Leslie Stevens-Huffman

Marcia Taylor isn’t your run of the mill CEO. She’s a soft-spoken matriarch, who transformed Bennett International Group, LLC, from a small, five-truck contract carrier into a $266 million logistics and freight services powerhouse.

Taylor attributes her early success to fostering a family-oriented culture and deliberately sidestepping head-to-head battles with conventional competitors. 

“We grew organically by adding services to meet the unique needs of our customers,” Taylor says. “We were positioned outside the mainstream, so we were used to competing against just four to five firms.” 

Riding the coattails of customers helped the company expand beyond long haul trucking into lucrative new segments like warehousing, logistics and vehicle transport.

Over time, Bennett International built a stable of disparate companies and service lines with random reporting lines, while earning a reputation for being one of Atlanta’s best employers. In fact, the company has been recognized as one of the top workplaces in the area by The Atlanta Journal-Constitution.

But the Great Recession illuminated the shortcomings of Bennett International’s unorthodox structure as domestic revenues sagged and the management team struggled to win new contracts, especially in burgeoning international and government segments.

“I think we became a bit complacent before the recession because things were going well and we were making money,” Taylor says. “In hindsight, I can see that we weren’t as efficient as we needed to be and our management structure prevented us from offering clients bundled services or a single point of contact, which were essential to winning bids and new contracts.”  

Realigning a family-owned company is never easy. Here’s how Taylor got Bennett International back on track without sacrificing key staff or its family-oriented culture. 

Prioritize people over profits 

Taylor wanted to avoid draconian staff cuts and the potential loss of institutional knowledge that could impede Bennett International’s ability to rebound when the economy improved. Plus, she didn’t want to violate the trust of long-term employees or tarnish the firm’s vaunted employment brand, so she reduced ancillary expenses, watched cash flow like a hawk, and asked everyone to make small sacrifices. 

“I’ve always believed that if you treat people right and give customers great service, the profits will come,” Taylor says. “Our goal was to come out of the recession in a better place and we achieved our mission because our employees were willing to pitch in which helped us avoid massive layoffs.” 

Taylor asked employees to take off one day per month without pay, while the management team worked on reorganization and hunted for new sources of revenue. The camaraderie was so strong, that financially secure employees helped out their cash-strapped co-workers by volunteering to take off additional days without pay. 

“Our employees supported our long-term strategy because we didn’t make hasty decisions and kept them in the loop throughout the realignment process,” Taylor says. “CEOs can reduce fear during times of crisis by being candid about their motives, prioritizing the needs of their customers and employees, and avoiding cuts that might hinder growth and profits down the road.” 

So far, it seems that Taylor’s penchant for delayed profit gratification is paying off. Bennett International is projecting revenues of $275 million in 2013 and Taylor says the organization can sustain 20 percent annual growth for the foreseeable future without increasing overhead thanks to its increased efficiencies. 

Exploit synergistic opportunities 

Given her intimate knowledge of logistics, it’s not surprising that Taylor took a methodical approach to Bennett International’s realignment initiative. Her management team pinpointed the needs of current and prospective clients and redefined the firm’s core services, while looking for ways to streamline and consolidate its vast slate of offerings.

 They also looked for ways to extend their capabilities by leveraging the firm’s prized fleet of owner-operator truckers, who have primary relationships with Bennett International and a vested interest in the company’s success. In turn, Taylor earns the loyalty of owner-operators by treating them like family, which is smart, given the current and projected shortage of transportation professionals. 

“We looked for synergistic opportunities to combine several services under a single umbrella and leverage our existing assets and owner-operators so we could up sell current customers and attract new clients by offering them a package of services,” Taylor says. “Second, we wanted to be more efficient by leveraging our existing technology and consolidating back office tasks without inconveniencing our existing clients.” 

The goals served as the linchpin for the reorganization initiative and a rallying point when the team disagreed or veered off course. In the end, they were able to segue from a company with a host of competing fiefdoms into an integrated firm with several divisions. Plus, realignment created opportunities to consolidate billing and accounting systems and eliminate redundant processes that increased overhead while adding little value. 

For example, the team created an international logistics division by bundling project cargo, cold chain and other services that had been housed under different entities giving the firm expanded capabilities in full spectrum logistics planning and support. They also created Bennett International Transport and Bennett Distribution Services to enable rapid expansion into key segments of the international marketplace. 

Early realignment efforts spawned new contracts from clients with international needs and the U.S. General Services Administration, and validated the efficacy of the team’s strategy. 

While some CEOs might hammer out a major reorganization plan in a few hours or days, Taylor’s team worked on the initial blueprint for nearly six months. 

They often argued behind closed doors but eventually reached consensus by listening to each other and staying true to their goals and the company’s values. 

“I think it’s healthy to disagree but you need ground rules so the discussion is respectful and fruitful,” Taylor says. “We’d take a break when we reached an impasse. I’ve always thought that sleeping on a problem is a great way to break a stalemate.” 

Match the right people to the right jobs

Once the new divisions were created, Taylor faced the difficult task of realigning the company’s senior management team with its new structure. Taylor took stock of each person’s strengths and performance before asking them to take on new roles. The fact that the senior management team includes outsiders and her two sons added to the complexity of her mission. 

“I believe in putting people into roles that give them an opportunity to grow and maximize their strengths and talents,” Taylor says. “The decision to realign employees is difficult, but it gets easier if you put them into positions where they have the best chance to succeed.” 

Taylor referenced the needs of clients and the company’s history of exceptional customer service to bolster support for her management realignment strategy. She’s an advocate of values-based decision making and says that her business decisions support the company’s mission and core values. She also uses data to make tough calls but says executives make the best decisions by balancing data with intangible factors and thinking about what’s fair. 

“I think if you have a lot of passion for your ideas and convey a clear vision people will accept change,” Taylor says. “It may take time, but if the logic is there and your decisions don’t conflict with your values, people will eventually come around to your way of thinking.” 

Taylor takes her time when making difficult decisions but defends her sluggishness by saying that she’d rather be slow and accurate then have regrets, especially when her decisions directly impact the financial health of the company and its nationwide team of more than 3,000 contractors, agents and employees. 

While Taylor acknowledges that she and her children don’t always see eye to eye, she says they’ve found success as a family-operated company by fostering open communications and supporting each other through thick and thin. 

“We’ve learned some valuable lessons from this experience, and we don’t plan to repeat our mistakes,” Taylor says. “By leveraging our excellent reputation, repositioning for growth, and remaining true to our customers and what we do best, I believe our company and our extended family will continue to do well for the foreseeable future.” 

How to reach: Bennett International Group, LLC, (800)866-5500 or www.bennettig.com

 

The Taylor File
Name: Marcia G. Taylor
Title: CEO
Company: Bennett International Group, LLC
Birthplace: Clifford, Ill.
Education: High school graduate

What was your very first job? I was an apprentice pharmacist in a small, solely-owned compounding pharmacy in Mt. Vernon, Ill. There were only four of us on the staff so I learned the benefits a family-oriented culture at an early age. The pharmacist would extend credit to customers who couldn’t afford their medications so I also learned the importance of ethics and the value of prioritizing people over profits. Profit is important but it’s not the primary goal. If you treat people right and give them great service, you’ll have loyal customers, plenty of referrals and profits will follow.

Who do you admire most and why? I admire Margaret Thatcher for sticking to her guns when she felt something was right. Although our styles differ, I appreciate the way she went about things. She was a tough lady who accomplished a great deal because she wasn’t afraid to take a stand and voice her opinion on difficult issues.

What is your definition of business success? When your employees and customers are happy you greatly increase your chances of success. Set high standards, focus on being the best instead of the biggest, and success will follow.

What was the best business advice you ever received? Don’t rush to judgment or make rash decisions. Step back and think things through. And when you’re facing a tough decision, rely on integrity as well as facts and think about what’s fair. I’ve found that by practicing values-based decision making, I make the right call most of the time. Plus,it’s hard to undo the damage when a leader makes unethical choices.

What’s the secret to working with family?

Set ground rules and then hash things out behind closed doors. Always speak with a unified voice when addressing the staff and don’t take things personally. Businesses come and go but you can’t replace family.

Takeways

  • Garner support for your reorganization plan by prioritizing people over profits
  • Create operating efficiencies and new revenue streams by exploiting synergistic opportunities
  • Execute your plan by matching the right people to the right jobs

 

 

 

 

 

 

Dave Penrod and his management team at Belk had an order as tall as a homemade lemonade: change the company manta from “If it ain’t broke, don’t fix it” to “Modern. Southern. Style.”

“Our customers viewed us as old fashioned and one-dimensional, so we decided that it was time to modernize our approach to the business while retaining our traditional Southern values,” says Penrod, who oversees 100 stores in the heart of the South — Georgia, Florida, Alabama and South Carolina as chairman of Belk’s Southern Division.

Belk has had just three CEOs since its founding in 1888 — that is until 2010, when the heretofore low-key department store chain launched a makeover with the goal of reaching annual revenues of $6 billion within five years.

Historically, Belk has catered to shoppers who patronize its 301 brick and mortar stores located in small- to mid-size cities throughout the Southern U.S. But recently, it’s been ceding sales to savvy city slickers like Macy’s and Nordstrom, who use the Internet and mobile apps to infiltrate rural markets. Admittedly, the company has fallen behind in the e-commerce and social media arena, and many of its stores could use a facelift.

The company wants to leverage its strength, which is appealing to the tastes, culture and buying habits of Southern shoppers, while improving in lagging areas.

To that end, management adopted a new logo and the new tagline. The company is investing $270 million in store improvements, $210 million in information technology, $53 million in e-commerce and $4.5 million for a new e-commerce fulfillment center in Jonesville, S.C.

Penrod is charged with implementing the company’s strategic plan in his division, and as every executive knows, change is difficult — especially for tenured employees. In fact, a survey of 3,199 global executives by consulting giant McKinsey found that only one change transformation in three succeeds. Here is Penrod’s approach to instilling change and yet keeping Southern values at Belk.

Create line-of-sight

Penrod is creating line-of-sight between the company’s objectives and his employees’ daily activities as part of his plan to achieve long-term structural and cultural transformation. Now, workers can see how going the extra mile to satisfy a customer can propel Belk’s sales and profits.

“The way we communicate our brand to consumers is by being friendly and hospitable because that reflects traditional Southern values,” he says. “We need to go out of our way to smile and greet shoppers the minute they enter the store so they experience our Southern hospitality.”

And since employees often need a compelling story to change their behaviors, Penrod is using a structured communications program to breathe life into Belk’s new brand and encourage his team’s evolution.

Employees in Penrod’s division review results from the day before and set daily goals during a 10-minute morning huddle with their manager. The short sessions reinforce change and build mindshare toward the company’s strategy.

“You can’t broadcast a list of goals and think that everyone gets it,” Penrod says. “You need frequent reminders to create a shared vision and buy-in for your strategy.”

He’s also increasing his team’s chances of success by building their skills and capabilities.

After only 75 percent of customers said they were satisfied with their shopping experience in a recent survey, Belk launched a new customer service training program for its 23,000 associates. But Penrod took training and development to the next level in his division, by launching a formal succession planning regimen and development program for high-potential employees.

The program boosts morale and productivity by giving employees a career path and improves retention by providing new hires with the necessary skills to execute Belk’s strategic plan. Plus, promoting from within helps preserve the company’s unique Southern culture.

Finally, Penrod’s fostering accountability and continuous improvement through the introduction of monthly performance reviews. Employees receive feedback and share ideas during one-on-one sessions with their area manager. Although the sessions take a fair amount of time, Penrod says they’re jumpstarting productivity and fostering innovation.

Since every employee looks at organizational change from the stand point of how he or she will be personally affected and self-preservation can take precedent, Penrod is allaying their concerns by offering them knowledge and opportunities.

“Failing to invest in your people is shortsighted because they drive customer satisfaction,” he says. “We came out of the recession with a renewed commitment to development and innovation and now, it’s paying off.” 

Support your local community 

Belk plans to continue it’s commitment of giving 2.5 percent of annual pretax income back to the communities it serves and for good reason. The $19 million in donated last year not only exhibits Southern values it distinguishes Belk from impersonal e-tailers.

Plus, employees can spread the company’s “Southern State of Mind” philosophy while rubbing elbows with members of the community as they paint classrooms, build bookcases, beautify school grounds and install educational murals as part of the company’s 125th birthday celebration.

“We call ourselves community partners but what does that mean?” Penrod says. “It’s the way we support local education and healthcare, but it’s also the way we treat our customers and our associates.”

For example, Belk had just acquired the Proffitt's and McRae's chain from Saks Fifth Avenue in 2005 when Hurricane Katrina hit Biloxi, Miss. Penrod says the company could have taken the insurance money and closed the store, but instead, they raised $1 million for local employees and continued to pay them until they got back on their feet.

CEO Tim Belk called the company’s decision to stay in Biloxi a defining moment as other companies abandoned the devastated region.

“Unlike other companies, we don’t measure the return from our donations, we do it because we believe that supporting the communities we serve is the right thing to do,” Penrod says. “Community support exemplifies our Southern culture and values, it’s an intangible asset that can’ be measured.”

Cater to customers 

Belk store sizes are tailored toward the needs of the local markets they serve. Stores range in size from 40,000 to 300,000 square feet of space, with an average size of approximately 92,000 square feet.

While management is introducing new lines of private label fashions by designer Cynthia Rowley and Carolina Panthers quarterback, Cam Newton, the merchandise selection in each store addresses the preferences of local customers.

Customized merchandizing is one reason why Belk is surpassing the competition in a key measurement for brick and mortar retailers. The 11 retailers tracked by Thomson Reuters posted just 1.1 percent growth at stores open more than a year in March. In contrast, Belk has had 12 consecutive quarters of comparable store sales growth and its comparable sales growth rate for fiscal 2013 was 6.3 percent.

“We use demographics like income, age and population size to adjust the assortment of merchandise in each store,” Penrod says. “But we refine that data based on our knowledge of the local community and by listening to our customers. Our growth in same store sales reflects our connection to the community”

For instance, the stores in South Florida offer a slightly different selection of merchandise when the snow birds arrive from Northern states. And some stores extend Southern hospitality to local shoppers by hosting evening parties that include refreshments, a fashion show and music by a local disc jockey.

Like many companies, Belk uses formal pulse surveys to gauge overall customer satisfaction. But customers can weigh-in at any time by completing an online survey or “Tell Us What You Think” card, and their feedback serves as a call to action for executives like Penrod.

“We adhere to something called the sunset rule,” he says. “When a customer expresses a concern, it’s referred to an executive and must be resolved by the end of that business day.”

But Belk’s management team doesn’t stop there; they use customer feedback to review underlying business practices and initiate adjustments to faulty policies and procedures.

For instance, the company is committed to giving shoppers the seamless omnichannel experience they crave, that reaches across stores, belk.com, mobile devices and social media.

It wasn’t until 2008 that Belk’s online offerings expanded beyond home goods and wedding registries to include clothing and other merchandise. Furthermore, the company estimates that only about 25 percent of online sales come from outside Belk’s sixteen-state footprint and customers can’t order a product online and pick it up in a local store — at least not yet.

The initial phase of improvements includes a new systems platform and functionality enhancements to make shopping online at belk.com easier and it’s developing a mobile app so customers can shop on-the-go from their favorite device.

Employees are charged with promoting the company’s improved website since multichannel shoppers spent 15 percent to 30 percent more than those who visit brick and mortar stores according to surveys by IDC’s Global Retail Insights research unit.

Although the firm didn’t embrace the social media craze until 2010 it now has a blog, a solid presence on Twitter and 789,988 “likes” on Facebook.

While net sales for the 53-week period ended Feb. 2, 2013 increased 7 percent to $3.96 billion, the company is banking on the growth of Internet sales and it’s Southern charm to reach $6 billion by 2015.

“When I visit our stores with members of the Belk family and talk to customers and associates, I get a true sense of what Southern means,” says Penrod. “As a guy who’s originally from Michigan, I’ve learned a whole lot about Southern style and hospitality.”

The Penrod File

Name: Dave Penrod

Title: Chairman, Southern Division

Company: Belk

Birthplace:Detroit

Education: Bachelor’s degree in business management, Oakland University in Rochester, Mich.

What was your very first job? I was a caddy at a local golf course, where I learned a lot about human nature. Golf is a game where honesty, integrity and sportsmanship are paramount because it’s not monitored by referees, so it’s easy to cheat. I observed that some people are inherently honest and some people aren’t. What I learned as a caddy prepared me for life as well as my career.

Who do you admire most and why? I admire politicians like Hillary Clinton and John McCain because they’re truly business people who have to build consensus and balance disparate points of view to get anything done. It’s not easy to do that and I admire anyone who can overcome tremendous obstacles, relentlessly pursue a resolution and foster a spirit of collaboration.

What is your definition of business success? Sales and profits are important but you can’t achieve them by yourself. Your success as a manager hinges on the growth and development of your people. When they flourish and grow, the financial metrics take care of themselves.

What are the keys to leading organizational change? You’ll get some connectivity at a high level, but to truly inspire change, you need to take your message down to the individual level. Give your employees the opportunity to shape the direction of the organization by sharing feedback, especially from customers. Some folks won’t agree with your plan but most of them will engage if you employ a regimented communications strategy that is supported by performance management, training and career development. 

Will Gruver pursued the American dream after earning a degree in economics from Northwestern University — but it didn’t take long for the Minnesota native to realize that working at a bank in Chicago’s famous Loop District couldn’t satisfy his entrepreneurial yearning or heartfelt need to enrich the lives of others. 

So in 2002 he threw caution to the windy city and moved to the Dallas suburb of Celina where he launched USP&E Global. His goal was to design, build and operate fuel-efficient and renewable power stations, primarily in emerging markets.

Gruver says his decision to risk it all was truly a no-brainer, because the U.S. economy was growing at a snail’s pace while overseas markets were booming. And given the choice, he’d rather be sorry, than safe.

“The barriers to entrance have never been lower while the financial and humanitarian rewards have never been greater,” he says. “There are unbelievable opportunities in out of the way places for anyone willing to take a risk.”

On the surface, it seems like Gruver’s chancy decision might yield big dividends. After all, the International Energy Agency expects global energy demand to increase by one-third by 2035, with nearly 60 percent of the demand coming from countries with a burgeoning middle class like China, India and the Middle East.

But outsiders who try to navigate the business landscape in developing nations are often stymied by language and cultural differences and bureaucratic red tape. Small firms like USP&E also face stiff competition from energy, engineering and infrastructure giants like Siemens, which plans to expand its reach in emerging markets over the next five years.

Gruver would need to leverage the expertise of experienced globe trotting partners and employees to realize his dream of bringing power, jobs and hope to people in underdeveloped countries.

Establish trust

People in struggling countries are often wary of outsiders and for good reason. Consider the impoverished West African nation of Sierra Leone where slavery and the sale of so-called blood diamonds to outsiders during the 1990s fueled a brutal civil war and now only those who can afford generators have access to electricity.

Gruver, who employs a faith-based approach to leadership, believes that creating communities and jobs isn’t a consequence of doing business — it’s a reason to be in emerging markets and a moral obligation. Moreover, he scoffs at strangers who suggest that he should hasten his company’s growth by offering officials in underdeveloped countries financial incentives to secure permits or minimize red tape.

Instead, he follows his moral compass by hiring local people to operate and maintain a power station once construction is complete. He says that providing training and jobs creates trickle-down good will, and an environment of mutual respect, that leads to new opportunities. He cites his firm’s ability to secure multiple contracts in Sierra Leone, which is experiencing annual GDP growth of 35.9 percent, as an example.

He pays local workers well once a week and gives each employee a bag of rice to supplement their family’s meals.

“You build trust by keeping your word, and by giving people jobs and a career path,” Gruver says. “Hope was lost in Sierra Leone when we arrived two years ago. It’s remarkable how just a little bit of reliable growth can make a difference. We’re not only giving these people jobs and electricity — we’re giving them hope.”

Leverage strategic partnerships

How difficult is the business climate in Sierra Leone? The country’s overall ease of doing business ranks 140th out of 185 economies according to data compiled by The World Bank. Worse yet, it ranks 173th in dealing with construction permits and 176th in getting electricity, which means Gruver needs strategic alliances to achieve his philanthropic and economic mission.

“It’s very difficult to break into a foreign country without leveraging the established trust of companies that know the ins and outs of the local business and have tenured relationships,” he says.

In addition, having relationships with highly regarded and diverse companies such as Caterpillar, General Electric, Hyundai and Ernst & Young Africa helps USP&E overtake entrenched local competitors by offering clients turnkey power solutions. And the company’s nimble size and vast network helps it customize its deliverables and pounce on prospective opportunities.

“Some competitors just sell power plant support or construction or they only work in Venezuela because they don’t have the alliances to compete on a bigger stage,” Gruver says. “We can offer everything from design to construction and ongoing support for our plants by leveraging the abilities and products of our strategic partners.”

When USP&E couldn’t find a local printer to deliver documents to a prospective client in Johannesburg, South Africa, E&Y stepped in and its actions helped the fledgling power company close the deal. Other relationships have lead to inaugural deals in France and Spain.

“We’re not a huge company so we look for mutually beneficial relationships that extend our capabilities,” he says. “We expect to generate revenues of around $50 million this year and that’s largely due to our strategic partnerships which have never been stronger.”

Hire diverse and passionate people

Companies encounter unfamiliar technical and cultural challenges when they venture beyond the U.S. border. Having a diverse, multi-cultural staff with global business experience is critical in an environment where local knowledge plays a critical economic role. This is especially true in emerging markets, where decision makers are interested in knowing whether companies are interested in them as people or just want their dollars.

There’s no shortage of opportunities for globally experienced engineers and energy-savvy technicians — especially in Texas. So how has a mid-size company with fairly limited resources managed to hire 110 movers and shakers over the last three years?

“We promote our mission because it attracts like-minded people who want to work for more than a paycheck,” Gruver says.

Indeed, what people want most is the chance to make a difference according to Alexander Hiam, the Massachusetts-based author of “Business Innovation for Dummies.” Although a great salary doesn’t hurt, professionals are flocking to disruptive, world-changing organizations where they can feel good about what they do.

Interviews at USP&E usually start with a rudimentary question and answer exchange, but the conversation quickly turns toward the company’s overseas exploits. At that point, candidates who are merely interested in collecting a paycheck usually exit, while those who are passionate about the company’s mission are hooked on the idea of traveling the world and meeting buyers, sellers, and facility managers on multiple continents with different languages, cultures and customs.

And since engaged employees are generally more productive than their less motivated counterparts, the passion factor allows Gruver to boost the return on his fairly small staff. His experience is validated by more than 29 studies that link employee engagement to better service, sales, profits and shareholder returns.

“I lead an awesome team of executives, directors, engineers, project managers and technicians,” Gruver says. “They can have any job they want but they work for USP&E because they’re passionate about helping people.”

Harness the power of the Internet

USP&E doesn’t pay for advertising on Google or Yahoo, and it doesn’t have a commercial sales team. Yet, the company manages to garner five to 15 legitimate leads per day through the strategic deployment of some 80 websites.

Gruver studied web development in college — and refers to himself as a technophile — so he knows a thing or two about search engine optimization. Invariably, USP&E comes up near the top of the page when a prospective client searches the Internet for power engineering solutions or providers because the company owns the rights to a variety of keyword-rich domain names.

A strategic domain name can increase a website’s ranking especially if the domain matches the search query. The tactic is especially effective for small companies that don’t have a large advertising budget or well-known brand, since it snares prospective clients who search on keywords or phrases instead of a company name, and having a strong web presence may even attract investors.

“Executives often think that they have to pay for strategic Internet placement but that’s simply not true,” Gruver says. “Managing search engine optimization is so important to growing companies that it needs to be a top priority for executives right after cash flow.”

Speaking of cash flow, it’s still a daily priority for Gruver given the company’s age and rapid growth. He’s learned to say no to unnecessary frills and how to streamline operations by investing in mission critical areas that yield the best return. He credits his mentors with telling him the truth about frivolous spending instead of what he wants to hear while teaching him the virtues of risk taking and pushing boundaries.

“It’s amazing how just one disruptive idea can change the fortunes of so many people,” Gruver says. “We’re not just creating jobs — we’re creating hope — and that’s a wonderful thing.”

How to reach: U.S. Power & Environment Global, (469) 726-4780 or www.uspowerco.com

The Gruver File

Name: Will Gruver

Title: CEO and founder

Company: USP&E Global

Born: Minneapolis, Minn.

Education: Bachelor’s degree in communications and economics, Northwestern University.

What was your first job?

My first job was a youth pastor, but I started my first company when I was just 10. It was a landscaping business which I built up and sold to my partner after I finished high school.

Who do you most admire in the business world and why?

Entrepreneurs, especially those who head-up small businesses, because they’re the risk-takers who are pushing the boundaries and making a difference in this world. It’s the developing nations that offer the greatest growth and philanthropic opportunities, but it takes courage, passion and a forward-thinking strategy to pursue those opportunities.

What’s the best advice you’ve ever received?

Practice work-life balance. It’s easy to become entrenched in your business and overlook family and friends. I’m more motivated and productive on a daily basis because I have balance in my life.

What’s the key to success in emerging markets?

There’s so much corruption that’s it’s critical to build trust. You won’t muster repeat business unless you take the time to become a valued and trusted supplier.

What’s your definition of business success?

It may sound like a cliché, but helping other people. It’s easy to make money; the hard part is making a difference. There are unbelievable opportunities in this world for anyone willing to take a risk. For a company to thrive there has to be a reason for it to exist. Profits are important but it’s how you get there that counts.

Awards: Finalist, 2012 Entrepreneur of the Year, Ernst & Young

Recipient, Dallas Business Journal’s “40 Under 40”Award

Finalist, INC. 500, fastest-growing private companies in the U.S.

Dallas 100 Entrepreneur Award, USP&E placed seventh out of the 100 fastest-growing privately held companies in the Dallas area

 

nat_sr_accounting_0513Business leaders today don’t need to be big data gurus to discover new ways to boost revenue and earnings as long as they understand the basic fundamentals of data analysis and have a few minutes to spare. Analyzing your financial statements can reveal a bounty of insightful trends and potential moneymaking opportunities that warrant and inspire a journey into the details.

Executives tend to discount the strategic value of traditional accounting reports like financial statements because they recap prior activity. But when complemented by operational measures, balanced scorecards and strategic performance measurement systems, valuable results may be found.

A dive into financial statements can create a competitive advantage by helping executives proactively identify trends and even predict future demand for products and services, says Kristy Towry, associate professor of accounting for the Goizueta Business School at Emory University.

“Consultants have traditionally used accounting data to make agile, first-mover decisions that are crucial to advancing and sustaining growth,” says Jeff Thomson, CMA, president and CEO of the Institute of Management Accountants. “Executives can follow suit as long as they know where to look and understand how to analyze data.”

Explore your income statement

Even if revenue is growing, a dive into your income statements and its supporting data can help you capitalize on emerging opportunities or head off a looming sales decline.

Which products and services are selling and which ones aren’t? Are customers responding to social media outreach or specific promotions? Are they opting for lower-price items with fewer frills or are they willing to splurge on luxury models? And what do these trends mean for the future?

A review of sales records may reveal an opportunity to sell more products and services to existing customers or shift your product mix without increasing overhead. A review of operational data may highlight areas of excess capacity that can be used to generate additional sales and profits.

“Segmenting your customer base by key demographics and tracking their activity and behaviors can illuminate opportunities to grab additional market share through upselling or by offering current customers discounts for purchasing greater quantities,” Thomson says.

Simply repositioning a product or putting it on the front page of your website can boost sales and profits without raising costs, says Alan Reinstein, professor of accounting at Wayne State University. In fact, storing raw materials and products for an extended period of time can tie up cash and erode profit margins.

“Grocery stores put milk near the back of the store because it forces customers to stroll past higher margin products,” he says. “It doesn’t cost them a dime to evaluate sales data or use the results to craft or validate the efficacy of a product-positioning strategy.”

Since a rise in customer satisfaction increases retention and generally precedes a growth in sales, using a balanced scorecard or dashboard to track revenue, sales activity and customer sentiment can help business leaders interpret the needs of the marketplace and make advantageous moves.

Robert Kaplan and David Norton of the Harvard Business School originated the balanced scorecard to give managers and executives a more poised view of organizational performance by adding strategic, nonfinancial performance measures to traditional financial metrics. A holistic view of the organization allows executives to synthesize multiple data streams and accurately predict future performance, Towry says.

“I’m an advocate of the balanced scorecard because it helps business leaders change course or adjust their strategy on the fly by aggregating financial data and other key metrics and compares them to the goals in their business plan,” she says.

Unearthing moneymaking gems is often just a case of exploring your company’s financial statements

Activity-based analysis and costing is a way for managers to assess the performance of assets on their balance sheet and which products and customers are generating the most revenue and profits. The process also helps managers determine where improvements in quality, efficiency and productivity will yield the best return.

“Comparing costs with activities is common among certified management accountants because it helps management identify key cost drivers and potential savings by allocating direct and indirect costs to every stage in the order, manufacturing and distribution process,” Thomson says.

The analytical methodology often highlights opportunities to increase profit margins by outsourcing distribution or ancillary services to less costly external providers or automating manual manufacturing processes, or it may disclose an opportunity to increase cash flow by offering quick-pay discounts or incentives to major customers.

If reducing costs isn’t an option, business owners may be able to raise prices and margins for a particular product by using a formula to calculate elasticity of demand, which measures how the demand for goods and services varies with changes in price.

Generally speaking, the greater the number of substitute products available, the greater the elasticity will be. Naturally, very high price elasticity means that customers are sensitive to price changes, while very low price elasticity means you can raise the price of a top-selling product without effecting demand.

From a trend perspective, a sudden rise in price elasticity may portend an upcoming decline in sales unless executives initiate discounts or take steps to develop and launch new products.

Business owners often decide to eliminate unprofitable divisions or product lines after conducting an activity-based analysis, but they should proceed with caution, Towry says.

“Executives assume that eliminating unprofitable segments will increase profits, but the fixed expenses don’t go away,” she says. “They may end up launching a fatal cash crunch or death spiral once the revenue from that discontinued segment is no longer offsetting those fixed expenses.”

By using the financial data from your accounting system and applying alternative costing models, you’ll be able to determine how much overhead is being covered by the sales of each product and whether it makes sense to discontinue a particular segment or service.

Dare to compare

Comparing key ratios and data from your accounting system to similar companies in your industry can highlight opportunities to lower costs, increase efficiencies and improve your company’s bottom line.

Industry associations often provide benchmark data, and sites like Valuation Resources.com aggregate and provide information, research and analysis for more than 400 industries.

Start by breaking down your company’s accounting and operational data into standard industry measures, such as sales per square foot, same store sales growth or something as simple as the number of gallons of water used per car wash. Then compare your results to the standard for your industry to see where you have a competitive advantage or need to improve.

Major deviations from industry norms should invoke questions and a search for solutions, Reinstein says.

For example, a competitor may have lower selling, general and administrative expenses because they use e-commerce or distributors to push products instead of salespeople. Or they may be experts at using their point-of-sale system to increase loyalty and market share by offering customers incentives or rewards for making additional purchases.

“It’s critical to dive into the details and not ignore the trends, because a svelte, nimble company with ample cash reserves can force a sluggish competitor out of business in a heartbeat in a tepid economic environment,” Reinstein says.

Cash is king

While profits are important, cash is the key to survival for any growing company.

A cash-flow analysis tracks the movement of money in and out of your business by looking at operating, investment and financing activities. It also provides business owners with an accurate picture of their company’s profitability by using noncash items and expenses to adjust profit figures.

Another useful way to spot trends and analyze financial statements is by performing either a horizontal or vertical analysis, which compares numbers from one period to the next. The analytical methodology may point to favorable or unfavorable changes in cash flow that could spell trouble unless they’re corrected.

You’re probably in good shape if your cash is growing, and it accounts for 10 to 20 percent of your assets. If it’s not, then you need to figure out where it’s going. Is it costing you more to manufacture the same products, or have competitive pressures forced you to reduce prices during the last year?

Vertical analysis lets you compare each component of your financial statements over time to determine if and where significant changes have occurred. You may need to focus on collections or stop extending credit to major customers if receivables are growing too quickly, or you may need to reduce inventory if the payments on your short-term line of credit are chewing up cash and affecting your company’s liquidity.

Managing fixed expenses is critical for growing companies, Towry says. Otherwise, a blip in the economy can lead to an insurmountable cash shortage. Don’t just look at expenses when reviewing your financial statements. Break down fixed and variable costs and apply varying revenue forecasts to see how changing circumstances affect your cash position.

“Companies that overinvest in equipment, building leases or inventory can’t manage those costs down when the economy heads south,” Towry says. “Business owners need a cash budget and an awareness of cash in relation to profits because there’s no magic bullet for a major cash crisis.” ?

How to reach: Goizueta Business School at Emory University,

www.goizueta.emory.edu; Harvard Business School, www.hbs.edu; Wayne State University, www.wayne.edu; Institute of Management Accountants, www.imanet.org

When all is said and done, companies are generally satisfied with their new software, but their experiences are hardly a ringing endorsement for enterprise resource planning (ERP) endeavors. Among the 246 firms that completed an ERP installation within the past year, implementation exceeded budget 56 percent of the time and only 46 percent were completed on schedule or earlier, according to data from Panorama Consulting Solutions.

“The scope and complexity of ERP implementations makes forecasting treacherous,” says Zinovy Radovilsky, Ph.D., interim chair and professor of management for the College of Business and Economics at California State University, East Bay. “While cost overruns can’t be eliminated, they can be managed with the right tools and tactics.”

Smart Business spoke with Radovilsky about avoiding delays and budget overruns when tackling ERP projects.

Why do ERP projects often exceed budget? 

An inexperienced project manager and a lack of historical data for enterprise-level software initiatives often result in inadequate cost estimates for items like these:

• Employee training — The most underestimated expense, since employees have to learn a brand new system.

• Integration and testing — Connecting ERP to other software programs is costly.

• Customization — Increases initial programming and configuration costs, as well as the price tag for future upgrades and fixes.

• Data conversion — Including the cost of migrating existing data to the new system.

• Data warehousing upgrades — Often needed to support daily operations post-ERP.

• Consulting fees — When something goes wrong, consulting costs run wild.

Don’t underestimate the impact of large-scale implementations on productivity. Activate one module or function at a time instead of taking a big bang approach, and offer short doses of virtual training and online tools to keep productivity high while employees get up to speed. When people can’t do their jobs the old way and haven’t yet mastered the new way, they panic, and the business goes into spasms.

What are some simple steps to keep ERP projects on budget?

First, select a qualified project manager who has extensive experience with ERP implementation and updates. Next, incorporate risk management into the budgeting process by considering every possible problem and starting with a rough order of magnitude (ROM) budget followed by a more accurate, and typically higher cost, budget estimate and finally, a definitive estimate.

Involve key managers and stakeholders in the budgeting process to ensure the estimates aren’t biased. Then, update the budget as the project progresses, using an earned value (EV) analysis approach that compares cost data to a baseline, to track your performance. Prevent misfires and crashes by conducting comprehensive load testing — using testing software and real users — before the system goes live. Finally, resist the urge to customize every little feature. Instead, choose an ERP system that supports your current business processes or use the standard functionality.

How can executives ensure the financial performance of ERP projects?

Keep employees energized by communicating a clear vision for where the system will be after the initial phase and at various intervals down the road by sharing project updates. Be realistic in setting goals and estimating how much change your organization can absorb, because a major software initiative requires stamina and commitment.

Use a software tool to collect actual data, and then periodically review project milestones, budgets, resource allocation and time/materials bookings to spot opportunities to boost ROI or reduce costs. A software tool is the only way to know exactly where you are in the project, how much time and money you’ve spent, and to forecast the cost and timeline for the entire project.

Remember, you can’t eliminate cost overruns, but they can be managed with the right tools and leadership.

Zinovy Radovilsky, Ph.D., is interim chair and a professor of management in the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3307 or zinovy.radovilsky@csueastbay.edu.

Website: Learn more about the College of Business and Economics at California State University, East Bay.

Insights Executive Education is brought to you by California State University, East Bay

 

Abraham Lincoln may have been the first lawyer to recognize the pitfalls of litigation but certainly not the last. He noted that: “The nominal winner is often a real loser — in fees, expenses and waste of time.”

Fortunately, today’s executives have an alternative way to resolve disputes that doesn’t put your fate in the hands of a judge or jury.

“Not only is mediation less expensive than litigation, the parties are in control of the outcome and they can be completely creative in finding a solution,” says Jennifer E. Acheson, partner and insurance and bad faith expert at Ropers Majeski Kohn & Bentley PC.

Smart Business spoke with Acheson about the benefits of mediation.

What is mediation and how is it different from arbitration and litigation?

Mediation is a type of alternative dispute resolution, where a neutral or trained mediator helps conflicting parties resolve issues, ideally before a lawsuit is filed. Mediation differs from arbitration and litigation in that it’s not a sworn evidentiary hearing or trial, and the mediator doesn’t rule on the merits of the case or take sides. The parties still have the opportunity to air their grievances during caucuses with the mediator and there’s more leeway in offering testimony.

What are some common business situations where a mediator might be used? 

Mediation can be used to settle a variety of disputes including:

• Employee disputes with other employees.

• Employee disputes/grievances with management.

• Sexual harassment complaints.

• Hostile workplace issues.

• Discrimination complaints.

• Americans with Disabilities Act compliance issues.

• Business partner disputes.

• Contract disputes.

How do you select an appropriate mediator, who pays for mediation and how much do mediators charge?

The actual cost of mediation varies with the complexity of the case; however, the parties split the charges and avoid the cost of pre-trial maneuvering, court reporter fees or similar expenses. Mediation is a bargain when you consider that lawsuits cost small businesses $105.4 billion in 2008, according to the U.S. Chamber of Commerce. Since the process of being heard is often the overture to resolution, look for a mediator who is a close and patient listener.

Is mediation confidential?

Yes, anything said during the course of mediation is inadmissible in court, and the communication among participants is confidential. In fact, the mediator needs permission to disclose information revealed during individual caucuses with the other party. This protection even extends to the settlement agreement, unless the parties agree to waive confidentiality. In contrast, trials are normally open to the public.

What happens if the parties can’t agree?

Unlike arbitration or trials, which have a mandatory and possibly binding decision, the mediator doesn’t have the power to force the parties to reach an agreement. The process is voluntary and either party can withdraw at any time. If the parties can’t resolve their issues in one session, with the parties’ permission, the mediator can continue the process until the dispute is resolved.

Is an agreement made at mediation enforceable?

A mediation agreement is enforceable as long as the authorized parties agree on a deal and sign the memorandum. If a party refuses to comply, the parties can appoint the mediator as an arbitrator for the sole purpose of rendering an award that complies with the agreement, as long as the dispute hasn’t gone to litigation. If the matter is already in litigation, a motion for enforcement can be brought under the civil code. This makes mediation an enforceable and cost-effective alternative to litigation.

Jennifer E. Acheson is a partner, insurance, and bad faith expert at Ropers Majeski Kohn & Bentley PC. Reach her at (650) 780-1750 or jacheson@rmkb.com.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

 

Business leaders often rely on intuition when making critical decisions, but according to The Economist Intelligence Unit, executives dramatically increase their chances of success when they bring facts and data into the decision-making process.

“Although beliefs and instincts help executives make expedient decisions, they aren’t always good decisions,” says Dr. Chongqi Wu, assistant professor of management for the College of Business & Economics at California State University, East Bay. “Business leaders become better decision makers when they take advantage of the facts derived from data analysis.”

Smart Business spoke with Wu about the benefits of incorporating big data and analytics into the decision-making process.

Why is fact-based decision making superior?

Although intuitive decision making is simplistic and quick, a lack of underlying data makes it hard for executives to diagnose and correct problems when something goes wrong. Instead of compounding the problem by making another bad decision, executives can drill down into the data to determine the cause of misfires and use factual analysis to set a new course. Actually, studies show that cumulative improvement is hard to obtain when executives react to problems instead of using facts to make prudent business decisions. And since most of your competitors are probably using data, companies that base decisions on gut feel or instinct are at a competitive disadvantage.

What types of decisions or problems are best solved by big data?

In general, data-driven decision making works better at an operational or tactical level since there are relatively fewer risks involved. In fact, when aided by technology, data makes it easy to automate rudimentary tasks and decisions.

Conversely, strategic decisions still require intuition and judgment, but injecting data analysis and modeling into the process can significantly improve the odds of success. Don’t think of gut-based and fact-based decision making as competing concepts because they actually complement each other. For instance, cross-functional teams often use data to project outcomes and validate the return on proposed programs or new products. It also helps diverse teams build consensus by using facts instead of politics and personal preferences to reach conclusions. Strategic decision making still requires risk taking, and success may hinge on market timing, execution and luck. Data just makes executives better gamblers.

What’s the best way to incorporate data into the decision-making process?

First, executives need to lead the way in supporting cultural change by acknowledging the importance of data in the decision-making process. Next, use data modeling to project probable outcomes and evaluate ideas, since facts and knowledge generated from analyzing big data provide a common ground on which ideas can be debated. Finally, force your team to analyze data by asking questions during the evaluation process so they learn how to marry facts and instincts.

Do executives need copious amounts of data to conduct modeling and analysis?

It’s hard to estimate, but simply put, gather as much relevant data as possible. However, there’s no reason to wait; start small and start immediately because there’s no need to invest in expensive systems or software. Purchase information from third parties, tap free sources to validate ideas, use economical cloud services and software as a service programs to analyze information, and begin collecting in-house data. Finally, run an experiment or test to see how much data you actually need to project the return on a small marketing project or idea.

How can executives gain the confidence to make data-backed decisions?

Even though great decisions don’t always produce great outcomes, you’ll gain confidence by realizing that great decision gives you the best chance to succeed. For example, it’s a great decision to have Kobe Bryant take the final shot when the Lakers are behind because, with a career field goal percentage of 45.4 percent, he gives the team the best chance to win. But data also shows he’ll miss about 55 percent of the time. Luck and timing still play a key role in determining success.

Dr. Chongqi Wu is assistant professor of management, College of Business & Economics, at California State University, East Bay. Reach him at (510) 885-3568 or chongqi.wu@csueastbay.edu.

Event: See a calendar of upcoming seminars hosted by the Department of Economics.

Insights Executive Education is brought to you by California State University, East Bay

 

Every entrepreneur dreams of the day  his or her fledgling startup becomes a going concern, but you could end up losing everything — including your house and your car — unless you take steps to separate and protect your personal assets.

“Owners should have limited liability for business debts and obligations,” says François G. Laugier, partner and director for Ropers Majeski Kohn & Bentley PC. “Incorporating sooner rather than later offers considerable protection with virtually no downside.”

Smart Business spoke with Laugier about the benefits of incorporating at the right time.

When is the right time to incorporate?

Owners expose themselves to liability for their company’s actions and debts the minute their venture becomes operational or starts hiring employees. So, it’s time to incorporate when your startup begins interacting with third parties or logs its first sale. Whether you manufacture food products or develop software, you could lose everything unless you form a legal business structure to safeguard your personal assets.

What are the advantages of incorporation?

Incorporating not only keeps creditors from attacking your own assets and employees from suing you personally, but it also increases a company’s credibility and raises the valuation you can expect to receive from a prospective acquirer. A corporation is always perceived as a safe and familiar recipient where a business can accumulate intellectual property and other assets such as patents, trademarks and copyrights to subsequently transfer them to a new owner or heir. And consumers, vendors and partners often prefer doing business with an incorporated company. Incorporated businesses can also offer stock options to employees and contractors, thereby attracting the best technical talent and, in turn, the most influential investors. And, history shows that buyers are willing to pay more for a business that is incorporated, has a well-maintained corporate book, complete with up-to-date annual records and government filings, and that has received guidance from reputable and competent lawyers, accountants and advisers.

What are the different legal vehicles available for incorporation?

Entrepreneurs of for-profit ventures usually consider a limited liability company (LLC) or a corporation when selecting a legal entity. For budding companies, a LLC is often the preferred choice because its shareholders, called members, only pay taxes on profit distributions at the member’s personal income tax level, while profits are otherwise taxed at both the corporate and personal level when generated through the activities of a corporation. For the IRS, a LLC is known as a ‘disregarded entity,’ as its profits and losses essentially pass-through to the owners. But if you soon plan to raise venture capital or offer employees stock options, a corporation is the better vehicle. Get advice from your lawyers and accountants, but remember the conversion of a LLC into a corporation is a relatively simple legal process. Conversely, there will be a host of negative tax consequences if you convert a corporation into a LLC.

How can business owners limit their personal liability by incorporating?

If your budget is so tight that you can’t hire a lawyer, it’s tempting to incorporate on the Internet, but the lack of a formal business structure and legal guidance can leave you just as exposed as if you had not incorporated. To limit liability, you must ensure your company is sufficiently capitalized, has complied with securities regulations when issuing shares and soliciting investment, and you haven’t commingled personal and company funds. You must also record the proper documents on the federal, state and local levels and maintain a good record of all accounting transactions, meeting minutes and periodic filings so savvy creditors can’t attack your assets by piercing the corporate veil.

When shouldn’t a business incorporate?

It may not make sense for an independent consultant or a very small business to go through the incorporation process. Their limited exposure may not require the protection and cost of a corporate entity. But for everyone else, there’s no reason to link your personal assets to the company’s fate.

François G. Laugier is a partner and director at Ropers Majeski Kohn & Bentley PC. Reach him at (650) 780-1691 or francois@rmkb.com.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

 

 

International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise. But finding funding for exports can be difficult, unless you leverage a government-backed program.

“Why turn away sales when you can get working capital assistance through government programs to penetrate red hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist at California Bank & Trust.

Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.

What is the working capital guarantee program?

U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs. So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).

The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show. And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.

How do the programs help small businesses?

The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.

Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.

How much can companies borrow and what does it cost?

The SBA export working capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.

There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate,

which is currently hovering around a 52-week low.

What are the eligibility requirements?

Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents. Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.

For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.

How can business owners find a participating lender?

Your local SBA or Ex-Im representative can provide referrals, but you can look for a Delegated Authority Lender who has the ability to expedite your loan.

Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.

The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide.

Alfred Ho is vice president, enhanced credit specialist at California Bank & Trust. Reach him at (213) 593-2118 or alfred.ho@calbt.com.

Insights Banking & Finance is brought to you by California Bank & Trust

 

Just when the construction industry was about to emerge from the doldrums, a series of game-changing events has raised the stakes for some of its major participants. Design professionals and contractors face increased risk and liability following the introduction of new design standards and several precedent-setting court decisions.

“The convergence of recent activities is a call to action for architects and contractors,” says Steve Erigero, a partner specializing in commercial litigation at Ropers Majeski Kohn & Bentley PC. “They must take immediate steps to minimize exposure.”

Smart Business spoke with Erigero about the ways design professionals and contractors can benefit from the rebound while limiting their exposure.

What’s behind the rise in liability for contractors and design professionals?

Design professionals were largely immune from liability under California Senate Bill 800, but that changed when a California appeals court ruled that homeowners and homeowners associations could now sue them for defects.

Then, the California Legislature eliminated another safe harbor, when it decided that contractors and developers could no longer pass liability to downstream parties like subcontractors.

Finally, the escalation of green building projects has resulted in a host of new design standards and certifications. Professionals who fail to comply with Leadership in Energy and Environmental Design or other green building standards may be held liable for any shortcomings.

What are the most common risks associated with development projects?

Architects can be liable for construction defects, delays or cost overruns resulting from plan deviations as well as the improper installation or under-performance of specified building materials. For instance, they can be liable for a leaky window, even when the framer or product manufacturer is at fault. In addition, design professionals risk becoming a deep pocket if a general contractor is underinsured or files for bankruptcy.

To protect themselves, architects need to perform visual inspections throughout the course of construction and make sure their contracts include clauses that limit pass-through liability.

How can professionals minimize exposure to risk and liability?

The first step is to conduct a risk assessment and an insurance review. Even a high-deductible insurance plan may be better than going bare, but you need facts to assess your exposure and determine your risk tolerance.

Next, be cautious about signing indemnification agreements given the court’s reinterpretation of Senate Bill 800’s statutes. A contract review may reveal opportunities to insert clauses that limit liability and damages, especially in California.

Finally, consider the capitalization and financial stability of builders and developers before taking on a project. You certainly don’t want to be the last guy standing in the event of litigation.

How can professionals head off potential problems by working with legal counsel?

Besides helping with contract and insurance reviews, your lawyer can alert you to possible trouble by monitoring litigation activity on your current projects. It may be possible to mitigate risk by purchasing insurance if you receive a timely warning. He or she can help contractors decide whether to hire employees or continue subbing work out. Since contractors can no longer pass-through liability, it may be less risky and more profitable to exercise greater control over the construction process. Your lawyer can even help you compete for new deals by creating several versions of the same contract with varying levels of liability. That way, you can tailor your risk each time you bid on a project.

The key is to take immediate action so you don’t miss out on the long-awaited rebound in the construction industry.

Steve Erigero is a partner, Commercial Litigation, at Ropers Majeski Kohn & Bentley PC. Reach him at (213) 312-2013 or SErigero@rmkb.com.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC