroom. As with the original site, the new showroom was simply too crowded. People who came into purchase graduation gifts were standing right next to people planning a funeral.

“Customers couldn’t even pull into the parking lot,” he says. “Families were on top of families. We’d have them anywhere we could sit them down to write up orders. At the time, we only had the flower, wreath and monument businesses. When we moved into here, I thought we’d never use all the facilities we had. We started with the religious gifts — bibles, art and crucifixes.”

Today, the two sections of the showroom are distinct.

With the new equipment, Milano can now show families full-sized replicas of the monuments that will mark their loved one’s final resting place. The company also purchased new equipment to help polish, cut and prepare the monuments on the property, something it wasn’t able to do in the past. And, with the help of a $40,000 loan from workers’ compensation, Milano extended a crane that can lift the heavy granite monuments the full length of the facility.

Milano now has his showroom and facility designed to his satisfaction. And it’s not an operation he plans on going through anytime soon.

“I don’t think we’ll ever have to move again,” he says. “I don’t think I’d want to.”

HOW TO REACH: Milano Monuments (216) 362-1199 or www.milanomonuments.com

The value of service
Jim Milano knows treating his customers well is vital to his company’s success. So it’s no wonder he expects similar treatment from his bank.

Milano, president of Milano Monuments purchased his new site in 1999, shortly before interest rates began to drop. He had called his long-time bank but wasn’t getting a response — the community bank had been purchased by a larger enterprise and no longer provided the same service.

“We used to work with (another bank),” he says. “We knew the CEO well. We needed something, it was like the old community banking. They were bought out, and everything changed. We kept calling the bank, ‘Hey, I need to get something done’ — probably 10, 12, 15 messages, never a returned call.”

A family friend suggested Milano call Twinsburg-based Liberty Bank.

“It was great; it was just like how it was” before with the other bank, Milano says.

Liberty refinanced with a new rate, and that relationship led Milano back to the bank a few years later when he wanted to borrow $300,000 to remodel his showroom and purchase new equipment.

“We called up our banker and borrowed the money, the same bank that has the loan on our property,” he says. “They see our returns every year. I asked them for the money, and it was, ‘Sure, whatever you need.’”

Wednesday, 24 May 2006 11:26

The Lauth file

Born: 1951, Indianapolis

Education: Associate degree, computer technology, Purdue University

What is the biggest business challenge you’ve faced, and how did you overcome it?
In the early ’90s, our industry came to a virtual standstill because the capital markets were nonexistent. We had a recession. We had a tax reform act in 1986, which started the problem.

It led to a constipation of the capital markets. Traditional lenders were no longer making loans. Federal banking officials were requiring lenders to dramatically reduce their exposure to real estate. That made it a tough, difficult period of time to build new products.

That was the birth of U.S.-based REITs. We were proud and happy we were able to work through that period without going public. It was a period when many competitors went bankrupt and others went public.

What is the most important business lesson you’ve learned?
People — the power of people. A close second would be the need to constantly change, constantly adapt, constantly reinvent. I know that sounds trite.

This company, in many ways, is unrecognizable from two years ago, let alone almost 30 years ago. That has served us well. That’s the primary reason we’ve been able to survive through all kinds of economic cycles and conditions.

Lauth on technology: We’re hugely reliant as a company upon technology. We’ve always prided ourselves on being a leader in that regard. Almost everybody in this company carries a Blackberry.

Many of us have, since the day they came out, when almost nobody had them, trusted in them or believed in them. We thought that was a pretty good idea given that we were growing, had people around the country and the importance of communication in our business.

Three or four years ago, we came up with a product we call Project View, which is proprietary in nature. It’s a Web-based, online tool where all of our clients, with the appropriate password, can log on to our Web site and see their projects either real time or same-day photos of what it looks like today, see up-to-date budgets, schedules, plans, meeting notes — virtually everything they need to know about the project without leaving their office.

Monday, 01 May 2006 09:30

Scott Hyden

If you’re not carrying a student ID, Scott Hyden isn’t interested in your business. OK, he may not turn you away, but STA Travel Inc. was created to provide students with discounts and access to life-altering trips around the world. With about 500 employees in 80 branches in the United States and Canada, STA accounted for just under $223 million in revenue last year. Hyden joined the company from Travelocity late last year. He spoke with Smart Business about the importance of finding your niche, staying focused and how to balance your management team.

Find your niche.
In the student niche, we are the big guy. We go to the supplier and say, ‘Look, this is a market that you don’t have the time to serve and you don’t have the time to focus on. American Airlines, United Airlines .... we have access to all of these students. Give us great discounts and give us great products that we can sell to them. And, oh by the way, the biggest item is, don’t worry about it being a person who is now going to use it for a business trip.’ If we don’t focus on a niche, we get run over by the big trucks.

Stay focused.
It is so easy to relax and let your guard down and start selling to anybody. As you start to see other opportunities, it’s easy to lull yourself into thinking some things may be easier than selling to students. The reality of it is that’s all short-term.

We can certainly go and sell in some market regular leisure travel, but the reality of it is that is going to be short-lived and, over time, there are going to be competitors who that demand will migrate to. Therefore, we’ll be taking our eye off the ball and what our core focus is.

We can wind up damaging supplier relationships if we’re not focused on selling to the right market. We can wind up losing our brand focus. It’s actually an issue we’re dealing with every day.

Be a good communicator
Communication is critical. We have several ways that we communicate, some of which are regular meetings with the management of all of those people. On our intranet, we have a chat room where I host specific discussions around the strategy of the company. There’s a little bit of a community amongst the managers that are spread throughout the company that are sharing with one another the ways to stay focused on our business. I issue a monthly update on the business that always is talking about focusing on the core.

It’s difficult when you’re a dispersed company. It’s a combination of getting in front of people as often as you can and using the technology that we have at our disposal to make sure that people are continuing to hear the message.

Develop the right incentives.
One of the other ways you communicate a vision when you have salespeople is through their compensation plan. Salespeople know exactly how they make money in what products they sell and what’s best for them. As long as that is tied to what’s best for the company, everything’s perfect.

Look for new ideas.
People have great ideas. They’re not out there just complaining. People have had ideas that for whatever reason just didn’t get prioritized high enough.

The way I started to formulate some ideas is getting out and watching how we deal with customers, talking with customers and sitting in some of our branches and seeing some of the things that we face. You can’t develop a strategy with all 500 people in the company.

Know your limitations.
I like people to question me. I like people to question what we’re doing. I don’t have all the answers. I’m not the smartest guy on the planet.

I can’t see every part of the organization on any given day. I need people to be telling me where I’m making a mistake. I need people to be giving me honest feedback. I welcome a questioning attitude from folks.

It’s in the actions. When you hear something you don’t want to hear, it’s, how do you react? Do you give the signal in either body language or in what you say that ‘I really didn’t want you to tell me that, so shut up and go in the corner,’ or do you actually take it and do something with it?

Find people to complement you.
What is leadership? I surround myself with people who are very different than me. The easiest way to make sure that you’re getting diverse thought and that you have people around you that will question you is, don’t have five other people just like you.

I mean diversity in thought. If I’m not the most creative person, I need to have a person working for me who is extraordinarily creative. If I’m not a detail-oriented person, I need to have someone reporting to me who is very detail-oriented. You have to develop a team that has a different flavor amongst all the different folks that you’re actually hearing and seeing the different ways that we can run the business.

Set priorities.
The most important thing I do every day — where businesses sink or swim — is prioritization. If we put money and time and people on anything, we can get it done. People are smart. There’s a lot of access to good technology in the world these days.

You can do anything. You can’t do everything. That’s the problem businesses tend to have. You have a lot of different people. They see the company from their perspective. They see what’s important to them.

They’re all trying to do what’s best for the company, but what winds up happening, as you get closer to the top, is you are faced with many different things that all sound and smell and look great for the company. But you can’t do them all.

Sometimes with dated information and sometimes with gut feeling, you have to be able to decide, here are the things we’re going to work on.

Know when to make decisions.
There are times to build a consensus, and there are times to make the decision. It depends on the specific issue; it depends on the urgency. You can’t change the culture by an edict. People say they like to make decisions by consensus; it really depends.

HOW TO REACH: (800) 781-4040 or www.statravel.com

Wednesday, 26 April 2006 10:12

Buy-sell

The old line that life is what happens when you’re making other plans certainly could apply to business.

Business owners deal with challenges, but one of the most important areas they need to address is what happens when an owner faces one of the four Ds — death, disability, departure or discord.

The most common solution is a buy-sell agreement among the partners, something implemented by M.F. Cachat Co.

“In our new agreement, (an adviser) helped us develop a fair and regular way to value the shares of the company that we update on an annual basis,” says Bruce Jarosz, chief financial officer, vice president of operations and one of three owners of M.F. Cachat Co. “We have an agreement that spells out what happens if one of the shareholders wants to leave the corporation, how those shares are made available to the remaining shareholders and how that would be paid to the departing shareholder. We’ve got that all mapped out so, when the time comes, there’s no question about it.”

Jarosz, along with John Mastrantoni, president, and Ed Sherwood, vice president of sales, Central region manager, purchased the company from the first generation of owners about four years ago. With advice from Jim Aussem, co-chair of Weston Hurd’s Estate, Trust and Probate Practice Group, the trio first created the agreement to purchase the company, then installed a buy-sell agreement that spelled out the terms should one of the four Ds happen to an owner.

“It’s different if a person chooses to leave the company while we’re still paying out the old owners,” Jarosz says. “We made a commitment to ourselves that we need all three of us here working to get the old ownership paid out. If somebody leaves during the payout period, there is a substantial penalty. The value of the shares are valued a lesser value, plus there can’t be any payments made to the departing shareholder until the original shareholders are paid out.”

The buy-sell agreement, which explains how the entity will be valued, is reviewed once a year.

“There won’t be any question as to the value of the stock should somebody want to depart,” Jarosz says. “We know how the shares of that person would be split up among the remaining shareholders. The time period has already been agreed to as to what the departing shareholder would agree to in terms of a time frame for being paid.”

There are two main types of agreements — redemption, in which the company buys the owner’s share, and cross-purchase, in which the other owners are the buyers. Each has advantages and tax implications depending on the type of incorporation.

“The most popular type of agreement is what’s called a wait-and-see agreement, whereby either the other shareholders or the corporation have the first right to buy when one of the four Ds takes place,” Aussem says. “If they, the shareholders, or it, the entity, chooses not to buy for whatever reason based on the advice of their legal and accounting consult, then the other entity is required to buy.”

The biggest challenge, Aussem says, is for the partners to agree on what will happen when one of the four Ds takes place. Advice from an expert is usually paid for at an hourly rate, and once that is done, the agreement can be put into place within 30 days for as little as $2,500.

For Jorsz and his partners, it is more than a contract; it’s peace of mind.

“The three of us spent significant time exploring all the things that could potentially happen to us,” he says. “If somebody passed away, we know how our estate is going to be handled. It’s much more comfortable knowing we’ve put plans in place to take care of those contingencies.”

HOW TO REACH: M.F. Cachat Co., (216) 228-8900 or www.mfcachat.com; Weston Hurd, (216) 241-6602 or www.westonhurd.com