The new owners changed personnel and service offerings, moved the headquarters to Downingtown and changed the company’s name to U.S. Environmental Inc. That first year the company’s third revenue hit $4 million.
The company transports and disposes of waste materials and provides industrial services, cleaning services and small- to mid-sized remediation projects. Weaver, president and CEO, is projecting 2006 revenue of $11.5 million.
Smart Business spoke with Weaver about how he and his partner created U.S. Environmental Inc. and the challenges of operating in a changing industry.
How did you identify your market?
We felt that a good niche market for us was to find mid-sized to large industrial manufacturing companies whether they manufacture soap, chemicals, petroleum, consumer products, pharmaceuticals or the power industry that were using multiple vendors. A lot of companies have decreased their environmental departments from very large departments with big budgets to one or two people who are going crazy.
We were able to come in and tell them, ‘Instead of doing all this work and having to deal with a dozen different vendors, we can manage that for you so that you’re dealing with one contact at one company.’ We have the personnel and equipment to do it, so we’re not resubbing it back out. And in the long run, we were able to save money for them.
How did this benefit your company?
The response was pretty amazing. We went from a half-dozen vacuum trailers to 17 tank trailers. We’ve added specialty vacuum equipment, personnel with extensive environmental management and remedial experience. We’ve been able to pick a lot of great people from different competitors to expand the company.
The company was primarily focused servicing southern New Jersey and a little bit of Eastern Pennsylvania. (Today) we have clients from Massachusetts to Georgia. Our core focus is still the Mid-Atlantic.
How do you deal with the challenges of growth in your industry?
The environmental business is ongoing and evolving. It’s basically a set of unusual challenges. That’s what I find exhilarating about it. Every client has a different challenge. Different states have different regulations, and we have to help clients meet those regulations.
Every client’s not the same. You can’t sell them a price list. Everything we do, we have to cost out specific to that client. Every type of waste is slightly different. The challenge is to find a better way (to transport or dispose of it) than everybody else.
Our goal is to provide the highest quality service available at the most cost-effective rate in the most environmentally compliant safe manner, while still providing a great work environment for our employees and the ability for them to improve their lives so they can take care of their families.
How do you accomplish that?
I work with really great people. My operations manager is new to our company, and in the few months he’s been here, he’s had a tremendous positive effect with our operations employees. He’s made us a lot more efficient than we were, and our sales are continuing to increase. We’re coming off of the best January in our company’s history.
We are operating more efficiently. He’s turned (operations employees) into a cohesive team that are supporting each other. The two sides of the company have always been in the same part of the building, but they’ve operated kind of, ‘You’re on your side of the hallway, and I’m on mine.’
He’s brought them together and found talents. He’s added efficiencies, figuring out ways to do things better and having the right person in the right job. It allows me to focus more on the global look of the company.
What is your sales philosophy?
We don’t go in like a salesperson and say, ‘What are your service needs?’ The first thing our people ask is, ‘Can you walk us through your facility and show us what you do here?’ We’re looking for opportunities but we’re also looking at different ways to do (processes.) When we see an opportunity, we ask the customer, ‘How do you guys handle this?’
We just had this large consumer products company. They were managing three product lines as three separate waste streams. We figured out a way, for little to no capital expenditure, to have all the wastes go to one central collection area. We’re going to save them 18.6 percent on their environmental budget next year.
Can you imagine adding 18.6 percent out of one department’s budget? Our people just aren’t salespeople; they look at things slightly different.
HOW TO REACH: U.S. Environmental Inc., (888) 884-9700 or www.usenv.com
- Senior debt vs. junior debt. Senior debt is debt that has priority of repayment in a liquidation, and, therefore, is usually lent at more competitive interest rates than junior debt.
Typically, 50 percent to 70 percent of a mid-sized company’s capital structure is senior debt. It can be extended on a secured or unsecured basis and may or may not carry the guarantee of the owner(s). Junior debt is either unsecured or has a lower priority or repayment on the same asset or property as senior debt.
- Cash flow lending. Cash flow lending, a form of senior debt, is typically extended to companies that generate significant cash from operations each year, but may not possess a great deal of balance sheet assets, such as a service company.
The leveraged buyouts of the past have set the stage for this type of lending, where financial institutions may extend credit based on a multiple of a firm’s cash flow. For these purposes, cash flow is typically defined as the borrower’s earnings before interest, taxes, depreciation and amortization (EBITDA).
- Asset-based lending. Asset-based lending, another form of senior debt, is a good choice for highly leveraged/undercapitalized companies, companies with seasonal revenue, or businesses that generate more working capital and assets than cash flow.
Many are surprised by the interest rates that are competitive with traditional business loans. Because this type of lending is based primarily on a company’s short-term assets, lenders can extend credit to businesses with higher-risk profiles.
- Second-lien loans. Second-lien loans have emerged as a mainstream solution for growing companies needing liquidity. Favorable pricing, an active mergers and acquisition market and increased use of recapitalizations have fueled this increase. These loans are junior in collateral rights and have higher interest rates.
Companies use this option to bridge the financing gap between cash flow and equity, particularly following a merger, acquisition or recapitalization. Second- lien borrowing is also a way to monetize your investment in your company during strong economic times by cashing out, replacing equity or refinancing subordinate debt through a recapitalization.
- Mezzanine loans. Used to finance a company’s expansion, an acquisition, a dividend payment or stock repurchase, a mezzanine loan typically is unsecured and considered junior debt with a longer payment term than other loans. Mezzanine loans are characterized by quick turnaround with minimal due diligence and little or no collateral. These loans are priced with the lender seeking an 18 percent to 22 percent return on its investment.
A typical structure would be a six-year loan with no principal payments until the maturity date, an interest rate of 12 percent and an equity interest to potentially yield the returns cited above.
- Equity investments. Instead of a loan, you can raise money by selling common or preferred stock to individual investors. In return for this equity investment, your investors receive ownership interests in your business, such as shared profits, a seat on the board of directors and input into how your company operates.
To help you decide what financing best meets your needs, it is important to work with a lender who is willing to take the time to understand your business and has access to and experience in all available options. No matter which options you choose, working with a trusted business adviser can provide ideas, advice and solutions that can help your business achieve its goals.
This summary is not legal or financial advice, and does not purport to be comprehensive. Please consult your own adviser. Any reliance upon this information is solely and exclusively at your own risk.
Joe Meterchick is senior vice president for corporate banking in Philadelphia for PNC Bank, National Association, member of The PNC Financial Services Group Inc. Reach him at (215) 585-6810.
The chairman and CEO whose company helps other companies attract and retain talent knew what to do to blend the cultures and make employees feel comfortable. And the key to that was constant communication.
“When you think about communication, most people usually think about, ‘What am I going say?’ rather than, ‘What is going to be heard?’ The nuance, while slight, is fairly important,” he says.
Kenexa employs more than 700 workers, and revenue has grown from around $65 million in 2005 to an estimated $95 million for 2006.
Smart Business spoke with Karsan about how he managed Kenexa’s January acquisition of Massachusetts-based Webhire Inc. and the challenges he had to overcome.
How do you manage a successful acquisition?
We tend to get everything done up front to the greatest extent possible, so not only do we do the due diligence, but we have an integration plan that’s laid out where the executives of both the companies meet to identify what the new Kenexa would look like.
We also work on bringing about whatever change is necessary as quickly as possible and remove as much uncertainty in the eyes of the employees to the greatest extent possible. We communicate, communicate, communicate, and then communicate some more.
The date of (the Webhire acquisition) announcement, I was in Lexington, Mass., for two days. (Throughout January,) we had at least two or three executives there, constantly communicating.
Any time you have an acquisition, people wonder what’s going to happen to their job: Are you going to keep the space? Customers wonder whether you’re going to continue supporting that particular version of the particular software: Are you going to continue to expand on it? Is your protocol going to be any different? Is your value proposition going to change?
These are the kinds of things that are in the hearts and minds of our customers and our clients, so we work very hard at communicating to give the message out there.
How did you decide to acquire Webhire?
The space we’re in human capital management is a fairly fragmented space that has a lot of specialties and sub-specialties. Strategically, our organic growth over the last couple of years has been around 40 percent. We were looking for a way to accelerate the organic growth.
We had broken up the acquisition strategy into three main components. The first one is geographical expansion, which would include globalization. Hence, the (Canadian-based) Scottworks acquisition [in August 2005.]
The second one is vertical expansion, entering into industries that we are currently not serving in either a big way or in a significant manner. An example would be the Webhire transaction; their applicant tracking system is serviced heavily in the health care and not-for-profit market in which we are not very strong.
The third is to buy solutions. If there are organizations we could purchase that could add to our suite of solutions both products and services we would be very interested in that. Webhire was a very appealing acquisition for us because they have a product called Onboarding, which is a product we were looking to build from scratch, and now with the Webhire transaction, we will not have those issues.
How does that acquisition to benefit your company?
No. 1, it gives us the new Onboarding product. Two, it gives us an entry point in (the health care and not-for-profit markets.)
Three, it’s a financially accretive transaction for Kenexa our earnings per share goes up. Our EPS to the street for 2006 is 85 to 90 cents. Our guidance to the street in 2005 was somewhere in the 50-cent range.
The fourth thing is we get very solid domain knowledge from a group of very talented employees who are sitting there right now. A lot of them are considered to be thought leaders in the space so we’re very excited about that. The human resources knowledge and expertise on applicant tracking systems is very strong within Webhire.
The fifth reason is that as Kenexa continues to grow, we’re looking to service a market which has fewer employees than our traditional sweet spot, which is in the 5,000- to 30,000-employee marketplace. It allows us to expand into that area.
Last but not the least, we have opportunities to cross-sell so we are getting over 200 active clients with this transaction we can approach and make the company better for our clients and have the ability for them to use our solutions to further enhance their work force.
HOW TO REACH: Kenexa, (610) 971-9171 or www.kenexa.com
Recipients are chosen for their outstanding contributions toward the betterment of the region, their professional accomplishments and their commitment to charity and the community.
DeBenedictis is chairman and CEO of Aqua America Inc. Under his leadership, Aqua America has grown to provide water and wastewater services to approximately 2.5 million residents in Pennsylvania, New Jersey and 11 other states. It expanded its national footprint with a company record of 30 acquisitions in 2005.
Hugh Long, state CEO for Wachovia Bank for Pennsylvania and Delaware says, “One of the things that has impressed me most since I arrived in Greater Philadelphia has been the driven leaders like Nick, who put tremendous time and effort in making this a better region. Nick DeBenedictis certainly is a prime example of everything a concerned businessman and a civic ambassador should be.”
DeBenedictis is also chairman of the Philadelphia Convention & Visitors Bureau’s board of directors, and he chaired Mayor John Street’s 21st Century Review Forum Regional Cooperation Committee.
“It is a great honor to be selected as the recipient of the distinguished William Penn Award,” DeBenedictis says. “My life is devoted to my family, my community and my work, all in Greater Philadelphia, and I am inspired by this region. I am proud to be a part of Greater Philadelphia’s triumph as a growing, prosperous area.”
DeBenedictis will be honored at the William Penn Award Gala on April 21.
J&B SOFTWARE INC.
J&B Software Inc promoted Robert W. Bartlett to president and chief operating officer.
He has more than 30 years of experience in operations and financial management of companies ranging from Fortune 500 and global organizations to Internet start-ups. He previously worked as executive vice president and chief financial officer of J&B and was appointed COO of J&B’s subsidiary, Convergent Payment Processing Services Inc., in 2005.
Comcast Cable hired John D. Schanz as executive vice president, national engineering and technical operations.
Schanz has more than 20 years of experience. He most recently worked as executive vice president of network and data center operations for America Online. He previously held senior management, operations and engineering positions with leading technology and communications companies, including Sprint, GE Information Services and Transaction Network Services.
ENDO PHARMACEUTICALS HOLDINGS INC.
Endo Pharmaceuticals Holdings Inc. appointed John J. Delucca to its board of directors. He will also be a member of Endo’s audit committee.
Delucca was executive vice president and chief financial officer of the REL Consultancy Group until his retirement in 2004. Prior to that, he worked as chief financial officer and executive vice president, finance and administration, of Coty Inc. from 1999 to 2002.
CHARMING SHOPPES INC.
Charming Shoppes Inc. promoted James G. Bloise to executive vice president.
He joined the company in 2002 as senior vice president. Prior to that, he had more than 20 years of experience in apparel manufacturing and held executive and management positions at Designer Holdings Ltd., The Leslie Fay Cos., Federated Department Stores/Allied Department Stores and Mast Industries.
GSI COMMERCE INC.
GSI Commerce Inc. named Michael R. Conn chief financial officer. He previously worked as the company’s senior vice president of corporate development. He has worked for the company since 1999 in various roles, including senior vice president of business development and senior vice president of strategic development.
Also at GSI, Jordan M. Copland was named executive vice president, strategic development. He had worked as the company’s CFO since 2000.
SYNOVA HEALTHCARE INC.
Synova Healthcare Inc. hired Ron Sprangler as chief scientific officer. He is responsible for orchestrating all product development at Synova, including the development of a noninvasive fetal monitor.
Previously, Spangler was managing director of investment banking at Keystone Equities Group. He has also worked for The Procter & Gamble Co. and SmithKline Beecham Pharmaceuticals.
InvestorForce Inc. named Patrick Farrell director of enterprise operations. Most recently, he was manager of core products implementation for Financial Models Co. Ltd.
Christopher Frank was named director of business applications. He most recently worked as operations leaders and senior SQL server Web/database architect for Wyeth.
Deborah Kovacs joins the company as vice president and senior product director. She was previously director of product development for i3Archive Inc.
And Patricia Turner was named manager of enterprise implementations. She most recently worked as a business analyst/project manager for national accounts with Unisource Worldwide Inc.
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For many industries, a bachelor’s degree, while a necessary first step, does not get you as far up the corporate ladder as it used to. There is little doubt that master’s degrees, especially an MBA, set business professionals apart from their co-workers.
Need more motivation? U.S. Census data shows that employees with graduate degrees earned nearly $1,000 a month more than those with a bachelor’s degree. Professionals with doctoral degrees earned approximately $2,000 more per month. Most businesses would have record-setting years if they encountered such a substantial ROI.
Of course, there are several excuses that enable people to indefinitely postpone their return to the classroom. Here’s just a look at some of many reasons people share.
I’m too busy
While it’s hard work to earn a degree, many institutions make it more convenient for adults who lead active lives. Some offer night and weekend courses a must for working professionals balancing personal and work lives. And, because they take just one course at a time, students at these schools find it easier to focus their efforts and concentrate on a particular subject.
It costs too much money
Tuition hikes have recently been in the headlines, and the impression is that going back to school is an expensive proposition. Many people think it would be too costly and that belief discourages them from taking that next important step in their lives.
However, they may be able to take advantage of tuition benefits where they work, and most do not know that adults going back to school do qualify for financial aid. In fact, there are several federal loans, grants and private scholarships offered to adults.
Students often find that it’s easier than they think to obtain financial assistance, especially if they are willing to do a bit of research. Plus, the opportunity for a higher salary in the future easily can outweigh the costs. You can check with an enrollment counselor at your school of choice for further details.
Classroom learning doesn’t translate to the real world
Now, more than ever, real and practical issues in the business world are being addressed in college classrooms. Experienced instructors use real-life scenarios as teaching tools and students use dynamic electronic simulations designed to facilitate the development of their strategic thinking and problem solving skills.
This fundamental change in leaning goals means students are able to attend classes at night and use what they’ve learned the next day in a meaningful way.
At many schools, this is called problem-based learning. Students learn not only how to solve problems, but how to identify them in the first place. Students then share their opinions and experience in a group setting. The result: a class that’s never boring and always full of lively debate.
I’m not motivated enough
Today’s working-adult-focused universities offer personal academic advisers to help navigate the challenges and added rigor of attending college. In addition, students often work in learning teams, so they have their peers to support and challenge them as well.
Of course, the ultimate decision to go back to school depends on the individual. You must draw upon your inner will and desire to do better in business and in life. Take a deep breath and envision the benefits that higher education will bring to you personally and professionally. You will find that if you return to school, you’ll be glad you stayed with the new challenge in the new year.
Elden Monday is the state vice president for the Pennsylvania campuses of University of Phoenix, a national leader in higher education for working adults. Reach Monday at Elden.Monday@phoenix.edu or (610) 989-0880, ext. 1131.
Smart Business spoke with Bob Baltimore, managing director of new business development at Harris Williams & Co., about important things to consider along the way.
How do you know when it is a good time to sell your business?
Throughout a company’s life cycle, there will be numerous reasons and opportunities to evaluate its sale. A sale can facilitate management or shareholder transition, provide capital for growth, or afford liquidity to owners on a mature investment.
Two keys to maximizing value are to sell when industry trends are positive, and when your company’s finances and operations are strong. Positive trends will impact the company’s story to potential buyers.
You should understand what is going on in the public markets and your competition. How high are multiples trading in your industry? Is the current M&A market active in your sector? Are current valuations relatively high compared to historical trends? Furthermore, is your own company’s performance showing historical and projected gains?
If industry and company performance are in an upswing, and a sale fits with your personal objectives, you may want to consider selling your company at a premium valuation.
Who should you include in the process?
During a sale, information should be controlled from start to finish. Generally, this includes limiting the number of advisers and people internal to the company, and controlling the information that is sent to the marketplace.
However, the active involvement of the senior management team is critical. Work with your investment bank to determine when to involve others. Because it is imperative that you understand potential pitfalls upfront, consider involving legal counsel early in the process, as well.
Based on your company’s specific situation, tax experts, accountants or other advisers may be beneficial. For example, if a company has a number of potential financial add-backs, an accountant could do some preliminary due diligence and provide an opinion on the potential earnings base a buyer may determine is sustainable. Work upfront helps prevent surprises on the back end.
How can you find potential buyers?
Generally, there are two types of buyers strategic and financial. To find strategic buyers, take a look around your marketplace. Broadly speaking, companies who you compete with and those that touch your clients could be great buyers. In the last year or so, we have seen strategic buyers become increasingly active, and they will often pay a premium over other buyers for the right strategic asset.
Another universe of very active buyers is financial buyers, largely represented by private equity groups. Financial buyers have tremendous access to capital, and are experienced at helping management teams refine their business operations. However, access to this group can be very challenging for individual business owners.
A well-established investment banking partner, with a strong network in your industry and the financial community, can help you reach both audiences and the right buyer for your company.
How can you make your business more attractive to potential buyers?
Begin by getting your house in order. By making small improvements to your company’s assets, the whole package becomes more attractive. Step back from your business and evaluate potential concerns a buyer may have, which may include competition, sourcing, strategy, pricing trends or operational issues. Your investment bank can help develop a cohesive response to these concerns before contacting prospective buyers.
Additionally, point your sights to the future. Buyers pay for projected performance, not past performance. Prepare a well-thought-out, strategic plan for the next 24 to 36 months that clearly demonstrates your company’s growth potential. Buyers will respond positively to tangible demonstrations of your company’s growth opportunities and financial goals.
While you can’t change what a business does or how it operates overnight, you and your management team can put together a cohesive story that highlights your strengths and the positive prospects for your company.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
Bob Baltimore is managing director of new business development at Harris Williams & Co. Reach him at firstname.lastname@example.org. PNC offers expanded M&A advisory and related services through Harris Williams & Co., one the largest middle market M&A advisory firms in the country. Harris Williams & Co. is the trade name for Harris Williams LLC, a subsidiary of The PNC Financial Services Group Inc. Harris Williams LLC is a broker-dealer registered with the SEC and NASD and a member of the SIPC.
Dennis Alter, CEO of Advanta, wants entrepreneurs to take the credit. After all, what better way to make a professional impression on a vendor than to pay with a personalized credit card?
So when vendors swipe Advanta’s small business credit cards, Alter doesn’t mind if they gloss over his company’s logo, which is discreetly positioned on the back of the card. He knows his customer base appreciates the positive PR from personalized credit cards.
“How impressive,” vendors think, noticing a name other than that of Advanta, a credit card company with $4.9 billion in managed assets and more than $394 million of combined interest and noninterest income. It is one of the nation’s largest issuers of small business credit cards.
But why pass up an opportunity for face-time why draw attention away from the Advanta name?
“We’ll take the customer’s brand,” Alter says.
Advanta might be at the top of its game in the commercial card sector, but its strategy is very different from that of its competitors. Doling out customized cards is one way it deflects customers from applying for cards with the usual suspects the big-name giants that reel in consumers with gimme promotions.
“Citibank or Chase would not do this because they have their brand to protect,” Alter says. “They want millions of people to take out their credit cards that say Citibank or Chase. That is their strategy. We put the customer first.”
Advanta is more of a boutique company its cards target entrepreneurs, homegrown businesses and small-scale organizations with fewer than 10 employees and less than $3 million in revenue. Meanwhile, its competition includes credit card heavyweights with billions of dollars in revenue, and it must compete against them in a temperamental industry where no one gets all of the business.
Advanta wins big by thinking small. Focus, relationships and industry-specific perks position Alter’s family business in the lead at least for today.
“I’ve been CEO for 33 years,” Alter says. “The environment certainly has changed in three-plus decades, and depending on how rapidly you can adapt to your environment generally determines how successful you are whether you are a victim of consequences of the environment or whether you embrace it.”
Alter’s first exposure to Advanta Corp. was as a young boy. Then called TSO Financial, the company started by Alter’s father in an extra bedroom provided individual, need-based loans to schoolteachers.
Alter’s role in the family business evolved as Advanta outgrew its homegrown headquarters, expanding exponentially by the time he left his teaching position in the Philadelphia city school system in 1969. When he was named CEO in 1971, Advanta (still TSO until 1988) had 30 employees, still served mostly teachers and was licensed only in Pennsylvania, Florida and Delaware. The business only provided fixed-payment loans; it didn’t own a bank and it wasn’t involved the mortgage or financing business.
It was simple, with a focused strategy, much like it is today.
But before it attained its streamlined structure the small-business niche Alter prefers Advanta had ballooned to $25 billion in managed assets. In the early 1990s, when revenue and assets were at an all-time high, 7 million consumers had Advanta cards.
Advanta was one of the giants, though still a minor player considering the trillions of dollars other banks held in assets. It was running with the bulls, and its survival depended on the economy, prime rates and the latest promotions.
“We had the sixth-largest consumer credit card business in the country, and there was tremendous consolidation going on in the industry,” Alter says.
The pressure prompted Alter to start thinking small. At the time, Advanta’s 50,000 small business customers were overshadowed by Advanta’s strong consumer customer base. In that, Alter saw opportunity.
“We had this little small business sector a tiny tail of our consumer business,” Alter says, describing the seed that started what Advanta is today. “In looking at the competition and consolidation, we determined that no one else was going to offer a small business credit card. None of the issuers at the time were doing that not Citibank, Chase, Bank of America.”
Advanta sold its consumer market business and its assets to focus on the small business niche. And for a while, it was the only credit card company in the small business market.
“We saw a market that was untapped, highly fragmented, not saturated with marketing and direct mail, and the big guys were overlooking it,” he says.
The bad news was that you can’t lock competition out of opportunities like that for long.
“After four or five years, the competition said, ‘Look at this market. Look at what Advanta is doing,’” Alter says. “And they all dove into it. We now compete against all those same banks, and it’s tougher now.”
Advanta’s strategy to simplify has its disadvantages. The competition has stronger brands and a larger fiscal footprint with thousands of branches and services, ranging from inventory financing to letters of credit. Advanta has none of this.
“There is brand and size, so they have a lower cost of capital than we do,” Alter says. “And we are specialists. We only offer a credit card to only small businesses around the country.”
But don’t mistake Alter’s realism for pessimism. An adapt-or-fail mindset defines his competitive strategies. The sheer scope and dollar power of his competitors could overwhelm him but instead, Alter considers ways to dart out of their shadow.
Modest-sized companies, after all, are more nimble more capable of innovation, creative marketing strategies and developing close relationships with customers. And targeting small businesses is natural for Alter.
“We embarked a number of years ago on a strategy of building a business based on attracting and deepening relationships with profitable, high-credit quality small business customers,” Alter says, noting that Advanta closed the third quarter with a 92 percent year-to-date increase in its number of new customers compared to the same period last year.
But Alter also recognizes the nature of credit card users. They are fickle, and they will always want more than one.
“People will not want to have all of their business with one financial institution because they do not want one institution to have the keys to their kingdom,” he says.
This gives Advanta an opportunity to attract customers with innovative perks.
“We can zig and zag,” he says. “And that is what we do.”
Strength by numbers
Customized credit cards are one point of differentiation, but there are other ways Advanta bobs and weaves out of the limelight of the large competition. This specialization of targeting only small businesses affords Advanta opportunities to really mine its customers for information. Where do they shop? What perks will appeal to them?
For example, Alter knows from Hanley-Wood research that there are approximately 800,000 business owners who check the box next to “construction small business” when filling out employment surveys. And Advanta owns close to 10 percent of this market.
“We identify [construction customers] through our analytics, so when we mail information to them, we have ancillary products and services that might appeal to them,” Alter says.
A partnership with Hanley-Wood publishing allows Advanta to offer construction customers discounts on trade shows and more than 40 magazine titles.
“We give them cash-back rewards at places like The Home Depot or Lowe’s Home Improvement,” Alter says.
These industry-specific perks appeal to small business customers, Alter says. After all, why not save money where you spend money? Advanta cardholders use the plastic, and they prefer working with a smaller institution like Advanta.
How does Alter know all of this?
Analytics lots of them.
“There are 30 million small businesses in the country, and that is always changing,” he says.
One changes that Advanta is taking advantage of is the explosion in the number of people who earn some of their living from eBay, the online auction powerhouse. Are these home-based brokers also considered small business owners? Are they potential customers for Advanta?
The definition of small business owner has undoubtedly evolved as technology and economic trends encourage more people to explore self-employment, Alter says.
“Will they want a credit card to buy inventory, separate their expenses or have a line of credit to help pay for building up inventory and the cost of doing business?” he says.
He thinks the answer is yes, and Advanta’s research shows that this population is an untapped market that needs credit card services.
“Targeting these people is one opportunity that a changing environment presents,” he says.
Still, how will Advanta sift through small business demographics to find these potential customers? Thirty million mailers, 30 million prospects that’s a daunting analytical process.
Advanta skims though the small business population by turning to the Consumer Credit Bureau and Dun & Bradstreet, among others, which provide psychographic and demographic data.
“We analyze data from a credit perspective, usage perspective and responsiveness,” Alter says. “Will they respond to an offer through the mail?”
Besides turning to such outside organizations for data, Advanta has built its own prediction models to weed out those business owners who look like a terrific person but who won’t use Advanta’s credit cards. The company relies on card-usage patterns to determine card users versus card collectors.
Once they are cardholders, Advanta will decide if customers need another card. Again, usage patterns reveal far more than how often a business owner says, “Charge it.” Those frequent card users are candidates for employee credit cards, checks or a credit line increase.
“This business is really very analytically grounded,” Alter says.
And, from the 50 percent of customers who respond to Advanta’s direct mail solicitations by logging on to its Web site, Alter knows that more customers today prefer to conduct business online. Advanta must constantly tune up its technological capabilities so its time-pressed clients can enjoy the convenience of Internet services with the real-time information they need to manage their businesses.
Innovation for inspiration
Small businesses are responding to Advanta’s strategy as evidenced by the company’s 18 percent transaction volume increase in the third quarter of 2005 to $2.5 billion. Advanta Business Card income grew 33 percent from 2003 to 2004 and since 2003, managed receivables have increased 10 percent annually.
“But that will not continue indefinitely,” Alter says, always considering the competition.
Every week, credit card companies switch up their offers to lure in customers.
“There were long periods of time where we didn’t have the best offer there are tremendous fluctuations in business in a given year,” he says.
Customer attrition is generally 10 percent in the industry, and Advanta has a slightly lower rate. The difference between Advanta and its competitors is that when economic challenges surface, Advanta’s narrow focus allows it to change its course quickly.
“The business is more manageable today, and this scale is something I am more comfortable with on a personal level,” he says.
When Advanta needs to better understand eBay businesspeople or learn even more about its small business customer base, Alter turns to his employees for inspiration. They and the small businesses they serve motivate him to be successful because of his own humble beginnings.
“I can still picture that little room with my dad sitting in it alone at his desk,” he says. “I can picture the small businessperson toiling away, trying to make a living doing what they do.
“I don’t admire a giant company that will prevail and do well regardless of who the CEO is. Momentum will carry them. I admire the guy who is competing with Wal-Mart.”
How to reach: www.advanta.com or (215) 657-4000
“Within a two-hour drive, between 75 [percent] to 80 percent of the major pharma in the country is located here,” says Weinstein, president and CEO of Bio-Imaging Technologies Inc, the world’s largest independent dedicated provider of medical image management for clinical trials. “All the large contract research organizations are [also] here so we compete for our project management resources.”
Bio-Imaging Technologies’ revenue had grown from $3 million in 1998 to nearly $30 million last year.
Last year, several large project cancellations caused revenue to be flat for the first time in seven years, but despite those numbers, Weinstein has projected a 15 percent growth rate profitability for 2006 and says the increase in signings could easily top 50 percent for 2005.
Smart Business spoke with Weinstein about how he grew his company while dealing with project losses.
How did you recover from last year’s project cancellations?
We’re in a project-based business. We really [spent 2005] rebuilding that backlog. It’s been a different set of challenges.
The majority of our business today is clinical trial medical image management. We work for pharmaceutical companies and help them get drugs approved. If you’re using medical imaging to prove your drug works, which is happening more and more, the FDA [doesn’t] want 1,000 opinions on what’s happening.
They want that centrally reviewed by an independent third party. So we do that for over 180 projects for about 60 pharmaceutical companies.
Our business had been growing an average of over 20 percent a year. We were always trying to stay a little ahead in business. So once we got hit with our cancellations, we pared our resources a little bit because we still have to provide service to our clients.
How did you manage that?
We looked across the company and asked where we could make personnel reductions that would not affect client service levels and would provide the capacity to perform on our current projects. This resulted in a headcount reduction of approximately 30 individuals.
These reductions reduced our operating expenses by about $500,000 per quarter, starting in the second quarter of 2005. I was instrumental in building the team; this was extremely tough to do but given the situation, it had to be done. If we had not done this, we could have jeopardized the overall viability of our business, and this would have affected the lives of 250 employees and their families.
The way the pharmaceutical industry works is you don’t want to be viewed as retreating. You don’t want to give low levels of service because at that point, you won’t have a business. So [the challenge was], how do we rebuild the backlog which we have now built to record levels of what we’ve ever had before in less than nine months [while] watching our expenses and doing what we need to do to provide the same quality product to our client.
How did you rebuild that backlog?
When we dug into the cancellations, we convinced ourselves it was just unlucky that we happened to be holding contracts that cancelled. None of the cancellations were due to service issues. Unfortunately, this is a reality of the clinical research business.
None of the projects that were cancelled were taken to other vendors. They just simply stopped the trials.
We felt very confident that despite the cancellations, we were addressing a strong growing market because our proposal pipeline was strong and our win rates on proposals were increasing. When we made our cuts to reduce expenses, we did not affect our sales and marketing efforts because of our belief.
When you see that our backlog is at historic highs $55 million you have to believe that we were right.
To what do you attribute the number of cancellations?
Drug discovery is a very high-risk business. It’s not unusual to have cancellations. On average, we have between 5 [percent] and 7 percent cancellation of all the contracts that we signed.
When they do cancel, unfortunately, you don’t get any notice. You basically get a phone call that says the study has stopped; it could be a serious adverse event and it could be a budget issue with a client where they put the money into another drug program.
How have you grown your company despite the cancellations?
If you’re going to stay public, you’d better grow, and that’s what we’re working very hard to do. In December 2003, we acquired CapMed, which [includes] electronic medical records.
We have to look at other ways to grow beyond just our core business organic growth and acquisitions.
How are you going to achieve your projected 15 percent growth rate profitability for 2006?
Our projected increase in revenue is coming from our record-high backlog and a very strong proposal pipeline. Based on this, we are also projecting to be profitable for the year.
HOW TO REACH: Bio-Imaging Technologies Inc., (267) 757-3000 or www.bioimaging.com
Hoffner previously served as vice president of product management, vice president of engineering and director of engineering at SI Handling Systems Inc., a Paragon predecessor company. He was also CEO and founder of SI/BAKER INC., a joint venture between the company and Automated Prescription Systems Inc., that provided order fulfillment systems to the mail order pharmacy market.
Hoffner has been a consultant to SI Handling Systems Inc. and Paragon for various marketing and business evaluation assignments over the last 10 years. Most recently, he was president of E&E Corp. and is currently managing director of The QTX Group. Both companies provided consultative due diligence and enterprise evaluation services to investment banking institutions worldwide, to process and manufacturing industries, and to warehousing and distribution operations.
Hoffner earned a bachelor of science degree in electrical engineering from Lehigh University.
Len Yurkovic, president and CEO of Paragon Technologies, says, “The appointment of Joel Hoffner as president and CEO ... coupled with the promotions of Bill Casey and Jack Lehr to senior executive positions, puts in place an exceptionally experienced team of executives to continue to expand and diversify the company. I am delighted with the company’s potential driven by these promotions.”
Paragon Technologies is a leader in integrating material handling systems and creating automated solutions for material flow applications.
Constantine N. Papadakis was elected to the board of directors of CDI Corp., an engineering and information technology outsourcing solutions and professional staffing company.
Papadakis, president of Drexel University since 1995, has held several engineering positions with Bechtel Inc. and has also served as vice president at STS Consultants and Tetra Tech Inc.
His academic career includes roles as head of the Civil Engineering Department at Colorado State University and as dean of the College of Engineering at The University of Cincinnati.
Papadakis serves on the boards of Amkor Technologies Inc., Aqua America Inc., Mace Security International Inc., Met-Pro Corp., the Philadelphia Stock Exchange and Sovereign Bank Inc.
Paragon Technologies Inc.
William J. Casey was promoted to executive vice president of Paragon Technologies Inc. and president of production and assembly.
Casey has worked for Paragon for 38 years. He currently serves as vice president of SI Systems (a predecessor company of Paragon) production and assembly. From 2001 to 2003 he held a similar executive position with The Casey Group but rejoined Paragon in 2003.
Casey is a member of the Conveyor Equipment Manufacturers Association and was board president 2002-2003. He has served on its board of directors since 1997 and chaired numerous committees.
John F. Lehr was promoted to vice president of the company and managing director of order fulfillment.
Lehr joined Paragon as director of sales and marketing of SI Systems Order Fulfillment in April. He has more than 22 years of experience in the material handling systems integration industry with specific expertise in the design, sale and implementation of highly automated distribution centers. He has managed facilities projects in North America, South America and Europe.
Most recently, Lehr was president of Genesys Systems.
Devon Health Services Inc.
Justin Hawley was promoted to director of information technology.
In his new role he will manage all software and technical networks, oversee day-to-day IT operations and resolve troubleshooting issues.
Devon Health hired Hawley in 2003 after he’d worked for the company for three years as an IT consultant.
Hawley graduated from St. Joseph’s University.
Human Genome Sciences
Dr. Robert C. Young was appointed to the board of directors of Human Genome Sciences.
Young is a medical oncologist and internationally known for his work in the treatment of lymphoma and ovarian cancer.
He is past president of the American Society of Clinical Oncology (ASCO), the American Cancer Society and the International Gynecologic Cancer Society. He earned the ASCO Distinguished Service Award for Scientific Leadership in 2004 and was co-recipient of the 2002 Bristol-Myers Squibb Award for Distinguished Achievement in Cancer Research for his research in ovarian cancer.
Young earned his bachelor of science degree in zoology from The Ohio State University and his M.D. from Cornell University Medical College.
Javan & Walter Inc.
Rochelle L. Chavis Jr. joined Javan & Walter Inc. as senior project engineer.
Chavis is responsible for the design and coordination of heating, ventilation and air conditioning projects for clients. He conducts field visits and is responsible for project scope development and communication with his peers and clients, and provides QA/QC review and inspection of projects at Javan & Walter, Inc.
Chavis is a U.S. Army reservist and recently completed two years of service in Iraq.