Gary Mulloy took a good look at changes in store at Money Mailer and decided it was time for a return to senderWritten by Mark G Scott
Gary Mulloy discovered a company in the midst of a major transformation when he became chairman and CEO of Money Mailer in July 2010. He just wasn’t sure it was the right change for the direct mail marketing company.
“The senior management team had a vision that it wanted to be a different kind of company with a different mix of products and services,” Mulloy says. “And it wanted to do that with different clients than the company was currently servicing. That theoretically can be done. But that is such a departure from what you have as a business that you disconnect yourself from all the living parts of your company.”
Money Mailer faced a changing world and needed to adapt, just like most industries. Mulloy understood that, but didn’t think completely abandoning some of Money Mailers processes, which were still quite useful, was the right strategy.
“The reality is it needed to embrace technology to make what it was as a direct mail business that much stronger,” Mulloy says. “It’s not a threatened, at-risk business. It is a business that needs to learn how to thrive with technology.”
The company, which has about 100 employees and 185 franchise owners, currently reaches 17 million households across the country with its traditional coupon envelope. Full direct mail services account for about 50 percent of industry revenue. When Mulloy arrived, Money Mailer had been named the No. 1 advertising services franchise company in Entrepreneur Magazine for the seventh consecutive year.
So there was a lot to like about what Money Mailer had built and Mulloy wanted to show his team that it wasn’t time to just throw it all out the window in the name of change.
“I look at companies stumble and generally it’s because they misunderstand the complexity of actually achieving the success they see others achieving,” Mulloy says. “If they are objective and step back and look at their own success, they understand that complexity.”
One of Mulloy’s first actions was to stop new technology initiatives he felt had no relationship to Money Mailer’s client base or the skill set of its core team members. It wasn’t about abandoning technology, but pursuing a better way to integrate it into the company.
“I sold off businesses that had been acquired that were not related to our core business and the skills and strengths of our team members,” Mulloy says.
“As a strategy, that was a total departure from what they had embarked upon. But it was welcomed by the team members and the franchise community because it was something they could understand, could relate to and could talk to their clients about.”
It wasn’t good for everybody at Money Mailer; some employees had to go as a result of Mulloy’s change in direction.
“But people were so energized and positive about where we were headed; they understood that as a cost of getting there, it was a necessary step that needed to be made,” Mulloy says.
Any time you’re making a significant change in how your business operates, and especially when you’re letting some people go, you need to help those who remain understand why the company is going in that direction.
“I have to constantly be talking to people,” Mulloy says. “One group of franchisees asked me if I had been a school teacher because I present data and situations in such a logical way. I am constantly talking to them and providing them with data and information that helps put realism in the communication that gets shared with them every day. I wanted them to understand we’re part of a vital, growing business.”
You also need to be aware of the different constituencies your business may have. Whether it’s employees, customers or in this case, franchisees, you need to do your best to speak to each group on their level.
“Franchisees are business owners themselves and therefore have much stronger points of view and much larger demands both in time and money,” Mulloy says. “There needs to be an element of fairness, consistency and thoroughness in everything so that everyone’s needs and desires are recognized in the decision-making process.
“That doesn’t mean they always agree with you. But they do respect you are trying to do what you believe is the right thing in a balanced way across the entire company.”
Mulloy’s goal was to position Money Mailer to offer direct mail marketing services with both leading-edge technology and the same client-driven approach for which it was known.
“The best blend for our clients in reaching the ultimate consumer is to put the two pieces of business together,” Mulloy says.
Reach out to your people
One of the biggest changes Mulloy implemented at Money Mailer was a move away from being a printer.
“We decided to outsource all our printing,” Mulloy says. “It took us more than two years to find partners to work with, to come up with business processes and procedures that would allow us to execute our very complicated mailing product on every mailing cycle working through the partners and all the people in the company that contributed to that effort.”
It was a strategic move to allow more internal effort to be directed toward integrating new technology into the company’s direct mail campaigns. Mulloy wanted a company that could offer a unique portfolio of consumer directed marketing services online, on mobile phones and through direct mail.
It made sense to Mulloy and he tried to convey that logic to his people. But that doesn’t mean he was always confident he had done the right thing.
“Did I have any sleepless nights over it or wake up in the middle of the night in a cold sweat and ask myself if this was really the right thing to do?” Mulloy says. “Yes I did. But you go back to the decision-making process of where you were and where you want to get to.”
One thing you can’t be afraid to do is spend more time strategizing when there are still unknown variables in your equation.
“Too many decision-makers or CEOs like to feel that their image should be one of the decision-maker,” Mulloy says. “That makes the decision theirs and therefore, if they change that decision, it might look bad. Approach it in a more collaborative way. Work with people and share with them what you’re trying to do and how you’re trying to get there.
“Get them to fully embrace the objective as well as help put together the road map that is going to get you there. Then all of you own it, all of you have evaluated it and certified it, but all of you can also change it if you suddenly feel something is wrong.”
If something does go wrong and it was your fault, you’ve got to own it. Show your people that you are human just like they are, and that just because you’re the CEO it doesn’t mean you’re immune from making mistakes.
“It isn’t cockiness or arrogance or, ‘I’m the leader, you have to listen to me,’” Mulloy says. “At some point, I am the leader, so I do have to make certain decisions. I do have to resolve conflicts and mediate and make decisions on certain things. Some people will like my decisions and some people won’t. All I can ask is that they respect the fact that I’m making educated decisions and I’m trying to do it in a way that is respectful and is committed to a long-term strategy for all of us as one team.”
As he looks to the future of Money Mailer, Mulloy sees lots of reason for optimism. He has his sites set on the next phase of the company’s evolution, a geographic expansion.
“The limitation to our revenue today and our absolute level of profitability is that we are in a limited distribution geographically in the United States,” Mulloy says. “Our big opportunity is to take this really terrific business model with all of these wonderful elements we’ve added to it with technology and outsourcing and everything and now apply that business model to a geography that is two, three or four times larger than what we are today. The volume follows from that.”
While Money Mailer is privately held, Mulloy did disclose that the company wants to triple its current size in five years.
“I think we could exceed that,” Mulloy says. “Our revenue base has a major growth opportunity and that’s an exciting thing to lead a team toward. It’s to help them see that we’re going to create a much larger business and create a lot of job opportunities for people to join our team.” ●
- Explain yourself.
- Know you’re not perfect.
- Build on the momentum.
The Mulloy File:
Name: Gary Mulloy
Title: Chairman and CEO
Company: Money Mailer
Education: Bachelor’s degree in marketing, University of Illinois.
What was your first job and what did you learn from it? I worked in my family’s hardware store, Soukups Hardware, in Glen Ellyn, Ill. I was a salesperson on the floor from the age of 8. I learned how to work with people, how to meet their needs and how to help them creatively come up with ways to solve their hardware issues. What screw goes with what? How do I hang this? It was just basic selling skills. All those things have stayed with me.
Who has had the biggest influence on you? No. 1 would be my grandfather who ran that hardware store as a family business. Even though everyone working in the business was not family, they were made to feel like family. Next would be my wife, Jodi, a terrific person I’ve known for 20 years. She has always helped me to continue to believe in people. Her faith in the goodness of people always brings me back from darker moments and tougher times. All of us in leadership positions have darker moments or times we feel let down or pessimistic. She keeps me centered.
What one person would you like to meet? Nelson Mandela. Everything he went through in his life, he stayed focused on the goodness of people. How he did that through the things that he faced growing up, being imprisoned and all those kinds of things, and still ended up being a healing and uniting leader of South Africa at the end of his life is amazing to me.
Money Mailer Social Media Links:
How to reach: Money Mailer, (800) 624-5371 or www.moneymailer.com
If you were to assemble some of the world’s outstanding business leaders in one place and ask them their secret to sleeping well at night amid the pressures of running a successful business, you might think you’d collect the best tips to handling anxiety in the business world.
The truth is that top business leaders often don’t have a secret to reveal — they rely on the strength and confidence they’ve developed over the years.
At the EY World Entrepreneur Of The Year conference, held earlier this year in Monaco, EY Entrepreneur Of The Year country winners assembled to compete for the World Entrepreneur Of The Year title.
We took the opportunity to collect the thoughts of the world’s most accomplished entrepreneurs — innovators, futurists, turnaround specialists and problem solvers — about dealing with worries. ●
“There’s nothing that keeps me up at night. I sleep very well. The challenge we have as a company is to keep delivering the culture we have created and expand it, keep evolving at the speed our customers expect us to evolve and keep creating value for them as we have for the past 10 years.”
Entrepreneur Of The Year 2012 Argentina
“The main thing is to make sure that we are always looking for new, creative ideas that keep our business updated with new technology and creativity. The other thing is making sure we are working faster than before.”
Lorenzo Barrera Segovia
founder and CEO
Entrepreneur Of The Year 2012 Mexico
“Business has its highs and lows, because let’s face it, it’s not easy. It has its challenges. They asked Steve Jobs what was the most important thing in business and he said, ‘Passion.’ If you don’t have passion you would give up when things get difficult. We have so much passion and love for what we do that it becomes a part of our life.”
founder, president and CEO
Entrepreneur Of The Year 2012 United States
2013 World Entrepreneur Of The Year
“What if the stock market crashes? What if there is some unknown thing that happens? What if there’s another 9/11 type of situation? Companies need to carry on, but maybe they don’t need to do events. Maybe they cut back on entertainment and speakers. The worry is what happens if something happens that I can’t control.”
President and founder
SME Entertainment Group
“We are in recovering times. I feel very positive about the economy in general, but I’m still very worried about Europe. And while we are recovering, it’s still choppy and choppy times are times when there are more needs out there.”
Retired global chairman and CEO
"I guess there is a point in my life where I thought it is all about me, and I am going to be the guy that guides everything and controls everything. What I have learned is that the best thing that I have done for our business is learn to let go and learn to get people who are better equipped to manage specific areas, do their thing and not get in the way."
Dr. Alan Ulsifer
CEO, president and chair
Entrepreneur Of The Year 2012 Canada
“Nothing keeps me awake at night becase my work is solid.
My father married at 60 and my mother was 23. They had four children. Then he died, and we quickly had to start thinking about what to do. There was no money — nothing. We had to leave the little town we lived in because of violence there. Thanks to that, I am where I am right now because I still could be on the streets of my village selling tobacco. There is no wrong that can do good. That's what I have to teach people.”
founder and president
Entrepreneur Of The Year 2012 Colombia
The idea of driving aimlessly seems glamorous in movies and songs. In reality, few of us get in a car without knowing how to reach our destination. We’ve created smartphone apps, GPS devices and satellite mapping to make our trips as efficient as possible and to avoid what we know to be an inconvenient, expensive outcome — getting lost.
I bring up this idea because many companies using social media have inadvertently become lost drivers. They start using social platforms with the goal of reaching some number of likes, retweets or shares, but as they embark on their social media strategies, many experience a disconnect between the content they post, blog and tweet and their progress on measurable business goals. These companies are driving without a roadmap; they just don’t know it.
Sound familiar? If social media isn’t working for you, your social media approaches may be missing a fundamental component: an effective content strategy. Here are three ways a solid content strategy will enhance your company’s social media success.
A like is just a like
All social media engagement is not created equally. To be successful, the social media activity that you generate needs to support your marketing goals — whether you want to improve employee engagement, boost customer conversions or build interest in a new product.
Creating a content strategy before you engage in social media will help your business clarify the specific marketing goals you want to achieve through content, as well as what messages you need to communicate to reach those goals. This process will ensure you get the right likes, shares and retweets from social interactions.
Social is a vehicle
Social media is a vehicle for sharing compelling content with your audience, and it doesn’t work if you don’t know what issues, topics and trends your audience finds compelling. Part of developing a content strategy involves learning how those you are trying to reach want to be talked to. Where do they go for information? How much time do they spend online? What kind of content are they looking for from your industry?
By getting to know the interests and pain points of your audience (customers, employees, shareholders, etc.), you can develop tactics to reach your online audience more effectively, saving you time and enhancing your company’s social influence.
Relevant content is meaningful
Kings of social content don’t become that way by luck. They use strategic tactics to connect with their audience through the right channels at the right times. More importantly, they make these connections meaningful and memorable by posting and sharing strategic, relevant content that their audiences desire.
When you deliver social content that your audience members find valuable or interesting, they’ll reward you by sharing your content, engaging with your business and, ideally, helping to promote your reputation as a thought leader in your business or industry. A content strategy allows you to do that by providing a roadmap for what kinds of informative, helpful, educational or creative content you need to make meaningful interactions.
As a recent Huffington Post article put it, the golden rule of the web is clear: “To know us better is to sell us better.” Ultimately, being successful in the social media space means taking the time to map out what success looks like. In this sense, a solid content strategy is not only an important component of any social media strategy, it’s the key to driving the results your business wants.
Michael Marzec is chief strategy officer of Smart Business and SBN Interactive. Reach him at firstname.lastname@example.org or (440) 250-7078.
When Albert “Chainsaw Al” Dunlap was the CEO at Sunbeam in the late ’90s, he had a reputation for ruthlessness. Besides massively downsizing the company, he was also known to intimidate everyone around him and resort to yelling and fist pounding.
While extreme, Dunlap’s behavior is an example of the type of “dictator” leadership that used to be fairly common in the C-suite. Rules were rules, there were no exceptions for anything and people were just a line item on a budget. Need to cut thousands of jobs? Don’t think twice about it.
On the other end of the spectrum is the Christ-like leader. This leader focuses more on building people up rather than tearing them down. This type of leader understands that there are rules, but sometimes to do the right thing, the rules need to be broken. For example, during the economic downturn, some Christ-like leaders went well beyond what was called for to make sure laid-off employees were taken care of.
They made sure they had the use of office resources to look for a new job and did everything they could to lessen the hardships. They weren’t required to do this; it was just the right thing to do. They saw employees as human, not just numbers on a spreadsheet.
Does it cost money to take the more humane route with your leadership? Yes and no. From a short-term, bottom-line perspective, it probably does cost a few more dollars to help people through a hardship. But long term, it can pay dividends. By treating people with respect and doing the right thing, it helps eliminate animosity toward you and your company from both the ex-employees and current ones. Maybe there are some good employees who you wanted to keep, but couldn’t afford. By showing compassion, when the economy turned around, they were far more likely to consider coming back than if they had just been shown the door with little regard to their well-being.
And what happens when these ex-employees end up in key positions in companies that could be customers? Do you think an ex-employee who you mistreated is going to buy anything from you or recommend your company to someone? It’s a small world, and what goes around often comes around, so it’s always best to treat people as best you can.
You can lead like a dictator and still get results. But do the ends justify the means? Will you conquer all, only to find yourself alone with no friends, the equivalent of Ebenezer Scrooge in “A Christmas Carol?” Or will you have an epiphany and realize there’s a better way to do things?
During this holiday season, think about your leadership style and the long-term effect it has on people’s lives. If this exercise makes you uncomfortable, then maybe it’s time to change how you lead. ●
What would it take for a company to succeed if its leader could effectively do only one of the following: innovate, instigate or administrate? We all know that an innovator is the one who sees things that aren’t and asks why not? The instigator sees things that are and asks why? The administrator doesn’t necessarily ask profound questions but, instead, is dogged about crossing the “t’s,” dotting the “i’s” and making sure that whatever is supposed to happen happens.
Ideally, a top leader combines all three traits while being charismatic, intellectual, pragmatic and able to make decisions faster than a speeding bullet. Although some of us might fantasize that we are Superman or Superwoman, with a sense of exaggerated omnipotence, the bubble usually bursts when we’re confronted simultaneously with multiple situations that require the versatility of a Swiss army knife.
Business leaders come in all shapes and sizes with various skill sets and styles that are invaluable, depending on the priorities of a company at any given point in time.
Every business needs an innovator to differentiate the company. Without a unique something or other, there isn’t a compelling reason to exist. Once those special products or services that distinguish the business from others are discovered and in place, it takes an instigator to continuously re-examine and challenge every aspect of the business that leads to continued improvements, both functionally and economically. It also takes an administrator — someone who can keep all the balls in the air, ensuring that everyone in the organization is in sync and delivering the finished products as promised to keep customers coming back.
As politicians and pundits of all types have pounded into our heads in recent years, “It takes a village to raise a child.” All who practice the art and science of business have learned that, instead of a village, it takes a diverse team working together to make one plus one equal three.
On the ideal team, each member possesses different strengths, contributing to the greater good. The exceptional leader is best when he or she is an effective chef who knows how to mix the different skills together to create a winning recipe.
In many companies, however, leaders tend to surround themselves with clones who share similar abilities, interests and backgrounds. As an example, a manufacturer may have a management team comprised solely of engineers, or a marketing organization could have salespeople who came up through the ranks calling all the shots.
If everyone in an organization comes from the same mold, what tends to happen is, figuratively, one lies and the others swear to it. This builds to a crescendo of complacency and perpetual mediocrity.
There is a better way. Good leaders surround themselves with others who complement their capabilities, and savvy leaders select those with dramatically different backgrounds who will challenge their thinking because they’re not carbon copies of the boss. This opens new horizons, forges breakthroughs and leads to optimal daily performance.
Strange bedfellows can stimulate, nudge and keep each other moving toward the previously unexplored.
To have a sustainable and effective organization, you can’t have one type without all the others. While everyone on the team may not always agree, each player must always be committed to making the whole greater than the sum of the parts.
The single most important skill of the leader who has to pull all the pieces and parts together is to have the versatility of that Swiss army knife — selecting the precise tool to accomplish the objective at hand. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at email@example.com.
More than 800 years ago, medieval philosopher Maimonides outlined eight levels of charity, the greatest of which was supporting an individual in such a way that he or she becomes independent. In Maimonides’ view, support was defined as a gift or loan, entering into a partnership or simply helping that person find employment.
Few things are more powerful than philanthropy — especially when its end goal is to better the lives of others. These days, philanthropy, and corporate philanthropy specifically, has assumed a broader role in society.
Today, companies give back more strategically than ever before. They align themselves with nonprofits that foster missions they believe in. The wealthiest people on the planet have even coordinated the Giving Pledge (www.givingpledge.org), where they’ve committed to dedicate the majority of their wealth to philanthropy.
At last count, more than 115 people had taken the pledge. Warren Buffett and Bill Gates may be the most prominent names on the list, but others include Spanx Founder Sara Blakely, Cavs Owner Dan Gilbert, Progressive’s Peter Lewis and Netflix Founder Reed Hastings.
Last month, one member, David Rubenstein, CEO and co-founder of The Carlyle Group, discussed the importance of philanthropy during a presentation at EY’s 2013 Strategic Growth Forum.
In his pledge letter, Rubenstein explains why: “I recognize to have any significant impact on an organization or cause, one must concentrate resources, and make transformative gifts — and to be involved in making certain those gifts actually transform in a positive way.”
One way Rubenstein is being transformative is through “Patriotic Philanthropy.” He has given $10 million to help restore President Thomas Jefferson’s Monticello home and underwrote renovations to the historic Washington Monument. Yet Rubenstein’s most noteworthy initiative is the whopping $23 million to acquire a rare copy of the Magna Carta, ensuring it remained in the United States. After its purchase, Rubenstein gifted it to the National Archives.
Not everyone has Rubenstein’s vast resources. But every organization and any individual can make their own impact.
In the workplace, for example, organizations that give back elevate their status perception-wise among competitors and peers. It doesn’t take much. But by being a company that cares, prospective employees want to work for you. For your existing team, deliberate and well-organized corporate philanthropy programs quickly take on a life of their own, becoming a rallying point.
Think strategically and get started by finding your cause. We all have them. They exist at our very core, forming the belief system we live by every day. So why shouldn’t our philanthropy follow that same course? Consider aligning your giving or volunteerism with something you personally believe in or care about; something that fits with what your company does or something that is close to your employees’ hearts.
Most important, get involved and just make a difference. It really comes down to that. One initiative that has always impressed me has been the annual CreateAthon event undertaken by WhiteSpace Creative, a member of the Pillar Award class of 2005. You can read a first-hand account of this year’s program here.
Being a good corporate citizen goes well beyond making good business sense. When you align yourself with causes you care about, whether big or small, you make a difference in someone’s life. And the bottom line is this: It is all of our duties to get involved. It’s no longer a question of if, but rather of what, when and how. ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at firstname.lastname@example.org or (440) 250-7026.
While brick-and-mortar stores add apps to reach customers on tablets and smartphones, e-commerce retailers are exploring ways to establish traditional storefronts, says Frank Kaufman, a partner and National Retail Practice Leader at Moss Adams LLP.
“The hottest topic these days is the omnichannel approach. Retailers want to engage customers at all points,” says Kaufman. “It’s about how you push information to consumers. That could be through text messages, social media, or signing them up for a geo program so you can identify their location and send a coupon to their phone when they’re near your store.”
Smart Business spoke with Kaufman about retail trends and the impact the Marketplace Fairness Act could have on the industry.
What does it take to implement omnichannel retailing?
Historically, brick-and-mortar stores were slow to embrace the Internet until there was a compelling argument to do so. It’s now evolved to a scenario where you have multiple avenues to engage the consumer at all points.
People are buying merchandise using smartphones, they don’t need to use a computer. With that in mind, how do you push information to consumers? It’s not just through traditional ads, but also texts and tweets.
Walgreens conducted a study that illustrated the effects of omnichannel. They measured annual sales at a base of $1 for traditional customers at stores. They found when that same customer goes online at some point to place an order, that goes to $2.50. And if they can get that person to load an app on a tablet or smartphone, that customer spends $6.
They go even further by giving the app the ability to map out the shortest distance to walk to find items in the store. Shoppers can get curbside service as well.
Pacific Sunwear enhanced the shopping experience by giving sales associates tablets. If a customer likes a garment, the associate can pull up a dozen other items that go with it and find them for the customer. Sales made through the tablets increased 50 percent over purchases at the registers. It’s all about giving extra value for someone coming into the store, making the experience better.
Why are e-commerce businesses interested in opening brick-and-mortar stores?
Even Amazon.com has said it’s going to find locations. One trend is buy today, have today, where you can buy online and pick it up at the store. It comes down to serving an immediate need. Even with Amazon Prime and free shipping, Amazon still can’t get items to the customer today. But the online retailer said it will not move forward until developing a model that’s different and unique to Amazon from the customer experience standpoint.
What impact will the Marketplace Fairness Act have on the retail industry?
The act, which requires online and catalog retailers to collect sales tax at the time of transaction, will ultimately pass; it passed the Senate in May and the House has it. The challenge is not getting agreement, but how to put it into effect. It’s not about having 50 states, it’s really 680 different jurisdictions and trying to determine where a sale has occurred and who gets the tax revenue. A company in California sells an item to someone in Ohio and it’s shipped from a business in New York — who made the sale?
However, what we’re finding is that it will not alter purchasing habits significantly, except for high-priced items involving $200 in sales tax or more. Studies show the impact on buying decisions is ridiculously low, less than 2 percent. Amazon went along because it knows it doesn’t matter — the convenience it can provide makes sales tax a non-factor.
It’s going to be a zero sum game because people will spend at the same level, it’s just that a portion of the funds will be redirected through the government channels and more money will go into local communities.
Whether consumers buy online or in stores, they are doing their homework. About 50 percent of purchases in stores have been researched online. It’s all connected. The goal for any consumer product company is to get an app on a smartphone, the device people have with them 24/7. Then combine that with a store where they can get it now. ●
Insights Accounting is brought to you by Moss Adams LLP
Rules added through the Jumpstart Our Business Startups Act eliminate the prohibition on using advertising and general solicitation to court investors to buy securities in certain unregistered offerings. While this has created possibilities, it has also imposed conditions.
The Securities and Exchange Commission (SEC) requires companies that generally solicit investors to take “reasonable steps” to verify that all purchasers in the offering are accredited. But there’s no bright line test to verify accreditation, says Michael Lawhead, an attorney at Stradling Yocca Carlson & Rauth. “Reasonable steps” are objective determinations made by the company in the context of each offering and each buyer. The SEC has, however, provided vague, but important, guidelines.
Smart Business spoke with Lawhead about vetting investors.
How should companies conduct due diligence on potential private investors?
For an individual to be accredited, he or she must have an individual net worth, or joint net worth with spouse, of $1 million annually, excluding the value of the investor’s primary residence. The investor’s individual income must exceed $200,000 in each of the past two years, or $300,000 in the past two years with a spouse, and have a reasonable expectation of reaching that in the coming years. One way to verify income is to examine the two most recent years of IRS reported income, which can be obtained from the individual. Certification from the individual about future income is acceptable.
To verify net worth, look at bank statements, brokerage statements or similar documents that would show net worth for the past three months. Companies should also acquire written representation from the individual that discloses his or her liabilities.
A company could also obtain written confirmation from a registered broker/dealer or other service provider who can verify the purchaser is accredited.
A certification of accredited investor status can be obtained from an individual who invested in the company’s 506(b) offerings prior to this new rule being enacted.
What constitutes reasonable steps?
The SEC has laid out three factors companies should explore to qualify investors. One factor is the nature of the investor. Public information can be used to qualify investment companies, such as venture capital funds. Qualifying individual investors can be done by attaching a high minimum investment amount to the offering. A company could conclude that the buyer is accredited if he or she can pay it.
Another factor is the type of information available. Public filings and information from reliable third parties can be used.
The last factor is the nature of the offering. Investors gathered by third parties, such as placement agents, are likely to be accredited since the third party has screened them.
What’s a ‘bad actor’?
Essentially, a company will not be able to rely on Rule 506 if certain covered persons purchasing securities have been subject to disqualifying events.
Covered persons include the company making the offering, its predecessors, affiliates, shareholders invested at 20 percent or greater, directors and officers, and any person who has or will receive compensation in connection with the offering.
The list of disqualifying events includes criminal convictions, court injunctions and restraining orders in connection with securities offerings.
Companies are looking to law firms to develop questionnaires to investigate individuals. If using a placement agent, verify the agency has done due diligence.
What happens if there’s an oversight in the verification process?
A company won’t lose the benefit of the 506 safe harbor as long as it can demonstrate that it attempted a thorough investigation of potential investors. Not following the steps results in the loss of the safe harbor, but not the ability to conduct a private offering.
General solicitation is not as easy as placing ads and waiting for money to roll in. The burden of complying with these rules is the responsibility of the company making the offering. An improperly conducted private offering could, among other things, give investors a right of rescission, which means they could take their money back. ●
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
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 with 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 U.S. 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.
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 Bank 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. ●
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The world of business today goes beyond the U.S. borders, so executive education programs like MBAs have a global component. For example, Woodbury University is part of a customized MBA program through the newly formed Carl Benz Academy for employees of Mercedes Benz and its affiliate companies.
Andre van Niekerk, Ph.D., dean of the School of Business at Woodbury University, says the program specifically serves employees in the luxury brand segment in emerging markets.
“There’s always a market for high-end brands, and that fully applies to the developing world,” he says.
Smart Business spoke with van Niekerk about the challenges and opportunities in marketing luxury brands in the world’s emerging economies.
Given the uneven recovery from the global recession, how open to luxury brands are today’s developing economies?
Virtually all luxury brands are jumping, or have jumped, into the developing world. That market — that collection of economies — is reaching a near-saturation point for some. To a large degree, it’s a matter of numbers; the size of the individual markets is key. If millionaires represent 3 percent of the population of China, for example, companies will pay attention.
Of course, if you step back and ask, ‘what is luxury?’ Your immediate response might be that people who have very little define luxury. In some parts of the world, two meals a day would be considered a luxury. There’s clearly a different context in the developing world, when contrasted with the developed world.
Having said that, however, luxury brands appeal to similar demographics worldwide. The people who buy and consume what are generally recognized as luxury goods, from clothes to jewelry to cars, are simply not as affected by economic downturns as the rest of the population. There’s just less price sensitivity.
Combined with quality and aesthetics, exclusivity is central to marketing a luxury brand. But the richer the world gets, the tougher it is to keep that exclusivity. Brands can artificially impose exclusivity by raising prices. Price, therefore, confers status — the status the brand affords the consumer. It’s an implied status, creating a desire to move up. The challenge for manufacturers is to keep customers brand loyal, wherever in the world they may be.
How do cultural differences come into play, as manufacturers introduce products and develop strategies to market them?
While many recognized luxury brands have a genuine global reach and can be considered universal, local tastes and accepted local norms matter. A specific handbag may become a roaring success in the U.S. but may not be as desirable in China. Or a specific color popular in Western Europe may not resonate somewhere else. Cultural nuances are often reflected in advertising, and it’s common for brands to reword and reposition ads for each market. Some nuances simply can’t be transplanted.
Status exists in every culture, and everyone has an ego, but the drivers for status differ across cultures. The U.S. is largely externally driven, as places like Newport Beach, Rodeo Drive or the Chicago Loop suggest. Other cultures are very circumspect — you don’t wear status on your sleeve.
What impact has the proliferation of luxury brands in the developing world had on those same brands in the developed world?
That trend has given rise to knockoffs. Counterfeit goods pose a huge problem for luxury brands, especially when the population at large may not be knowledgeable about what’s real and what’s fake. Knockoffs can ruin the brand by association. That’s why manufacturers confiscate and prosecute — they actively pay for that vigilance.
Things may be changing on this front, however. In a deal with China, Ralph Lauren agreed to overproduce by approximately 4 percent. Local merchants are allowed to sell the overproduction in controlled outlets at a slightly lower price. It’s a total win — a way to spread the brand successfully and locally, while helping to undercut the market for counterfeit merchandise. ●
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