When it comes to attracting businesses, size alone should put Palm Beach County at a distinct advantage over its Florida peers. With 38 municipalities, the county trumps Broward, Pinellas and even Miami-Dade as the largest in Florida and third in population.
The problem is, although geography plays a role, it is not nearly the most important factor for businesses choosing whether or not to invest in your county, says Kelly Smallridge, president and CEO, Business Development Board of Palm Beach County.
“When you’re in economic development, one community can look like another community,” she says. “These CEOs are looking at 20 or 30 communities at a time, and it’s the communities that are going to roll out a much different experience and feeling of a corporate home that they are going to remember.
“We cannot present the same product as everybody else. So with everything that we do, whether it’s the message we deliver in a website, social media message, any printed material or their experience when they visit our community — it must make a lasting impression.”
Since taking the top role at the board in 2004, Smallridge has helped overhaul its economic development strategies to grow jobs and drive business investment in the county. Between 2011 and 2012, these efforts have helped create or retain 1,700 jobs and $166 million of capital investment into Palm Beach County.
In addition, Smallridge herself has been recognized by the South Florida Business Journal as an “Ultimate CEO” and by South Florida CEO as one of the top 40 business leaders in Palm Beach County.
Smart Business spoke with Smallridge to discuss what economic and business leaders can do to create make their counties attractive for businesses and why it’s an ongoing process.
What makes a county globally competitive for business?
Workforce has to be top notch, meaning highly skilled and available. Education K-20 has to also be more than excellent to attract families and corporations to this area — so workforce and education. The cost of doing business has to remain affordable … and the ease of doing business has to be far better than other locations, other competitive sites.
As CEO, what did you feel that Palm Beach County needed to change to be more competitive with other counties?
I saw a tremendous amount of focus on bringing someone in from other states, when really, a job is a job whether you bring it in from the outside or you create one here locally — it’s the same opportunity for our area residents.
I saw too much of a focus on that outside effort and not enough focus on nurturing those companies that already call Palm Beach County their home. So we traded more of a balance internally to grow what’s in our backyard. As a result, about 70 percent of our job growth in this county comes from companies that already have an existence in this county and 30 percent come from the outside.
How did you begin redirecting the county’s job growth efforts?
First of all, I had to build the best economic development team. Hiring great leaders that were well-experienced in economic development was No. 1. Two, I had to educate my own community — my own public and private leaders — about the value and importance of economic development and how to be well-versed in what CEOs are looking for when they are selecting a location for expansion, retention or relocation.
Starting with your internal leadership, what were the key steps in building a strong economic development team?
If you study economic development organizations throughout the county, the challenge is that a lot of these people are selling counties — they are very good at it — but they don’t know their county the way we know our county because we are products of this county.
Building that team of VPs here who are very passionate about what we are selling is No. 1 — hiring the best economic development professionals. Our average tenure in this organization is 10 years, very rare. … A quarter of our staff was either born or raised in the county that we are charged with selling.
No. 2, making sure that we subscribe to the highest levels of economic development principles. We went through what’s called an accreditation process. There are only two accredited economic development boards in the state of Florida, and we are one of the two. There are something like 25 in the United States.
We didn’t go for accreditation until we knew we had reached certain fundamental goals in this organization, a five-year strategic plan, the highest level of leader on our board, strong financials — most not-for-profits are strong financially — and more private support than public support.
So how did you apply those principles across the county’s 38 cities?
We created something called Economic Development 101. We started training our elected officials and municipal stakeholders on how to answer questions from CEOs looking at their city.
It was very surprising how much elected officials didn’t really understand about economic development and what would be the highlights of promoting their areas: understanding the major employers, the taxes, the cost of doing business, knowing what the strengths are of their cities from a business perspective and being able to speak very articulately about what makes their city one of the best business locations.
How did you develop the Economic Development 101 curriculum?
Once we did three municipalities, we really got a much better understanding of what the learning gap was, what they clearly understood and what they didn’t understand. We changed that accordingly and continue to build upon that. Every time that we go to an election we go back to those cities and re-educate those people. It’s made a very big difference.
Another key part is making sure that economic development is a top priority of the municipalities. If you have strong economic development, your retail thrives, your mom-and-pop businesses thrive and your residential does well because now you have people with expendable income who can purchase your homes and apartments and frequent your restaurants and your retail establishments.
We really try to get them to understand that it’s the high-end economic development that’s going to create the trickle-down and fuel the other types of business operations in their community.
Why is it so important for economic development boards to work closely with city leaders?
Too often, economic development boards focus on their organization and don’t understand that they really represent their entire geographic region.
They have to get out there and make sure that their entire geographic region has tax incentives, that they are moving quickly in expedited permitting, that they are cutting down on the layers of bureaucracy and they can speak the languages that businesses need to hear, that they put out a warm, friendly welcome mat.
Sometimes it’s not about the amount of money or incentives that you send to a CEO; it’s about how warm your welcome mat is.
I can only sell the product that I’m given by my cities. So if they don’t understand how to make their area attractive to businesses, it doesn’t matter how strong my organization is. I have to make sure that the product is strong, and the product is the comprehensive component of 38 cities.
Once you get everyone on the same page, how do you keep them there?
You form an economic development stakeholders council that brings them all together on a regular basis to communicate, share best practices internally, inform them of what new programs have come through the state that are available for all municipalities and that they can integrate into their respective areas.
Some of the things that we’ve brought to the table that many of our municipalities have taken advantage of are Ad Valorem Tax Exemption, passing that through their cities, and expedited permitting ordinances.
This is very large county, and one of the new things that I implemented when I became the leader is, ‘You are visible if you are present in their community.’ The county is about 40 miles long. It’s the largest county east of the Mississippi River and larger than a couple of states. It’s a very big, massive land area.
What I did was to establish satellite offices in the north, central, south and western part of our county. I went from one office, to one office and three satellite offices — big difference. Now you’re present in the community working side-by-side with your teammates and other city officials.
What results have you seen from PBC’s newest economic development initiatives?
Too many presidents of economic development boards are quick to get to that ribbon-cutting ceremony when really we’re in there to help them through the entire process until they turn the key and then for many, many years down the road. That’s why we’ve had companies come back to us five or 10 years beyond our initial relationship to help them with their expansion.
If you have an entire community that is working in the same direction toward creating jobs and you eliminate the competition internally and you get everyone on the same page, you end up with entire group of public and private leaders that are all working toward the same goal.
That may seem very fundamental, but it has taken years to get to that stage. If you look at other communities throughout the U.S., you will find very few where all public and private leaders have the same end goal in mind. ?
How to reach: Business Development Board of Palm Beach County, (561) 835-1008 or www.bdb.org
The Smallridge File
President and CEO
Business Development Board of Palm Beach County
Born: West Palm Beach, Fla.
Education: University of Florida
What would your friends be surprised to find out about you?
For the most part, I keep my private and professional lives separate. Therefore, my friends would be surprised to see what a normal business day is like for me. Every minute of every workday is usually booked solid with meetings, speeches, interviews, prospecting, traveling, deadlines, with absolutely no downtime until Friday afternoons.
How do you recognize new business opportunities?
I do not like to perform or develop a product or program that I’ve seen out on in the market. If I see it, then I tend to steer away from that and try to figure out what is really going to be the ‘wow’ factor in the way that we present a product. It distinguishes us among our competition.
What happens when you don’t close a business deal that you wanted?
One of the keys to any leader is that you’ve had numerous failures. Every one of those I’ve look at as character building exercises. We’ve lost some deals that I thought that we should have won. I don’t sweat over that too much, but instead, evaluate the situation very quickly, figure out what we did wrong and what we did right, and move toward developing some sort of resolution that ensures to the best of our ability that it won’t happen again. We’re quick to take a look at ourselves and be our biggest critics.
What do you do for fun?
I am a firm believer that in order for my mind to stay healthy and make good business decisions, I must find time for fun. As a mother of three boys, all of my free time is spent with them at football, basketball or family vacations. We love to cruise to the Caribbean a couple of times a year as a family. In addition, I am blessed to live within a few miles of my parents, my brother and my sister. Getting together at least monthly with the whole family, especially during football games, has been a source of great memories.
This is Part 2 of two articles addressing the trials and tribulations of a company’s growth and development. Part 1 described how the gun slinger role helps drive growth in the early stage of a company’s evolution. The gun slinger is the person who challenges the status quo, the one who takes risks to blaze new trails. They are often the one who leads the company through challenges or troubled times.
In Part 2 of the story, William F. Hutter, president and CEO of Sequent, describes what happens as a company matures and grows.
“When the original entrepreneurial spirit begins to wane, the gun slinger is no longer welcome,” he says. “Questions emerge that spark a re-evaluation of what led the company to where it is today.”
Smart Business spoke with Hutter about how the trailblazing gun slinger might no longer be welcome in a company leadership role.
How does a company’s growth affect leadership?
After a company’s early-stage success, the leadership often begins to question ‘what got them here.’ This questioning and re-evaluation process usually leads to a revelation: ‘We need to move from an intuitive approach to one that is more prescriptive.’
This shift toward structure requires different skills. As a result, what had been the company’s strength is now seen as its weakness, and the early-stage leaders start to look like a bunch of rookies. So the re-evaluation questions begin to foster a need for change, which in turn produces two separate and distinct outcomes — one that is intended, and one that is not.
What is the intended outcome of the growing company’s re-evaluation?
Committees are formed to bring together seemingly disconnected pockets of knowledge from different functions or different departments around the company. The objective is simple — to create the most efficient operation between each of the moving parts of the company. In order to break down barriers and miscommunication, each function identifies how to best do its job as a way to complement other departments or to help the next stage of the process by making sure its job is complete. The process of identifying the skills, talents, and responsibilities of each person and/or department can be a long-term commitment for any organization. This effort helps document and validate the business systems that have materialized out of necessity. The systems and processes that have allowed the company to get to this point in its growth are now challenged and possibly changed in this reconstruction stage. It is at this point that the following questions could emerge:
- How can we improve?
- Why does this or that happen?
- Do we need more forms?
- Shouldn’t everything be consistent?
- How does this business delivery system meet compliance standards?
- Who can we get to help us?
All the while the business has not stopped, new deals are made, clients are serviced, inventory is delivered and bills are paid. But now there is a group of people from around the company trying to analyze the existing systems and processes while getting the day-to-day work done. It begins to look like a group trying to change a flat tire on a moving car.
So, who participates in the reconstruction process? Certainly not everyone can participate. It is usually just a select group that begins to determine how to improve existing systems and processes, documents the suggested improvement (changes), and communicates the same to the various people and departments impacted by these improvements.
Sounds like a perfect scenario, right? People are coming together working on a common goal to improve the organization. But there can be a dark side. Those who are not included in the reconstruction process begin to question and wonder, ‘What are they talking about? How is it going to impact me? Why is he or she in the meeting?’ Then the unintended outcome happens.
How can creativity unintentionally dwindle with this kind of reconstruction?
The reconstruction process is the intended outcome that companies often see as they transition from the early stages of development. However, there’s an unintended outcome — the death of creativity.
This unintended outcome doesn’t just happen one day, it occurs gradually. Over time, the activity of identifying and defining the systems and processes begins to create structure for the company. Management uses this structure to evaluate employees against a standard of processes and systems. However, in the business environment, especially within the service sector, it is very difficult to establish a standard because the variables are constantly changing. Customers are continually challenging the standards. While this looks great on paper, service providers need to constantly change to meet their customer’s needs, which often results in a continual process of customizing to meet those needs.
With this loss of creativity, how are company gun slingers impacted?
It is nearly impossible to build a system or process for every situation or circumstance. When a company tries to do this, it affects the accountability of the individuals in that culture. This leads to a culture where decisions are oriented around risk, not service. The result is a culture built on ‘do’s and don’ts’ driving decisions rather than a culture that embraces creativity and thought leadership to guide decision-making.
I’ve seen this many times — it’s the companies where the people with the strongest voice are the people who follow the system, not those who lead. A fear of voicing an opinion, asking a question or taking leadership fuels an undercurrent of negativity and squelched creativity. And, in the end, it’s the gun slinger, those who aren’t afraid to question the system and challenge the status quo, who pay the ultimate price of this new approach. In the end … the system kills the gun slinger.
William F. Hutter is president and CEO of Sequent. For more information, visit www.sequent.biz. Reach Hutter at (888) 456-3627 or email@example.com.
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This is Part 1 of two articles addressing the trials and tribulations of a company’s growth and development. First, let us set the scene: A company is on the path to success … great growth … exciting leadership … but has very little management.
This start-up, entrepreneurial company is driven by personality, and not just one, but a combination of personalities that create a unique cultural fingerprint of the company. It is not a formulaic approach; instead, it develops over time. This merging of personalities is an exciting time, driven by a common purpose and the excitement of building something unique. Things are flowing smoothly, and everyone begins to settle into a comfortable rhythm, says William F. Hutter, president and CEO of Sequent.
“This rhythm of early stage companies is a lot like that favorite recipe — the unique combination of foods and spices that make it smell and taste perfect,” says Hutter. “Remember visiting your grandparents’ house after you have been away for a long time? That smell of Grandma’s favorite recipes is deeply imbedded in your memory. Just one hint of that smell takes you right back to the comfort of Grandma’s kitchen. This same thing occurs in an organization during the early stage.”
Smart Business spoke with Hutter about the early stage of a company’s development and the role of the gun slinger.
How does the combination of personalities impact an organization?
The combination of personalities creates a feeling of comfort for those who helped create the collective personality. The founder/entrepreneur who has always run with his or her hair on fire is the head cheerleader. Everyone becomes comfortable, and the company’s cultural fingerprint becomes more established.
In the early stage, leadership is focused on sales, service and growth. The basic needs of the business — cash flow, growth, scale and bench strength — require that these factors repeat for continued growth. The leadership operates intuitively and influences the organization every day with necessary circumstantial decision-making. They are focused on a single objective — growth. This is the way the company operates and it is an exciting time.
What is the role of the gun slinger in this environment?
In the early stages, the importance of the gun slinger role is staggeringly important, because the gun slinger drives growth. We all know a gun slinger or two. They are in every organization. They get things done. It may be the founder/entrepreneur, or someone who has the courage to take on a tough project. They take risks and blaze the trail. The gun slingers in business are a lot like the gun slingers in old westerns. They are hired to do a tough job. They may move from town to town to ‘fix’ a problem, challenge the status quo or lead a group through troubled times.
In a growing business, the modern-day gun slinger is instrumental in driving the growth and the vision and is a constant reminder of the action and effort that are a necessary complement to the rest of the staff. The role of a gun slinger within a company requires creativity, quick thinking, calculated risk taking, gauging of skills, analysis of the objective and a superior level of individual talent. The role also allows for longevity of service and a willingness to accept individual accountability. Modern-day gun slingers must be self-motivated, willing to invest unrelenting effort with a purity of focus and have the ability to execute without regret. What organization wouldn’t want an employee or two with the skills of a gun slinger?
When does the gun slinger come under fire?
As the company grows, both internally and externally, the original entrepreneurial spirit and attitude begin to wane, and the gun slinger comes under fire. Early stage success brings with it the realization that this new company may very well have a long life. Therefore, a transition that ‘feels’ necessary begins to manifest.
Logic sets in. The organization has grown, and the early stage leadership realizes that planning for the next stage is imminent. Financial reporting is hazy, and people begin to point fingers rather than taking responsibility or working together to analyze procedures and methods. So a decision is made to look at what has been an ‘intuitive’ formula.
Time is spent documenting processes and systems to improve efficiency and move from an intuitive formula to one that is more prescriptive. The company also starts to see the risk of having leadership in such a crucial role. As a result, questions emerge — questions that involve re-evaluating what led the company to where it is today. Questions include:
- What do we do if something happens to the leader?
- The company is now a significant asset to its investors. How will the assets be protected?
- How do we document knowledge? How do we establish leadership as a mentor for sharing their unique knowledge?
- Can we decentralize to improve integration of departments?
- Do we need more management oversight?
All of these questions are legitimate, but we sometimes fail to recognize the consequence of seeking answers to these questions.
What happens when the gun slinger is no longer welcome?
In evaluating the factors that led to the early stage success, what had been the company’s strength is now examined as the company’s weakness. Often, when objectives have changed, the esteem once commanded by the leadership is questioned. They are no longer viewed as the strong gun slinger. Just as in old westerns, modern-day gun slingers, while welcomed in times of need, find their welcome has run out once their job is completed.
Next month, watch for Part 2 of the story, “Death of the Gun Slinger.” Learn how the changes fostered by the re-evaluation questions produce separate and distinct outcomes, which ultimately lead to the death of the gun slinger.
William F. Hutter is president and CEO of Sequent. For more information, visit www.sequent.biz. Reach Hutter at (888) 456-3627 or firstname.lastname@example.org.
Insights HR Outsourcing is brought to you by Sequent
As labor rates rise in China, shipping costs increase, the dollar weakens and supply chains grow more complex, many industry analysts are suggesting U.S. manufacturing activity will increase over the next five years.
And while some risks such as supply chain failures may be reduced if manufacturing firms are closer to operations and manage them more effectively, other risks — such as medical cost inflation for workers’ compensation and nonoccupational injuries — are on the rise, says Mike Stankard, managing director and Industrial and Materials Practice leader at Aon Risk Solutions.
“High-frequency, low-severity type risks, such as workers’ compensation or fire prevention, need to be managed on a day-to-day basis to prevent and mitigate losses,” says Stankard. “Businesses simply can’t overlook those because they face them every day. They also need to control losses that would prove catastrophic, such as large liability claims or the financial impact from natural disasters. Those risks can be managed with insurance because they are largely unpreventable, and businesses have an obligation to protect shareholders’ capital.”
Smart Business spoke with Stankard and John Gertken, senior account executive with Aon Risk Solutions, about how to manage risks facing the industrial and materials sector.
What are some risks that can impact the industrial and materials sector?
Aon Risk Solutions recently conducted a survey of business leaders in the industrial and materials sector to gauge their concerns, which included the economic slowdown — in both the U.S. and abroad, uncertainly surrounding raw materials and commodity pricing, and future innovations to keep up with customer needs.
In addition to the broad risks that drive macroeconomic issues affecting supply and demand, leaders must consider specific risks and manage them on a day-to-day basis to ensure efficient and effective execution of their business plan. In this area, risks include business interruption and supply chain failures, keeping up with emerging market opportunities and the risks and rewards of globalization.
What are some of the major drivers of risk?
The recession has had a profound impact on manufacturers that were forced to quickly adjust to changing demands for their products. The challenge was that no one knew just how low the economy was going to go. Some manufacturing employers reduced their work force by 40 to 60 percent and closed plants, although some of those reductions are starting to reverse. Many companies, especially automotive, used bankruptcy as the ultimate risk management tool to make long-term fixes to their macro-business models in the areas of labor contracts and raw material purchasing, shutting down inefficient plants and dropping marginal product lines.
Escalating health care costs continue to affect the work force both in terms of group medical insurance costs and workers’ compensation. When workers are injured, an employer is affected by wage replacement, medical costs and productivity leakage.
There’s also been reaction to all of the production moved offshore in the past 10 years. In 2011, natural disasters, such as the earthquake and tsunami in Japan, flooding in Thailand and earthquakes in New Zealand and Chile, put stress on the global supply chain, forcing companies to re-examine the vulnerabilities around their supply and customer chains. Many are now considering whether they were shortsighted when they moved production to low-labor rate countries that could potentially result in larger issues than just how much per hour they are paying employees.
How can mid-sized employers minimize risks?
Mid-sized employers may want to consider increasing workplace safety to avoid injuries that may result in expensive medical costs. As not all accidents are preventable, effective claims management practices on post-accident behaviors can help control medical costs and get workers back on the job as quickly as possible, even if it’s for light duty work.
When looking at the supply chain, manufacturers need to re-examine their supplier base to look for potential bottlenecks, single-source suppliers that could cause problems down the road. To minimize the risk, contingent business interruption coverage insurance around supply chain failure is available, which can cover loss of revenue.
However, it is important to note that underwriters have changed their business practices to limit their exposure in this space. They want to know about your suppliers — where they are located and how much business you do with them. For example, they might reduce your limits or restrict coverage so it only applies to direct suppliers rather than indirect ones, even though both can have just as much impact on your business.
Once risk management practices are in place, how can you measure them for effectiveness?
Your insurance broker, who optimally deals with your industry, knows it well and works with your peer companies, should be able to provide best practice benchmarks and performance metrics that can be continually updated. They can give you guidance on how to prevent and minimize claims as well as advice on the quality of insurance, how much you should purchase, how you should measure and value business interruption losses, etc. For example, your broker could perform a comprehensive evaluation of your workers’ compensation processes and losses, analyzing your environment and all of the losses you had on a granular basis. After determining the root cause of those losses, the broker would make recommendations such as ergonomic corrections, improvement in communications around losses and reporting lags.
These kinds of precise adjustments and the best practices associated with them could add up to millions of dollars in savings over time.
Mike Stankard is a managing director and Industrial and Materials Practice leader for Aon Risk Solutions. Reach him at (248) 936-5353 or email email@example.com.
John Gertken is a senior account executive with Aon Risk Solutions. Reach him at (314) 719-5193 or firstname.lastname@example.org.
Please visit aon.com/industrialandmaterialsreport to download a copy of the 2012 U.S. Industrial and Materials Industry Report.
Insights Risk Management is brought to you by Aon Risk Solutions
In the Akron/Canton real estate market, what’s old is new again. Many companies have taken a chance on a redeveloped older building and turned bad news into a great opportunity.
“When Lockheed Martin decided to increase efficiency by selling its building in Akron and leasing back a smaller portion for its operations, it left a big hole,” says Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis. “But that opened up space for other companies, and there are as many jobs in that building now as there were when Lockheed was the sole tenant.”
Other examples are everywhere. Canal Place is a 12-building complex in downtown Akron that used to be headquarters for The B.F. Goodrich Company. These buildings, originally built in the early 1900s, have been thoroughly updated and now house seven communications companies and three computer software firms. More people work there today than when the former tenant was at its peak.
When Rubbermaid left its facility in Canton, two Northeast Ohio companies filled the building right away.
Smart Business spoke with Coyne about how to take advantage of redevelopment and what to watch for when considering an older building.
How can you take advantage of this?
If you are thinking about moving, these buildings are a great, inexpensive alternative to new construction. The people doing the redevelopment are bringing a product that is excellent quality and fantastic value. So the next time you hear that a company like Lockheed Martin is doing a sale/leaseback and opening up vacancy, it may not be great news in the short term, but it could provide inexpensive space for the next guy in. Pay attention to bad news because it really might be good news from a real estate perspective.
Why should companies consider buying or leasing space in a redeveloped building?
You wouldn’t build these buildings today, because they have amenities that are specific to a manufacturing world that has passed us by for competitive reasons, and because of today’s focus on efficiency.
These buildings have cranes that are hard to come by, floors that are thicker than would be built today, and power distributed throughout in a way that FirstEnergy wouldn’t be too eager to do. These are amenities that — from a replacement perspective — would destroy your budget. But rather than being scrapped, people are taking the risk on redeveloping them.
As a result, they are giving great rates with plenty of amenities and tons of outdoor parking. It’s a built-in infrastructure that supports a lot more than you would ever need at a price you could never touch.
What concerns should potential tenants have before moving forward with this type of project?
Because of the age of the buildings, you need to be more diligent at the beginning. Try to shift the burden of physical maintenance — building, wall, structure, power, anything not specific to your operation —to your landlord, who is the expert in that business. Sometimes the landlord will ask you to maintain part of a building, and with these older ones I wouldn’t take that risk. The reason why they offer some amenities is because it would be very expensive to replace them. If the landlord asks you to maintain a big-ticket item that you wouldn’t normally see, like a transformer, say no. It could cost you in the tens of thousands of dollars to replace.
Also, a new building will have higher ceiling heights and bigger column widths which allow you to store products more efficiently. Many older buildings have lower ceilings and tighter columns. So you’ll be paying less, but you might need more square feet. If you are a manufacturing company that is not worried about ceiling height, then it’s no problem. However, if you are a distribution company, you need to figure out your cubic space requirement. This isn’t just floor space, but how high you can stack products, which is important if you are looking at converting old manufacturing buildings to distribution buildings.
Another issue to consider is the rate. Don’t just say, ‘Well for $1 per square foot, I can buy as much as I want.’ Be careful that you don’t get lulled into just looking at the lease rate and buying three times what you need. If you do it right, it should be a great deal, but these are questions you have to ask yourself before moving forward.
What about environmental issues with older buildings?
Whether you are buying or leasing, you should be much more aware of environmental issues. A lot of these buildings will have toxic substances like PCBs (polychlorinated biphenyls) in their transformers. That, along with asbestos, is a common issue you will see in old manufacturing buildings that you would never see in a greenfield development. So you want to be much more aware of the environmental issues, but don’t be afraid of them. You have to have your eyes open. These are manageable issues; they just are issues you have to deal with up front.
If a building has an environmental issue, it’s not the end of the world. It could be an opportunity to make money as long as you get the right environmental consultant to manage it. So often the average guy looks at it and says, ‘No way, I won’t even consider it.’ That’s not smart. There are experts in the environmental field who can help you manage around it and as a result, you can get a good deal. Don’t just run away; you could be running away from a good opportunity.
Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at email@example.com or (216) 453-3001.
Times are tough for many industries, and the development industry is no exception. As a result of the uncertain marketplace, projects in California have been replanned, restructured, redesigned, down-sized, foreclosed upon, have gone into bankruptcy and have come out of bankruptcy.
Through it all, developers have found ways to continue to make deals happen. But in today’s environment, where the market is so unpredictable, laws continuously change, and projects are often transferred and transformed numerous times before the first inch of dirt is moved, the better bargain goes to the dealmaker who foresees and accounts for the potential development pitfalls.
Smart Business learned more about current development challenges from Michele Staples and Gregory Powers, shareholders at Jackson DeMarco Tidus Peckenpaugh.
Are development approvals extended along with the tentative map?
Since 2008, state legislation has been enacted to automatically extend the life of certain tentative maps. The legislation also extends some related development approvals. The most recent legislation (AB 208) extends state agency approvals such as Coastal Commission and Fish and Game permits issued in connection with certain tentative maps. However, AB 208 does not mandate extension of local development approvals.
Developers should be aware that, for tentative maps taking advantage of the legislative extension, AB 208 also reduces protections against the imposition of new conditions of approval and allows the levy of development fees upon building permit issuance.
What are ‘impact fees’ and how can they affect my project?
Development impact fees are payment obligations imposed on a project as a condition of development, and are typically meant to cover the costs of constructing improvements necessitated by the project that will not be built by the developer. Some examples include drainage facility fees, utilities infrastructure fees and traffic mitigation fees.
Impact fee amounts can be shocking. Fee obligations can come from a variety of sources, including local codes and regulations, state laws and written contracts. If a project has been changed in some way since the fees were initially imposed (for example, a modified land plan, changes in density and/or product, etc.), it can open the door to new fee obligations. Nothing can affect the profitability of a project more drastically than impact fees. Early discussions with local agency staff to assess the payment status of a project’s impact fees, along with checking local codes and pre-existing agreements for impact fee obligations, is a critical part of due diligence.
Are continuing security obligations something I need to consider early?
Where ‘broken’ projects are concerned, required improvements are often secured by performance bonds for which premiums may or may not be current. Cities have begun calling such bonds in order to fund needed infrastructure. Unless the obligation has been assigned with the local agency’s consent as part of a change in project ownership, ultimate financial liability may rest on the original developer, the new owner, or both. As part of the transfer, it also may be possible to negotiate a reduction of bonds with the local agency where improvements were partially completed before the project stalled.
What about California’s tangled web of environmental laws?
Whether a project is residential, commercial, industrial, or mixed use, developers can expect some level of environmental review.
The foundation of environmental review is the California Environmental Quality Act (CEQA). The level and complexity of CEQA review required is not necessarily driven by a project’s size, but, rather, its potential environmental impacts. It is a fact-sensitive inquiry that must be handled on a case-by-case basis. Although a project may have ‘survived’ CEQA review already, new or supplemental review may be necessary because of project changes since the initial review was performed. This process can be time-consuming, expensive and risky from the developer’s perspective, so project modifications should be assessed closely when acquiring a partially completed project.
In addition to CEQA, there are a host of other environmental regulations to consider. Remediation, indemnification and insurance requirements in connection with hazardous materials and/or contamination at the project site may need to be considered, along with a multitude of federal, state, regional and local environmental protection requirements. Two things are certain when it comes to environmental review and compliance in California: (1) it is highly complex, and (2) it can make or break a project’s bottom line.
Why is storm water a concern when I have not designed my project yet?
Development projects must minimize storm water runoff through site design so that post-development runoff conditions mimic the undeveloped conditions. The regulations are imposed by cities and counties to comply with permits issued to them by the Regional Water Quality Control Boards. Some jurisdictions have more flexible rules than others, allowing alternative compliance approaches or waivers for projects where strict compliance is not feasible. In most cases, the new regulations apply even if the project already has an approved tentative map. Where tentative maps were approved with insufficient consideration of storm water compliance, the project as originally conceived may not be able to comply with the regulations. The problem is most acute in infill projects where the undeveloped area is too small to accommodate storm water infiltration. Project changes may be required to comply with the new regulations, such as adjusting lot lines or reducing the number of developable lots. At some point, the necessary changes may be so extensive as to require an amended tentative map.
The key to a profitable development in today’s challenging market is accounting for the myriad regulatory obligations in the project’s pro forma before closing the deal.
Michele Staples and Gregory Powers are attorneys in the Land Use and Environmental Department of Jackson DeMarco Tidus Peckenpaugh. Reach them at MStaples@jdtplaw.com and GPowers@jdtplaw.com, respectively.
North Texas continues to be on the socioeconomic forefront of metropolitan areas across
the country — and for good reason. Our region has continued to have a below average unemployment rate and strong economic fundamentals when compared to other areas of the country. Most significantly, these measures are occurring despite a less than ideal economic climate and a population that is growing at rates higher than the national average.
I believe the ability of the Dallas-Fort Worth Metroplex to outperform many other major metropolitan areas is strongly connected to innovative thinking that enables us to continue creating and capitalizing on opportunities that help North Texas prosper. Individual communities and the region as a whole continue to set the bar higher, empowering superior performance in both the public and private sectors.
With approximately 250 public entities dedicated to supporting North Texas’ growing population, our region has a vast infrastructure in place to serve individual and business residents. Yet, while demands on various government agencies are becoming more complex with time, I’ve recently noticed a positive trend emerging in addressing community needs. Rather than looking to increase the scale of individual agencies, various city, county and regional groups increasingly are launching collaborative efforts, on large and small scales alike.
One of the most visible, and a first for North Texas, was the unifying of more than 50 communities in preparation for Super Bowl XLV. With the creation of a “council of mayors,” 55 heads of cities worked together to achieve one very large goal. The council was a Super Bowl first and integral to making the game in North Texas possible. This regional approach was a great success, and despite the somewhat unusual weather, the event provided a huge economic boost to the region.
We’ve also seen the teaming of Dallas Area Rapid Transit, the Fort Worth Transportation Authority, the North Central Texas Council of Government’s Regional Transportation Council, along with various cities and chambers of commerce, to create an innovative plan for developing a new regional rail line along the Cotton Belt right of way. This new transportation asset will link the northeast and southwest portions of the Metroplex and connect with air service at DFW Airport. What originally was envisioned as a public project now is being developed as a public-private partnership, seeking to expedite the process in response to tremendous public interest. This multidisciplinary group is creating the financial resources needed to expedite construction of the rail line and greatly impact our transportation landscape.
On a smaller scale, but driven by the same interest in efficiency, I’ve witnessed the spirit of collaboration firsthand in support of surface water management in the Valley Ranch community. Recently, the Irving Flood Control District Section III joined with leaders of the Valley Ranch Association and the city of Irving to begin extending the city’s Sam Houston Trail Park into Valley Ranch. Rather than any one entity single-handedly designing and completing this venture, leaders of the VRA, the city and the flood control district teamed to begin making the extension a reality. Through collaboration, the resulting project will be thoughtfully integrated into the roads, walking paths, water features and overall community.
These and other similar ventures demonstrate that a region growing faster than its infrastructure can work smarter and be more focused. Connecting agencies and organizations possessing the right core competencies for a given assignment is smart, both logistically and financially. This course of action is one of the tools our region should continue to use in order to provide innovative solutions to the myriad challenges and opportunities of the future.
A 17-year resident of the Valley Ranch community in Irving, Kim Andres is president of Irving Flood Control District Section III, the publicly funded agency responsible for constructing and maintaining canals, ponds and other natural water management facilities that safeguard people and enhances the economic value of property throughout the community. Learn more at www.ifcd3.org.
Phillip Keiser is a bit of a traditionalist when it comes to dessert. If, after his double cheeseburger with the works, he’s still inclined for custard, he goes for a plain vanilla cone. And it should taste the same whether he’s at the Culver’s restaurant near his office in Prairie du Sac, Wis., or the one in Elkhart, Ind., closer to his hometown. As president and COO of Culver Franchising System Inc., a chain known for its ButterBurgers and frozen custard, Keiser’s job is making sure everything, down to dessert, is consistent everywhere.
But he can’t be in all 435 locations at once.
“How do we keep brand standards going?” Keiser says. “One of our critical success factors is our franchise operators and their commitment to the brand.”
Because he takes extra care to bring in committed franchisees, Keiser doesn’t have to manage details too closely.
“The only way the brand grows is if we’re all in this together,” he says. “So our training program is more extensive than most. Our interview and selection process is more extensive than most. Our core values surrounding what type of franchisee we look for are more extensive than most.”
These days, those core values are stronger and clearer than before, thanks to Culver’s new “Welcome to Delicious” campaign that reinforces the chain’s reputation for good food, family values and great service. Founder Craig Culver is very involved in the campaign, telling stories about Culver’s ingredients and relationships.
So Keiser has to make sure those stories and values radiate throughout the Culver’s system. That starts with attracting and developing franchise partners who are committed to them.
1. Identify committed franchisees
When Keiser joined the company in 1996, Culver’s operated 44 locations. Now, nearly 400 restaurants later, he still hasn’t advertised a single franchise.
“They’re all sold by word-of-mouth,” he says. “Most of the folks have discovered us through a friend or relative or as a guest in our restaurant.”
Attracting interest, then, isn’t the challenge — it’s identifying the right candidates. The first filter is financial. Even though the restaurant business can be expensive, Keiser’s not interested in investors because investors don’t operate restaurants.
“The first thing is: They’ve got to be somebody that wants to run a restaurant day-to-day,” he says. “We require that in each one of our restaurants, we have an operating partner who needs to own either 25 percent of the operating entity and (25 percent of) the real estate or 50 percent of the operating entity. They’ve got to (be financially qualified) if they want to own the real estate.”
He runs background checks to verify financial standing, but validating the ability to run a restaurant takes more than paperwork.
“Many franchise organizations would do a Discovery Day, where they would come in and interview the franchisor,” Keiser says. “We have what we call Discovery Week, where they come on their own nickel. They need to buy uniforms and work six 10-hour days in our restaurant.
“Basically, during the week they’ll work every station in the restaurant. Can they figure out how to work the grill, how to make the custard? They get there early in the morning and work with our porters mopping the floors, scrubbing the fryers. They basically experience a little flavor of the day-to-day life of a team member working in our restaurant.”
Why subject potential franchise owners to entry-level work? Believe it or not, Keiser’s not testing prior restaurant experience.
“We really want them to do a gut check on themselves, is this right for them,” he says. “If you work in a kitchen, you get hot and you get some of the kitchen odors in your clothing. Are they OK with that, or do they think it’s gross? Are they OK wearing the uniform and seeing their friends? They’ve got to be comfortable with the environment.”
Not only the work but also the hours can weed out candidates.
“If they come from a traditional 8-to-5 type of Monday-through-Friday work environment, do they understand we do as much business after 4 o’clock as we do before 4 o’clock, and the weekends are big days for us?” Keiser says. “You won’t be successful with a Monday-through-Friday mindset.”
While Keiser is looking for applicants to be comfortable with the environment, he’s not hung up on kitchen skills just yet.
“We’re really looking for people that have leadership skills, communication skills, critical thinking skills, team-building skills,” he says.
In the mornings during Discovery Week, applicants further reveal those skill sets through the Wonderlic Cognitive Ability Test, personality tests and a GED equivalency test measuring math and verbal skills. While Keiser considers these results, he doesn’t put too much weight on them.
“We’ve had people that have scored off the charts that haven’t done real well working in the restaurants,” he says. “But it does give us an insight in terms of how that person is wired.”
To really understand what makes applicants tick, Keiser and other executives — including Craig Culver — interview them at the end of Discovery Week.
“Try to understand: What are their goals or objectives?” he says. “Most of them have some motivation to get into this. And if their motivations aren’t aligned with what we know it takes to be successful in this business, that’s probably a deal-breaker.”
Because the right motivation requires a lot of commitment, Keiser wants to make sure candidates are sincerely willing and able to make necessary sacrifices. Would their family support relocation? What if their July Fourth tradition at the lake couldn’t happen on July Fourth?
He also tries to read current employees’ interactions with applicants. Now that they’ve worked together a week, Keiser observes how well they mesh.
“You can tell sometimes by the body language of our team members, and you can see by the interaction of people, what they talk about,” he says. “The team member, if they’re leaving the shift, do they come over and say goodbye (to the applicant), or do they just leave because maybe they won’t see this person ever again? Are there hugs, or is it just pleasantries? There’s a lot of collective input from people that goes into this.”
To gather all that input, Keiser brings together everyone who interacted with the applicant on the following Monday. It’s crucial that opinions are kept quiet — especially from the top — until decision time.
“We don’t talk about the candidates during the week when they’re here,” Keiser says. “Myself or for Craig — if we met with somebody and said, ‘We really think they’re great,’ or, ‘Boy, I don’t think they’re very good,’ — because of our positions, we would taint somebody else’s insight.”
But come Monday, there’s no holding back. By engaging several team members around the decision, he gets a better-rounded view of applicants. Plus, by this point, he’s given applicants plenty opportunities to self-select themselves.
2. Train and develop your team
Discovery Week is just the appetizer for new franchisees. Once they’re on board, they dive into an intensive 16-week training course. The first 12 weeks are spent at the restaurants around Culver’s headquarters in Prairie du Sac — about two and a half of those in a classroom.
“Some of that would be dedicated to food safety, then everything from how to conduct training, how to use the training tools, how to conduct local marketing, to accounting practices, payroll, labor laws and presentation skills,” he says.
Franchisees spend the rest of the time mastering each workstation in the restaurant, not just learning what happens but also why.
“The product and techniques have to be followed,” Keiser says. “But part of the burden for us is to ensure that we have a policy or a procedure or a product or an ingredient that makes sense, that we can actually back it up and make a business case for it. When we do a good job with those decisions, we make it easier for the franchisee, that they aren’t thinking of doing it a different way.”
Throughout the program, trainers test franchisees and even reward the highest scores. Like school, they have to maintain passing grades to advance.
“If they aren’t cutting it in one area or another, then they have to go back and revisit it,” Keiser says. “A few times, we’ve actually had to extend the training a few days because they weren’t getting their arms around some aspect of the business. There’s a lot of testing, measuring and follow-up that goes into it.”
The ultimate test comes in the last four weeks, when new franchisees open two restaurants, facilitating a week of training and a week of opening for each.
“That’s where the dynamics really change, because when they’re working in our restaurants, the team members basically know their jobs,” Keiser says. “But now, they have to become the expert. Now, the people ask them questions. Now, they’ve got to help inexperienced team members overcome challenges of getting the job done.
“If they’ve never been through an opening before, they’re kind of standing there wide-eyed like, ‘What the heck’s going on here?’ The second time they do it, they really start to understand the challenges they’re going to face when they do the same process in their very own Culver’s restaurant.”
But it can’t be all work all the time. Most training programs at Culver’s include a cookout at Craig and Lea Culver’s home, or there’s a patio at the office that makes a perfect casual spot for serving beer and appetizers.
“You’ve got to look for some of these social times to get to know people on an individual basis and not make it all just about the business,” Keiser says.
3. Stay present and engaged
When you take time during training to get to know franchisees individually, you start the relationship with a good sense of alignment. But it takes constant effort to stay aligned.
One of the ways Culver’s does it is through a network of franchise business partners (FBPs) that acts as a field team to support the franchise community. Each FBP has about 20 restaurants to visit and measure against standards. They’re also on-call to help franchisees solve any business issues, from profitability to developing their teams.
But Keiser doesn’t use that network as an excuse not to get out in the field himself. Both he and Craig Culver visit restaurants throughout the system.
“I once had a guy tell me that as you advance, it becomes more and more difficult to get out of the office and into the restaurants,” Keiser says. “I always thought that was a little bit of bull, but I’ll tell you what — I can’t get out as often as I’d like to.”
At a minimum, he grabs lunch at a nearby Culver’s almost daily and tries to get out of Prairie du Sac for a couple of days each month to visit other restaurants.
The main goal of visits is shaking hands and saying hello. But he was a restaurant manager, too, once, and he still observes through those eyes.
“When I walk in the restaurants, I’m not the president of the company anymore,” he says. “I’m basically the restaurant manager, looking at the things I looked at when I last ran a restaurant in 1981: What’s the sense, what’s the feel? Do they have their act together? Do they have the right amount of products? Are the team members smiling at each other? Do they say please and thank you? They can’t fake that stuff.”
Even if they behave while you’re there, how do you know they don’t play while you’re away? The key is not drawing all your conclusions from one visit.
“You don’t just use one snapshot to tell the story,” Keiser says. “You use the collection of all the things you see happening at a restaurant: What are their patterns for growing sales, what are their patterns for growing people, what is their community involvement, how does that match up with the reports and what the other folks are doing?”
That big-picture mindset is important because you’re not just visiting a restaurant, you’re assessing how the local leadership is managing that operation.
“I not only have to see how the restaurants are doing, I have to evaluate how the rest of our leadership team is evaluating standards,” Keiser says. “You may go from one FBP’s region to another FBP’s region and you start to understand, OK, this guy or gal has a blind spot or that’s their hot button and they’re really pushing that aspect of the business. When I go out, I really try to look at it and say, ‘What are my directors of operations and my VPs talking about when they’re out there?’”
While tucking observations into his broader evaluation of the network, Keiser takes note of details, too.
“Ours is a very detailed business,” he says. “We measure our success in terms of penny profit on our menu items. We measure our success in terms of seconds in speed of service. There are a lot of details that go into it — not that I can get into all the details in my job — but [it’s important] to have enough of an awareness that when you do dig into a certain topic, you can get down to brass tacks and understand it.”
But tread carefully when dealing with details in the field.
“If you see a critical detail that’s being missed, you’ve got to be conscious (of the situation),” he says. “I have to remember that, for me, I’m just walking into another restaurant. For them, they’re getting visited by the president today, and that makes some people uptight.
“But when you see stuff that is on standard, you try to reinforce it. And if there’s a coachable moment, well, you do a little coaching, too.”
The main objective is just letting employees know you’re there and you care about what they’re doing. The more you do that, the better equipped you’ll be when issues need attention.
“If you have some things that aren’t quite to standard, it’s much easier to have some of those difficult conversations if there’s a relationship based on trust and mutual respect,” he says. “If they only hear from you when they did something wrong and they’re in trouble, so to speak, then that doesn’t work very good. … You’ve got to get together with people and get face-to-face as much as you can.”
How to reach Culver Franchising System Inc.:
Phone: (608) 643-7980
The Keiser File
Name: Phillip Keiser
Title: President and COO
Company: Culver Franchising System Inc.
Headquarters: Prairie du Sac, Wis.
Locations: 435 in 19 states (from 44 when Keiser came on board)
Hometown: Nappanee, Ind.
Education: Bachelor’s degree in business from Manchester College
Previous jobs: various management positions with Burger Chef and Hardee’s
What was the last book you read? The owner’s manual for my car. Have you seen those new manuals? I mean, come on, they’re like books! And I still don’t know how to work all the stuff on the radio. But seriously, the last book I did read was ‘Decision Points’ by George (W.) Bush.
If you could have dinner with any three people, living or not, who would you choose and why? I’d like to have a conversation with Vince Lombardi because he was a Packer but also because I think he also had a lot of insight on how to motivate people and get things done and be disciplined.
In our industry, the person that I think would be a real hoot to talk to would be Col. Sanders. He basically started selling chicken out of his car and using a recipe as a business plan to become, now, one of largest restaurant companies in the world. From some of the folks I’ve met through our industry that actually have worked with the Colonel, I get the impression he was a pretty colorful character.
And then I think any former United States president. I’ve had a few opportunities over the years to hear a couple of them speak, and when they go off script and they start telling stories, OK, at that point, if walls could speak, there would just be a whole bunch of interesting things to get from any of them, regardless of how you view them from a political standpoint.
If your company had a theme song, what would it be? There could be a couple of them: I think the theme song from ‘Rocky.’ We’re not the big guy, but we’re always trying to grow. We’re always a little bit of the underdog and trying to make things happen, but we always believe in ourselves and we aren’t afraid to take on the challenge of the fight to get out there.
One of the other ones would be ‘We Are Family.’ We talk a lot about a spirit of family; we actually call our annual convention The Reunion. It’s the spirit we like to have at our gatherings with our franchise community and our team members.
What’s your favorite stress relief? I’m a landscape gardener. I live out in the country, and I have a woods and a perennial garden. So after all we do all week, then I just go out there with the plants and the trees and the grass, always cutting something, pruning something. I wouldn’t call it mindless work, but I can get out there and have some me-time and work up a sweat and get some sore muscles, too.
Private equity groups appear to be on a mission through the first four months of 2011. This surge has been inspired by an improving economy, increasing volume of quality acquisition opportunities and, lastly, the growing availability of debt as banks have conservatively returned to lending.
This has led private equity groups to deploy capital in order to raise new funds while continuing to mend portfolio companies in order to attract limited partners to invest in those new funds.
In an effort to provide much anticipated returns to investors and further support fundraising efforts, private equity groups will look to divest portfolio companies throughout 2011. Considering the improving merger and acquisition market and the re-entry of strategic players to the buyout world, many private equity groups are positioned for divestitures in the very near future. In fact, there are several Cleveland-based private equity groups that have exited investments during the month of April.
Linsalata Capital Partners Inc. and Resilience Capital Partners announced the sale of Lund International Holding Co. on April 28 to an affiliate of Highlander Partners LP. It was 2007 when the two private equity groups acquired the assets of Lund International, a designer, manufacturer and marketer of branded accessories for the automotive market.
Resilience Capital Partners also divested Steel Parts Manufacturing Inc. as it was purchased by Monomoy Capital Partners. Steel Parts is a manufacturer and supplier of close-tolerance precision metal stampings and components in automatic transmission systems. The acquisition of Steel Parts by Resilience in 2006 provided a 51 percent gross internal rate of return.
Morgenthaler Partners also participated in the divestiture of one of its portfolio companies. Ryan Herco Flow Solutions, a distributor of products used in the flow of purified water, was acquired by Greenbriar Equity Group LLC from Morgenthaler’s Venture Partners Fund VII LP. Ryan Herco sells more than 70,000 products that are used in a variety of industries.
Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcappartners.com. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.
Deals of the Month
The first recognition goes to The Riverside Co. with its acquisition of The Ostomy Center. The add-on acquisition to its platform company, ActivStyle, will be Riverside’s 54th health care transaction over its history and the sixth transaction for Riverside already in 2011. The Ostomy Center services mostly Illinois patients with incontinence, enteral, urology, ostomy and wound care products for conditions such as ostomy status, autism, spina bifida, cerebral palsy and Down syndrome. The acquisition will allow ActivStyle to diversify its demographics with products targeted toward younger patients.
Garfield Heights-based Chart Industries Inc.’s acquisition of CFIC also receives recognition this month. CFIC manufactures thermoacoustic technology, which converts acoustic sound waves into energy to heat or cool products. The acquisition should help enhance the global portfolio of Chart Industries’ biomedical segment. In December, Chart Industries also spent $40 million to acquire SeQual Technologies for its biomedical segment. Chart Industries has been performing very well as of late, with its stock price increasing more than 1,000 percent from $5.26 in March 2009 to $55.04 in March 2011.