Business became more personal for Neil Grimmer when his first daughter was born. After seven years working as a design leader at IDEO and coming up with health and wellness innovations for food products, he saw a need to take the same approach to make better baby food.
“I starting taking that innovation methodology and coming up with concoctions in our own kitchen,” says Grimmer, president, co-founder and “chief daddy-O” at Plum Organics. “That was really the impetus for starting the company.”
The company’s early days consisted of a small group of parents who wanted what they couldn’t find — healthy and convenient food choices for their children.
“We started out doing a line of healthy lunchbox snacks, and very quickly moved into the baby food space with the spouted pouch,” Grimmer says.
Here’s how Grimmer capitalized on his personal experiences as a parent to drive Plum Organics to see significant growth year after year.
Designing an identity
Once Grimmer launched the flexible spouted pouch with its large cap, it helped Plum Organics stand out in the grocery aisles with packaging that was different, eco-friendly, portable and convenient.
Inside the packaging, parents discovered an eclectic mix of ingredients that were relatively new to the baby food marketplace.
“We brought culinary-inspired recipes that weren’t commonly found in baby food — putting things together like raspberry, spinach and Greek yogurt, using ingredients like purple carrots, quinoa and amaranth,” Grimmer says. “We took the superfoods that are out there and brought them into the baby food category.”
One final element that set the stage for success was the mindset the company’s founders brought to the brand as young parents themselves.
“It’s by parents, for parents,” Grimmer says. “It had a sense of humor, but we also took the job of feeding our little ones the very best food very seriously. So it was a very approachable brand which deeply connected with parents around the country.”
Whether they had children or not, company leaders developed a personal connection with parents through a shared focus to bring better food to kids.
“That was one thing that really drove us through some of those tough early years to success in our later years. We catalyzed a movement. The idea of making it a mission to get better food to children took it outside the core objective of running a business and gave us a higher order of purpose and passion,” Grimmer says.
Finding a purpose
At the heart of the company’s mission was a belief that you should “walk in the shoes of those you serve.”
“That’s at the heart of our innovation process,” Grimmer says. “In the early days, we were all young parents. Living through those moments from zero to 1, from 1 to 3, you understand those phases deeply. As your little one grows through all of these different stages, their needs, wants and desires change pretty dramatically.”
The business was organized around the unique needs and requirements of each age phase, addressing solutions to help parents by understanding their concerns and needs. Grimmer says adopting a similar philosophical approach would serve companies well, no matter the industry.
“Give purpose and passion to the work that can deeply connect with you,” he says. “People who work for companies are hungry for that sense of purpose and passion. For companies, and CEOs specifically, to focus on that makes a lot of sense.”
Plum Organics has expanded that sense of purpose to help needy families with the creation of a program called Full Effect.
“Now that we’ve reached a certain scale and have a good, solid foundation, we’re able to expand the work we do beyond just getting better food to kids in their homes to starting to address the nutritional needs of little ones around the country who go hungry,” Grimmer says. “We had the privilege of working with the filmmakers who released ‘A Place at the Table,’ which really articulated the issue of hunger in America.”
About 16 million children in the United States go hungry every day and chronically miss meals.
“As a company that’s in the business of bringing better food to kids, we felt we had to play a role in helping ease that pain,” Grimmer says.
With Full Effect, Plum Organics worked with nonprofit partners Conscious Alliance, Convoy of Hope, Homeless Prenatal Program and Baby Buggy to supply families with 500,000 Super Smoothies in 2013. The goal for 2014 is to up the donation to 1 million.
“Our employees are really excited about being engaged in the program,” Grimmer says. “It’s a way we can start to help really expand the impact we have in the world.”
The past year saw another significant development for Plum Organics in a June 2013 partnership with Campbell’s, which will allow the company to continue to operate as a standalone entity.
Setting the table for growth
With its acquisition by Campbell’s, the company heads toward a new phase with a powerful food industry player able to support its growth.
“But we are continuing to run the company around the values and beliefs that we created in the early days,” Grimmer says. “They are quite frankly one of the few partners we’ve found that would give us that kind of operating freedom.”
Keeping up with product demand has been a problem from the beginning. In 2013, the company grew more than 50 percent. Plum Organics had a four-year compound annual growth rate of 99 percent.
“That kind of year-over-year growth is difficult for any business to keep up with,” Grimmer says. “That is one of our key challenges, like it is for any business going through scale and growth.”
Three growth levers have led the way, the first one being the consumers served by Plum Organics. By segmenting products into three different portfolios, the company centered offerings on the needs of babies, toddlers and children. Moms can find healthy foods that grow with their families as children progress from birth all the way to age 10.
“We wanted to be a solution for her and her family,” Grimmer says.
A second growth lever was derived within each of those three consumer segments by looking at the various eating occasions in which the availability of healthier options would make parents’ lives easier.
The final area of growth was geographical — expanding into Canada, opening a business in the United Kingdom and creating a distributor-based business in Asia.
“We realized that this idea of healthy food for little ones isn’t an exclusive concept to the United States,” Grimmer says. “Parents around the world are time starved, but want the best for their babies and kids.”
Keeping up with demand has meant entering into partnerships with manufacturers and bringing in Italian machinery to increase production capacity.
“The machinery would sputter and hiccup, but we became very experienced in how to modify and tune those machines to be very reliable workhorses,” Grimmer says. “We’ve also put a lot of focus on securing an organic supply of our fruits and vegetables, which obviously fluctuates with the seasons.”
Growth has not only created challenges from a production standpoint, but from a staffing perspective as well. Plum Organics expects to add about 20 more employees to reach a total of 90.
Despite the pressure to add personnel quickly, Plum Organics is cautious about ensuring new hires are a good fit.
“One of the pitfalls that any fast-growing company runs into is wanting to fill the seats that are available and fill roles as quickly as they can,” Grimmer says. “If you become impatient with your hiring process, you can end up filling a role with someone who fits the box on talent, but not on culture.
“What we’ve found is that spending the time to hire the right people, giving time to do the process effectively, has allowed us to find people who not only fit the technical requirements but also added to the culture.”
Part of that culture means being willing to do whatever it takes to get the job done.
“That’s one of our core truths. As CEO of the company, if I need to wash windows or take out the trash I’ll do it at a moment’s notice if that’s what it takes to move the needle on our business. We require everyone at all levels to have that same attitude,” Grimmer says.
A winning culture has been a critical part of the Plum Organics success story, according to Grimmer, and one that has set the business apart from its competition.
“What made us different as a brand was that first we made it personal, the idea that it is a brand and company by parents, for parents,” he says. “It’s a fun, stylish brand that also brought health to the home. It’s not just about making healthier products that are ho-hum. It’s about bringing those two things together — engagement and health.” ●
- Walk in the shoes of those you serve.
- Find your purpose and passion.
- Hire for culture as well as talent.
The Grimmer File:
Name: Neil Grimmer
Title: President, co-founder and “chief daddy-O”
Company: Plum Organics
Born: Ipswich, Mass.
Education: He received a master’s of fine arts in product design from Stanford University, and a bachelor’s of fine arts in conceptual art/sculpture from the California College of the Arts.
What was your first job and what did you learn from it? I worked flipping burgers in a fast food restaurant for a summer. I became a vegetarian by the end of the summer.
Who is someone you admire in business? Jed Smith, the founder of Drugstore.com and executive director of Catamount Ventures. He funded my company based on our mission to bring better food to kids from the very first bite. I admire his vision to see the possibilities of a business at its earliest stage and his entrepreneurial spirit to weather the storms of a startup.
Do you have a favorite Plum product? What products do your children enjoy? I personally love our organic baby food pouches, which are purees of superfoods like organic fruits and veggies mixed together with ingredients like ancient grains such as quinoa, amaranth, Greek yogurt, beans, and herbs and spices. My favorite variety is our Raspberry, Spinach & Greek Yogurt.
My girls love our Mashups organic squeezable purees for kids, as well as the organic Fruit & Veggie Shredz.
If you weren’t president of Plum Organics, what would you like to be doing instead? There is nothing I’d rather be doing. If I weren’t president of Plum, I’d be trying to get a shot at running Plum Organics.
Learn more about Plum Organics at:
How to reach: Plum Organics, (877) 914-7586 or www.plumorganics.com
The increased use of web-based cloud accounting applications has provided users many advantages related to efficiencies and cost savings but conversely it adds certain risk factors, says Roman Leshak, a director in Audit & Accounting at Kreischer Miller.
Smart Business spoke with Leshak about ways to reduce risks associated with accounting in the cloud.
How do accounting firms use the cloud?
Accounting applications utilized through cloud computing include bill management and payment, customer relationship management, document management, enterprise resource planning systems, financial statements preparation, payroll, sales and use tax, tax return preparation and work flow resources.
Advances in technology have helped expedite the use of cloud applications, as many companies are seeing significant cost savings compared to developing and maintaining these applications internally.
Cloud computing can be a very attractive option for saving costs; it also lends itself to quicker software implementation and updates, portability of data enabling remote access among multiple users and locations and significant reduction and possible elimination of capital outlays for hardware.
What are the main risks involved with web-based accounting?
Despite the advantages of cloud computing, there are several risks that need to be considered and addressed prior to making the decision to move from the traditional accounting applications as information maintained within these applications is often confidential, or even entrepreneurial, and is very valuable to the user. These risks include security and data privacy, reliability and availability of the data and data processing, loss of integrity and overall data ownership and transfer of data.
During the vendor selection process the user should verify that the service provider utilizes a data center and that the vendor has received an AICPA Service Organization Controls Report on those controls in place at the data center related to infrastructure, software, personnel, procedures and data. These reports are crucial to understanding the vendor’s oversight of the data management, internal controls and risk management and in verifying that the proper safeguards are in place. Some accounting firms provide assurance services related to cloud strategy, integration and migration and will assist with corporate governance issues, vendor selection and system integration.
Security of the data transmitted and stored within the cloud is of the utmost importance as this data is no longer stored on local servers. Data should be encrypted during the transfer and storage stages and needs to be protected from access by other users that may be using the shared data center. Availability of the data and the reliability of cloud applications are just as important as the security of the data. Vendors must limit unscheduled downtime of cloud applications in our global 24/7 business environment.
In addition, the number of applications that a company houses in the cloud environment increases the requirement for the bandwidth needed for uninterrupted access to that data. Companies have used secondary internet providers as a backup option as well as engaged services with both telephone and cable internet providers to ensure constant and reliable connectivity. Risks related to the ownership and migration of data upon a change or termination in service providers also need to be considered. It is important to discuss the data transfer procedures with potential vendors as well as exit costs and strategies.
What do businesses need to do before proceeding with accounting in the cloud?
The most important thing you can do as a protector of information is to understand the potential risks associated with accounting within the cloud environment. Users should consider establishing a process of mandatory contractual agreements with potential cloud application service providers and verification that the service provider has the proper controls in place to help mitigate these risks of accounting in the cloud environment.
Accounting in the cloud has many advantages, but considering the risks and protecting your data should be your focus when entering into this environment. ●
Insights Accounting & Consulting is brought to you by Kreischer Miller
Developing and retaining talent is one of the most pressing challenges for middle-market companies. Estimates suggest that comprehensive training programs are the second most costly human resource initiative, costing U.S. companies $150 billion in 2012. A key problem for midsize firms with limited resources is how to advance employees quickly and efficiently when development programs appear to require a sizable time and money investment.
“In today’s complex, dynamic and fast-paced work environment, where most learning is occurring informally, traditional formal training and development initiatives alone are insufficient for developing employees,” says Alison M. Dachner, assistant professor of management in the Department of Management, Marketing and Logistics in the Boler School of Business at John Carroll University.
Employees are expected to be resourceful and creative when finding information and problem solving on their own. To successfully maximize human capital development, organizations must leverage informal, self-guided development behaviors with formal training and development initiatives.
“The informality of these practices rebukes the need for an expensive learning and development infrastructure, and instead places more attention on managers’ ability to create a supportive work environment,” she says.
Smart Business spoke with Dachner to learn more about self-guided development (SGD) and its affect on talent management.
What is SGD and why is it important?
SGD refers to proactive employee behaviors that are developmental in nature, such as the decision to voluntarily engage in self-identified development experiences. More specifically, SGD represents an actionable set of knowledge-, skill- or relationship-building activities that improve human capital, but are unstructured, voluntary and not operationally or administratively provided by the organization.
SGD can be carried out during work time or non-work time. Some examples include asking for feedback, reflecting on one’s strengths and weaknesses, taking on challenging tasks, watching a webinar and networking with influential people in the organization.
What SGD behaviors do employees engage in the most?
Employees tend to find information, learn and develop skills relevant to work the most from relationships and reflection. Employees most frequently depend on their colleagues and supervisors when they need answers to work-related questions. More specifically, the three behaviors that are used to the greatest extent when employees need to find information, learn and develop skills are:
- Collaborating with coworkers.
- Interacting with a supervisor.
- Talking with others.
Employees also frequently develop themselves internally through introspection by reflecting on their strengths and weaknesses, and considering ways to improve their work. This learning is retrospective and is likely focused on analyzing critical incidents or salient workplace events judged by the employee to require development.
How can organizations facilitate employee engagement in SGD?
Organizations can influence employee involvement in these proactive development behaviors by hiring the right people and promoting the right conditions for SGD.
First, hire and cultivate employees who are proactive, motivated, curious, social and dedicated. Employees should be primed to seize the initiative, eager to volunteer for fresh projects and try on new roles, and willing to accept responsibility for their own advancement. They should be naturally curious and should be comfortable around other people.
Second, acknowledge SGD behaviors as part of the job. Organizations can design work roles that are supportive of SGD by providing employees the opportunity to try different methods for conducting work and to learn from experimentation. Further, employees should be encouraged not just to seek help and advice but also to provide it.
Third, maximize interaction. The adoption of self-managing teams, open workspaces and cross-functional training can create fertile ground for interaction in many organizations. Companies should give teams autonomy to solicit resources and expertise from around the organization. Companies should also build into the workday more opportunities for employees to network with one another. Even giving people a few minutes to converse before rushing back to their desks after the weekly all-hands meeting can help.
Fourth, make time for reflection. To facilitate the use of more introspective SGD, organizations can encourage employees to reflect on their accomplishments, career direction, strengths and weaknesses, and performance. Companies may even consider using goal-setting initiatives as a way to encourage personal reflection as a method of proactive development. •
Alison M. Dachner is an assistant professor of management in the Department of Management, Marketing and Logistics in the Boler School of Business at John Carroll University. Reach her at firstname.lastname@example.org.
Insights Executive Education is brought to you by John Carroll University
Maybe you’ve seen the popular AT&T television commercials promoting the theme, “It’s not complicated,” for high-speed Internet services. In these vignettes, a moderator sits at a child’s table in a playroom with some of the cutest kids on the planet and poses an innocent question, such as, “How high is up?” And then, out of the mouth of babes, come the humorous and insightful morsels of an answer that are smack on target.
Too many times in business and government, “Mountains are made out of molehills.” Ask a simple question and frequently we get an obscure answer that simply raises more questions. The problem is most people either over-think the issue, are too concerned about responding without in-depth analysis, or fear they might appear shallow by speaking the obvious.
Equally unproductive is that a simple question can too frequently evoke the most bizarre and meaningless answer. At the top of my list is the now infamous question that contains the verb “is” in a sentence that was posed to an otherwise articulate, silver-tongued politician about a touchy subject. His response was, “It all depends on what the meaning of the word ‘is’ is.” This should have made him consider entering a monastery and taking a vow of silence, among other things.
I’ve often found that in brainstorming and kicking around ideas with others the first comment ultimately proves to be the best and most meaningful answer. It’s been said that close only counts in horseshoes, hand grenades and slow dancing. I would add to this list that a speedy answer also, many times, gets the job done.
Certainly an off-the-top-of-the-head response might not be 100 percent correct, but in most situations 70 percent or so right is much better than the completely unequivocal, unabridged data points that might take a day or two, maybe even longer, to obtain. One does, however, need to weigh the ramifications of not being able to provide complete commentary, but typically zero variance is meaningful only in reading brain X-rays or perhaps calculating coordinates for a drone strike.
As a leader, you must communicate parameters for quick responses and assert a standing caveat that if the responder later determines that more information came to mind or was discovered, he or she must provide that amplification to those involved.
Go out on a limb
You must also create an environment that fosters team members to venture further out on the proverbial limb in order to keep a discussion moving forward. Most times when people are reluctant to give it their best shot, it’s your fault because you’ve not communicated the value of, and your appreciation for, the practicality of providing relevant information that serves the purpose at hand. When a particular team member or members consistently hesitate in responding extemporaneously, it’s time for you to reset the ground rules that will give them the comfort they need to become effective contributors and communicators.
Analysis paralysis can become the scourge of any organization, as it breeds indecisiveness, and hampers innovation and quick solutions to the most common problems and opportunities. For good or bad, success today is often measured in hours, days or weeks, instead of months and years, based on speed to market. In many respects, this is due to living and working in the digital age where immediate gratification is expected.
It’s not complicated, and simpler and faster is usually better. Thanks, Ma Bell, for the entertaining reminder. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at email@example.com.
No one likes to move backwards. The goal in business is to get better, beat the competition and grow. But sometimes you have to take a step back in order to enable your organization to move forward.
A pruned tree bears more fruit, even though it might require some painful cuts that aren’t pretty at first. Making cuts in an organization, whether it’s people or products, is never easy.
Courage may be needed
But what is it you are trying to hold on to? A product that’s not selling? A division that’s not going anywhere? An employee who isn’t the right fit? Admitting that it’s time to move on from those situations requires courage, because you are sacrificing a lot of time, money and effort that went into them.
Making a move like this can feel like starting over. The economic upheaval in 2008 forced this on many companies and industries, as everyone had to take a hard look at everything they did, why they did it and how much money was being made. The results weren’t always pretty at the time, but now, in many cases, they don’t look so bad.
For example, banks were pummeled, taking heavy losses in real estate and other ventures. Some didn’t survive, but those that did are stronger, have tighter controls and are in most cases, more careful about how they lend money.
Many bankers probably felt like they were starting over and taking a step backwards, but they, like many of us, were able to leverage relationships, knowledge and lessons learned to create an even better product. Overall, they are more solid and nimble than before.
Another example is Union Pacific Corp., which emerged from the recession with greater revenue, but fewer employees, thanks to selective pruning. It remains on a solid growth path.
Don't keep waiting
Some difficult situations are salvageable, but don’t wait forever. If you’ve given a product time to sell or a person time to perform and it hasn’t happened, it may be time to move on. Instead of trying to make something out of nothing, selectively prune your organization and focus your efforts on something that might yield better results.
The key in business is to focus on finding enjoyment in the things you do on a daily basis and not becoming obsessed with hitting that home run. Frustration comes when you are trying to get somewhere and aren’t — and refuse to admit it didn’t work. The real home run is being able to enjoy what you are doing every day.
It takes a different mindset to see a little pruning as a positive, but in the end, it will yield more fruit. ●
Fred Koury is the president and CEO of Smart Business. Reach him at firstname.lastname@example.org
When asked what the key to remaining relevant in business for an extended period of time was, a prominent CEO once quipped to me, “Planned obsolescence.”
His company followed a strict rule: Every 18 months, it would introduce a new product and make an existing one obsolete. This, he explained, drove innovation and filled the product pipeline.
This same “constant reinvention” philosophy permeates many of the world’s best companies. They understand that to stay competitive you must develop corporate cultures imbued with innovation and the will to try new things.
Apple, for example, regularly introduces new versions of its iPhone, iPad and iPod, thereby ensuring that it keeps revenue streams fresh and products in demand. And rarely a day goes by that you don’t get a notification that an app on your smartphone or tablet has an update available.
You may have noticed with our January 2014 edition that we are in the midst of our own little reinvention. While we remain true to our core commitment of bringing you the best insight, advice and strategy from regional business leaders, we have introduced several new initiatives.
First, we added more contributing columnists to the publication and our website. Some of these new voices will appear quarterly; others two to three times per year.
In case you missed them, last month we introduced five of these regular contributors: Mal Mixon, chairman of Invacare Corp.; Terry Davis, president and CEO of Our Lady of the Wayside; JJ DiGeronimo, president of Tech Savvy Women; Stewart Kohl, co-CEO of The Riverside Co.; and Cheryl McMillan, Northeast Ohio Vistage chair.
This month, we feature another group, including Umberto Fedeli, president and CEO of The Fedeli Group; Bill Kitson, president and CEO of United Way of Greater Cleveland; Todd Goldstein, CEO and managing partner of LaunchHouse; and William Holdipp Jr. of the Consortium of African American Organizations.
And, in future months, you’ll hear from such regional leaders as Case Western Reserve University President Barbara Snyder, Congresswoman Marcia Fudge, JumpStart’s Jerry Frantz, Fairmount Minerals’ Chuck Fowler and Hospice of the Western Reserve’s William E. Finn.
Two new features
Second, we’re excited to introduce two new features — Uniquely Cleveland and Building Stronger Communities.
Uniquely Cleveland provides a behind-the-scenes look at something that’s, well, uniquely Cleveland. This month’s article, for example, looks at some of the items housed at the Rock and Roll Hall of Fame and Museum. In upcoming editions, we’ll peel back the curtain to discuss the business side of Walnut Wednesdays and PlayhouseSquare, and even explore what goes into pulling off the annual Taste of Tremont.
Our new Building Stronger Communities feature spotlights nonprofit organization leaders who are working hand-in-hand with the business community to strengthen the regions where we all live and work.
We’re also adding more “first-person” features, penned by the entrepreneurs who are shaping Northeast Ohio’s business community. The article written by restaurateur Sam McNulty about why he’s investing in Ohio City, which ran in January’s print edition, is just one example.
Finally, we’re launching a new signature event for 2014 — the Corporate College Smart 50. It will recognize the leaders of the 50 “smartest” organizations in Northeast Ohio, so don’t miss your opportunity for nominations.
All of these new initiatives are designed to bring this region’s business community just a little closer together. As always, we welcome your suggestions for story ideas, people to interview, voices to include and topics to cover. After all, this is your publication. ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at email@example.com or (440) 250-7026
Semanoff Ormsby Greenberg & Torchia: How to negotiate with your bank when they don’t want you anymoreWritten by SBN Staff
It’s something every business owner fears — the phone rings or you get a letter or email from your bank. They don’t want you as a customer/borrower anymore. What do you do from that point?
The most important thing is not to panic, says Charles W. Ormsby, Jr., managing member at Semanoff Ormsby Greenberg & Torchia, LLC. The situation is often not as bad or bleak as the bank originally presents it.
“They make it seem awful, but it can actually turn out pretty well when it’s all done,” Ormsby says.
Smart Business spoke with Ormsby about how to handle this type of problem with your lender.
When might a business owner hear from the bank about a problem?
In many cases, the business owner has defaulted on his or her loan. Perhaps they haven’t made a payment or are in violation of financial covenants. But it could also be due to the internal machinations of the bank. Maybe they want to get out of lending to your particular industry. Let’s say a bank is skittish about chemical manufacturing. It might call you up and say, ‘Look, we have the right to discontinue this relationship and that’s what we’re doing.’
Other times, a bank may want to clean up its balance sheet. If the bank is trying to sell or merge, it could need to get certain loans off its books. In addition, a loan can be classified as troubled without a business owner’s knowledge. If you’re getting more attention than normal — more communication and requests for information — that’s a red flag they are concerned about something.
What is the first step after that initial phone call, email or letter?
Take a deep breath, and then immediately contact your attorney and your accountant, who are hopefully experienced in this area. Having advisers who are experienced in dealing with, and standing up to, banks will end up paying big dividends — but only if you follow their advice.
Where do business owners make mistakes when negotiating with the bank about a troubled loan?
Never sign or promise anything without your attorney and accountant being involved. The bank is going to demand things, and in the absence of somebody who is experienced at advising a borrower, the borrower or business owner may feel compelled to comply. They might try to get you to waive rights, contribute cash, provide additional collateral or give personal guarantees.
You need to evaluate where the bank stands, in terms of the collateral they already have, including personal guarantees. Don’t just accept what the bank is dictating to you. You may have considerably more leverage than you originally thought. As the saying goes, ‘Whoever has the money has the power,’ and you, as the borrower, have the money. Keep in mind banks ultimately don’t want your business, they want their money.
For example, I recently had a client whose bank called his loan and told him he had to put $1 million cash into his business. However, by the end of the negotiations the bank ended up loaning a multiple of that million dollars to my client. One of the things people find remarkable in these situations is how often banks will advance more money to keep you afloat.
One of the great fears for the bank is that you’re going to sit at the negotiating table — and I’ve done this on occasion — and slide the keys across the table and say, ‘Why don’t you run the business now.’ That’s the last thing they want. More often than not, their best chance of recovering as much money as possible is for the business owner, who has the relationship with his or her customers, employees and vendors, to stay involved.
Banks very rarely will precipitously shut you down. They will shut you down, however, if they start to feel you’re being deceitful. Its not a great strategy to play hide the ball with your bank. You want to be very clear and upfront with them. Banks don’t like surprises. If you are forthright with them, and get strong, you’ll get a better result. ●
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
Two years ago, multiple bidders for commercial property in Northeast Ohio would have been unheard of. Now, market power has shifted from the buyer/tenant to owner/landlord. Vacancy rates have dipped and the quality of the product on the market has significantly decreased, says George J. Pofok, CCIM, SIOR, senior vice president at CRESCO.
“As the market and the economy continue to improve, with the lack of quality product out in the market, I think we’re going to see more multiple-bid situations,” Pofok says.
Smart Business spoke with Pofok about what to do when you’re competing for commercial property.
What determines if a property might have multiple bidders? Is it the type of building or location?
Right now, multiple offers are happening more with industrial properties as opposed to office — and a lot of that has to do with the quality of the building. Class A Industrial buildings are in limited supply. So, a property’s cleanliness, building amenities and ceiling height make it more desirable and thus more likely to be competitive.
Location is important, including freeway accessibility, being near public transportation and your labor force, but amenities to a building sometimes outweigh location. If you were to build a new industrial building today versus purchasing another facility already equipped, there are cost savings in addition to being able to get widgets to the market quicker.
How does the bidding process typically work with more than one bidder?
Everything ends up being a one or two-step process, usually. The seller might give you a revised counter or just send you a letter saying, ‘We have multiple bids. Give us your highest and best offer.’ Then, you’ll have a couple of days to a week to respond. Obviously, getting your response in by the timeline the seller dictates is critical, but the terms of the offer are what drives everything.
There can be a lot of back and forth or the seller may end up picking a lead horse, and then try to fine-tune the economics with that bidder. They may like your offer but have one objection. They’ll come back to you about that objection.
So, how can you make your offer the most attractive one?
You’ll need to consult with your broker and your lawyer, and most importantly not play games. If you’re going to play games, you’re going to lose. Many buyers or tenants still think, ‘I’m going to get this great deal on this building.’ When in fact, the market has shifted in favor of an owner/landlord.
You want to be as highly competitive and flexible as possible. In addition to increasing your offer, some advantages a buyer or tenant can use are to pay cash or increase the amount of earnest money. Earnest money is put toward the down payment when the transaction is finalized but may be kept by the seller if the buyer defaults on the purchase.
It helps if you’re able to shorten the amount of days you have requested for due diligence or financing contingency, where you apply for lending. For example, 90 days may be too long under these circumstances; something in the 45-day range is better.
Also be flexible when negotiating reps and warranties. Buyers sometimes ask for the owner to warranty and represent various issues regarding the title or environmental concerns for an extended period of time. However, owners just want to sell, cut the cord and be done. Consult with your attorney when discussing these issues. Money talks. So, increasing your offer from a purchase price perspective is critical, but it’s not the ultimate factor. If an owner has two offers and one is for $50,000 less, but the terms in the lower offer are much more palatable with less due diligence and more earnest money, he or she may be willing to take the lower offer. Sellers and landlords are going to look at everything.
Are buyers assuming more risk under these circumstances?
At times, yes, it’s riskier. You may take a little more risk than you’d prefer. If the terms of the deal get too onerous, walk away. There will be other opportunities, but it needs to make sense. That’s why you definitely want to leave the emotional part out of it. Look at it from a business perspective, and put together the best offer you can. ●
Insights Real Estate is brought to you by CRESCO
Results of the Skoda Minotti annual survey of the construction and real estate industries looked good in 2012, indicating the most positive response since the initial poll in 2007. The 2013 numbers, however, reflect that the local market hasn’t completely recovered from the recession.
“Things started to look positive, but it appears we’ve taken a step backward,” says Roger T. Gingerich, CPA/ABV, CVA, CCA, partner in charge of the Real Estate Construction Group at Skoda Minotti. “Business owners are sitting on cash and holding off on capital investments because they’re uncertain whether we’re in a long, slow cycle of recovery or if we’re dipping back into a recession.”
Smart Business spoke with Gingerich about the 2013 survey results and the status of the Cleveland-area construction and real estate marketplaces.
What is construction reform and how has it impacted contractors?
Under a 2012 Ohio law, rules for government contracts changed and there is no longer multi-prime bidding — breaking a project into different packages for mechanical, electrical, etc. Instead, the process went to single prime construction, with one general contractor responsible for hiring any subcontractors.
Reform has made it more difficult for smaller contractors to bid for work because they don’t have the bonding capacity; they don’t have the net worth or capital that a bonding company prefers. They may be able to get a bond for a $3 million project, but not for a larger project, even if they have subcontractors doing the majority of the work.
The concern is that subcontractors have another company — the general contractor — between them and the customer and it takes two or three weeks longer to get paid. There also could be more out-of-state competition because larger contractors see opportunity when there are only so many companies that can bid.
Despite problems, construction companies surveyed were positive about opportunities in the next three years — 43 percent expect more opportunities, 41 percent said the same amount and 16 expect to have less business. Although that’s the second best result since the survey started, it is somewhat discouraging that 49 percent of respondents in the 2012 survey saw more opportunities. So we took a small step backward.
Why is securing credit continuing to be a problem with commercial real estate?
When asked about which obstacles prevent closing a deal, credit was the top response and is tied to property valuations. Banks tightened up in 2007 and 2008 and exited the real estate market. As a result, there was more supply than demand for real estate. Properties that were worth $1 million, for example, might now be valued at $750,000, and the owner still owes $800,000.
Loans are still available for businesses that operate out of their buildings; it’s the investment real estate that is not being financed. Retail businesses have struggled and companies were going out of business or couldn’t pay rent and, if leases were up, wanted to renegotiate for significantly less than what had been paid. As a result, developers are having problems securing loans to get projects off the ground. We’ve seen some improvement, but there still are challenges when it comes to credit.
Overall, what do the survey results suggest for 2014?
The results weren’t surprising. Respondents said healthcare reform would have a negative impact; however, healthcare is going to be a challenge for everyone. The survey also indicated that while everyone seems concerned about green construction and sustainability, it’s not changing many developers’ minds about how they build.
The fact that we took a step back from 2012 in terms of optimism shows that it’s still an uncertain market. That wasn’t surprising, although lending restrictions appeared to be lessening.
However, interest rates remain low and it’s a great market for business owners with cash. Those people will see opportunities. If you don’t have access to capital, you will continue to face challenges and that will slow the area’s recovery. ●
Insights Accounting & Consulting is brought to you by Skoda Minotti
The advantages of an electronic health record (EHR) for individuals are readily apparent to many physicians. According to the most recent survey by the Centers for Disease Control, 75 percent of physicians who have adopted EHR say the technology has led to better care.
But, for any number of reasons, that message has not quite gotten through to the general population. Privacy and security concerns are the major reasons cited by the public for its unease, and the main factors keeping many people from embracing the concept, even as the nation becomes more “digitized” in other areas.
“The general public doesn’t know much about electronic health records, and so there is some unease about the concept,” says Dr. Stephen Perkins, vice president of Medical Affairs for UPMC Health Plan. “It will take an educational effort to get more people to see what the positive impact of EHRs can be.”
Smart Business spoke with Perkins about the advantages of EHRs and the impact it can have on health care.
What are electronic health records?
EHRs are an electronic record of information that reflects all of the health care that was delivered to a specific patient in various locales over the years. The information can include patient demographics, progress notes, medications, vital signs, medical history, immunizations, laboratory data and radiology reports. Ideally, an EHR gives a physician a streamlined look at a patient’s complete health record and should make the delivery of health care more efficient and effective.
Why is there resistance to EHRs?
In a Harris Interactive survey taken in 2012, only about one quarter of the respondents said they wanted their records to be transferred from paper to an electronic version, and 85 percent of respondents expressed some kind of concern about EHRs. The survey also revealed that only 40 percent of people think that EHRs would help doctors deliver better, more efficient care, which is actually a slight decrease from previous years.
The reasons for the resistance include a fear of records being stolen by computer hackers, the potential for misuse of the personal information stored, and even the fact that physicians might not be able to access a patient’s record during a power or computer outage.
Even some physicians see a downside to EHRs. In a recent study by the American Medical Association, some physicians complained that EHRs increase their data entry responsibilities and requires them to perform added, time-consuming tasks.
What are the advantages of EHRs?
With EHRs, the chance of medical errors should be reduced because the accuracy and clarity of medical records is improved. When a vast amount of patient information is available in one place, it also should reduce test duplication, in turn reducing treatment delays and helping patients be better informed to make better decisions.
Other advantages of EHRs range from conservation of storage space to the fact that EHRs make patient information accessible from remote sites to many people at the same time. EHRs can make communication between health care providers easier and better, and the information is less likely to be lost or destroyed.
Are there any disadvantages to EHRs?
Disadvantages would include the initial expense, the unwillingness of employees to adapt to the new technology and the need for additional maintenance. The cost of starting an EHR system can be excessive, especially during a time when health care organizations are extremely concerned about higher prices. But it also can be argued that EHRs will ultimately reduce costs and improve quality by helping providers and patients be better informed, by eliminating costly and unnecessary duplicate tests and by helping to better coordinate care.
How can resistance be overcome?
Basically, patients need to be educated to the fact that EHRs will not replace their personal physician. EHRs just help their physician do a better job. Nothing can replace the critical thinking ability of a physician. What a well-designed EHR system can do is collect and disseminate information and assist in decision-making. ●
Insights Health Care is brought to you by UPMC Health Plan