Morgan Lewis Jr.

Wednesday, 02 April 2003 06:38

Package deal

It's minutes away from noon and Tony Rizzo is wrapping up his live sports Web cast on thesportsking.com. He and his three co-hosts take verbal swipes at Cleveland Indians third baseman Russell Branyan, whose future with the team is uncertain after an uninspiring performance last year. Rizzo doesn't put it quite so tactfully.

"This dude has been a bust," Rizzo shouts into his 1940s-style microphone, which is then blasted around the world on digital audio and video. "At some point you've got to be able to put the bat to the ball. This guy is a freakin' home run hitter, and he only hit eight of them all year."

Rizzo's brash style is a home run on the Web. His show, which he splits between his duties as a sportscaster on Cleveland's Fox Television affiliate, is by far the most popular program on thesportsking.com. The site Web casts original local sports programming throughout the workday and draws about 1.4 million visitors a month. The site launched with only about 66,000 visitors a month in September 2000.

"I thought 66,000 was pretty good," says thesportsking.com President Thomas Mercadante. "But every month, without exception, those numbers have gone up."

Those climbing numbers are also attracting advertisers, which is how the site draws revenue. Even though advertising-only as an Internet business strategy has been maligned by experts for more than a year now, Mercadante says he's profitable and has been for more than six months. That's profitable with no VC-funding and no Angel Investors. Mercadante is entirely self-funded.

So how does a man survive on ads alone? It's in the package. Here is what draws advertisers to thesportsking.com.

Traditional

The clickable banner ads and tile ads don't get much of a response. On a national average, only about 1 to 2 percent of visitors who see them click on them. But on thesportsking.com that response rate is closer to 4 to 5 percent due to the repeated advertiser exposure to the visitor through the Web casts.

Teamwork

Sponsors are part of the programs, not as faceless advertisers, but as personalities. Scott Merk from Merk's Ticket Agency Inc. calls in to tell Rizzo what sports events are coming to the Greater Cleveland area. Huge banners from advertisers, like Mountain Jack's Restaurant, serve as the studio backdrop for the live video Web casts.

"If you hit somebody with a message enough, eventually it will sink in," Mercadante says. "But you've got to do it in different ways. We hit them at least five different ways."

Variety

Mercadante offers advertisers on-air commercials, either promotional copy read by one of the Web cast hosts or a 30 to 60-second live action commercial produced by the advertiser.

How to reach: thesportsking.com, (440) 583-4220.

Morgan Lewis Jr. (mlewis@sbnnet.com) is senior reporter at SBN Magazine.

The Sports King

Sunday, 30 March 2003 19:00

Quick fix, short money

In the late 1980s, Fred Ode created and sold a successful accounting software package for the construction industry. But by the mid-’90s, the Windows operating system, with its user-friendly graphical interface, started to overtake all the programs for the PC.

Ode’s Foundation software was still in DOS format, and starting to look more and more antiquated as the months passed.

His competitors hastily issued a Windows-compatible format of their software, but underneath its new exterior, it was still the same old DOS program, with its crowded software architecture and inefficient logic. In programming lingo, what they did is called an “overlay.” “There’s a principal of software design that somewhere you’ve got to start over,” says Ode, president of Foundation Software Inc. in Brunswick. “In 1996, we were faced with the decision of doing an overlay and making a lot more money in the late ’90s, or starting from the ground up.”

Instead of going for the quick money, Ode and his programmers spent four years and $3.5 million writing the code for their Windows-compatible software. Although it took four times as long as slapping on an overlay, rebuilding was the smart move to make.

“If we did an overlay, sure we could’ve squeezed out three, four, five years of profit, but I’m in this for the long haul,” says Ode, who just celebrated Foundation’s 17th year in business. “We’re not going to do anything that’s going to put the company in jeopardy. We’re looking long term. In hindsight, doing a complete rewrite was the absolute way to go.”

Foundation was a Weatherhead 100 winner five years in row until 2000, when its sales, like most other accounting software makers, dropped off. This year, however, looks to be its highest sales year since 1999, Ode says.

“I’m real comfortable with our somewhat more conservative approach,” he says. “Maybe we grew quickly compared to other industries, but for technology, we grew at a conservative pace.”

How to reach: Foundation Software, (330) 220-8383 or www.foundationsoft.com
Monday, 31 March 2003 08:59

Place your bids

Imagine the paperwork for an office, factory or school construction project as a pyramid.

At the top of the pyramid, you'll find a stack of drawings from the architect who designed the building. The architect then makes eight to 10 copies of the project for general contractors to place a bid on the work. The general contractors then might make 40 to 50 copies for the subcontractors so they can bid on how much they believe their specialized work will cost.

That's a lot of paper.

"An average project may have anywhere from 50 to 90 documents," says Holly Mandak, account executive for constructionbidding.com. "That doesn't include the (technical specification) books, which are 500 to 1000 pages."

Constructionbidding.com is an Internet-based construction document distribution service. All drawings, blueprints, specifications, additions for a construction project are scanned into a server and converted to a digital .tif document.

Construction managers, general contractors and subcontractors can view all the documents online saving time and money on document reproduction and shipping, Mandak says.

The site is in its third year, including development. Robert Fortney, president of Fortney & Weygandt Inc., developed constructionbidding.com to eliminate the paperwork and inefficiencies in the construction bidding process.

Mandak says there are 23,000 registered users and the site records 60,000 to 80,000 hits a week.

"We've developed a nice niche," Mandak says. "We offer a lot more information than some of the smaller sites, but we don't overwhelm the users with technology like the large project management sites."

Projects both public and private can be posted on the site. The private projects, open only to select contractors, would require a password to view documents.

"It really saves the owner ultimate costs in document reproduction," Mandak says. "Anything that an architect or construction manager would do is reimbursable back to the owner."

Projects are posted for 60 days on the site with an option to extend. After projects are sold, there is an archive of the documents on a CD-ROM. Retention life of a CD is an average of 120 years, which is almost twice as long as paper copies, Mandak says.

There's no fee or memberships for bidders, but the company requesting bids does pay a fee to post project on the site.

How to reach: constructionbidding.com, (440) 716-4088 or www.constructionbidding.com.

Constructionbidding.com

Monday, 31 March 2003 08:49

Plane logic

After the terrorist attacks on Sept. 11, Michael Grossmann fielded many panicked calls from veteran business travelers who were now too frightened to step foot on a commercial airplane. But Grossmann, a gregarious man with a calm voice and handlebar moustache, isn't a counselor or a therapist, he's a pilot: a charter airline pilot.

"There's no question that there was a skyrocketing in terms of calls and business," Grossmann says. "But it took a lot of education of the customer. Many of them thought they were buying a ticket. When you charter, you don't buy a ticket, you buy a plane. It's yours for however long you need it."

Grossmann's charter flight company, Castle Aviation, located in the Akron-Canton Regional Airport, is just one of many in Northeast Ohio and nationwide that have picked up extra passenger flights since the disaster. But Grossmann's most common passenger is cargo. Packages from FedEx Custom Critical, metal parts from Kennametal's plant in Cleveland, or a gorilla from the Toledo Zoo are the most common types of passengers on Castle Aviation flights.

Some business owners scoff at the idea of chartering a plane for a business trip as too extravagant. But the time and stress saved might be worth the extra expense, which turns out to be not much. Here are the benefits to chartering a business flight.

Money

An average charter flight (less than 500 miles each way) carries a price tag of about $1,200, but that's for the whole plane. Castle's passenger planes hold three, five and nine people, which could spread the cost out depending on the number of travelers. It turns out to be not much more than a commercial flight.

Time

How much is your and your employees' time worth? You don't have to show up to charter flights two hours in advance for a security check. You can board immediately. You can park your car mere feet away from Castle Aviation's doorway. Think about how much time you're spending just getting to your plane at a major airport.

Convenience

No lines, no waiting, no stuffing your luggage into a tiny overhead bin. If there's a smaller airport closer to your meeting or conference, charter flights can usually land there.

"Chicago has dozen airports in the major metropolitan area," Grossmann says. "Why not land at the closest one?"

How to reach: Castle Aviation, (330) 498-9333

Castle Aviation

Friday, 28 March 2003 11:05

Play ball

It's late February. About a foot of snow covers the Canal Park field where, in 40 days, the Akron Aeros, the AA-affiliate of the Cleveland Indians, will take the field in their home opener against the Harrisburg (Pa.) Senators.

Outside the office of Akron Aeros General Manager Jeff Auman, with the bitter cold and nothing but flurries in the forecast, the season seems far away. But for Auman and the 16 members of his front office staff, right now is the playoffs and the World Series combined.

"For us, the season is right around the corner," Auman says. "The toughest part for us as a staff is we know how quick it comes every year, but we have to convince the fans and our clients. Our deadlines are here if you want to be in the pocket schedule listing, in the program, in the media guide, all those things are going to print.

"When you look out that window and it's 16 degrees, and there's a foot of snow on the ground, those people think they have all the time in the world to buy tickets, and get their ad in, but really, it's coming quicker than you think."

After graduating from Ashland College in 1988, Auman worked for his brother-in-law's motorcycle dealerships watching the books. A couple years later, he ran into an old friend who had an internship for the Chicago White Sox, and his life took a new direction.

"It just stumped me because I was born and raised in Dover, Ohio, and I never knew anybody working for professional sports coming out of that area," Auman says "You just don't assume that it's an option. You know the doctor, the lawyer, the guy in the mill, things like that.

"I immediately started questioning him, and I've always played football, baseball in high school and college, and thought that would be a great thing to get into."

Luckily, the first door Auman knocked on was of the Canton-Akron Indians, the former name of the Akron Aeros. The general manager at the time was leaving to a take a position in the New York Mets front office, and the assistant GM was moving into his place, leaving that spot open for Auman.

"They brought me on as an unpaid intern for six months to do some sales and get my feet wet while they were going through that transition," Auman says. "They brought me on full time as their business manager doing their accounting and bookkeeping. I was named assistant GM a year after that. Then, in 1994, I was named GM in Canton for the club, and I've been with them ever since."

Auman sat down with Smart Business to discuss how he manages his front office, and how he attracts fans to Canal Park.

What kinds of things are you doing to boost ticket sales this year?

Like any other minor league baseball team, and even as it's going on in the majors now, group sales are your bread and butter. We really get out there and go after it hard with our group sales force and telemarketers, trying to sell group outings, companies coming to town, companies bringing their workers, civic organizations coming out as groups, things like that.

In addition, you want to be more creative, so a few years ago, we started our Education Days programs, where we have five days in April and May where we have a 10:35 (a.m.) start. We have a binder where our staff had sat down with some teachers, as well as the Board of Education from the state of Ohio, and came up with a curriculum that's titled, 'Baseball in Education.'

We have 5,000 kids out here five days during the season, and it's a fun field trip for the kids, but also we put questions on the board, and in their binder, like, 'If Johnny runs from home to first base in 20 seconds, and it's 60 feet long, how many feet did he go per second?' Questions like that.

Baseball in Ohio in April and May is a tough ticket to sell when we have weather like this. With the Education Days, we can increase attendance 25,000 to 27,000 by doing five special days like that. That's one of the innovative ways that we've come up with.

It's great for us to get people in the park. Those kids, trust me, they have money. They spend it on concessions and souvenirs, but it's also a great day for those kids, and sometimes, it's the only way some of those kids will ever get to our park, unfortunately. It's just a win-win situation.

With everyone struggling with the economy, we've gotten a lot more flexible with our season tickets. When we first came to town, we were only doing five-year and three-year terms. Last year, we started going with a one-year term, which has started to pick up some of the slack there, and then also we went to a mini-pack situation, where you could buy a number of games in a package.

Last year, we only offered three packages; this year we jumped up to 12 packages. The whole key to any business is just being really flexible and adapting to what your customers' requests and needs are. At a time when the economy is weak like it is now, people can't afford a whole season package, so we adapted ourselves and are creative.

We offer different weekend packages, fireworks packages, summer packages.

You have advertising out on the field and in the program. How do you increase corporate sponsorship?

We saw about a 10 percent loss last year in advertising, but we picked some of that up. I definitely think we're in better shape than a lot of the companies out there as far as what they're feeling. We will have all signs sold this year, so it's actually going pretty well.

We've had great success in our first six seasons with support from the community, both in attendance and in revenue, sales, things like that. We're no different than anyone else. We don't live on an island. We're feeling the effects of the economy like everybody else.

Unfortunately, the first thing to go in companies is a cutback in advertising, or the entertainment dollar. The good thing is when we make those calls and we do get some feedback, everybody compliments us on what a great time they've had here, and what a great program we're doing, so we know it's not something we're doing wrong.

We may lose those groups this year, and as soon as things turn around, we know they're going to be right there with us.

How do you convince companies to be a sponsor?

Just going out there, making phone calls, knocking on doors with our sales force. We're doing some different events this year. We've located about 200 agencies in the area, and we're going to start inviting them down, once the season starts, to the games to get them familiar about what we offer.

We're really proud of the fan-friendly environment and the exciting atmosphere we create at our park. So we think once we get them here, we can do a presentation to those folks and see if there are any clients that they handle that would be a good fit for us.

That's another way we're going to try and attack that this year and hopefully open some more doors as well.

What about advertising the Akron Aeros? What's your strategy?

We do quite a gambit. We're on a lot of the radio stations in the area. We also do quite a bit of business with the (Akron) Beacon-Journal, obviously. We have an ad promoting that night and some upcoming games. We also do an outdoor billboard campaign through Clear Channel, which does five different billboards throughout the months of May through August that rotate per month.

We're going to be doing a deal with TV 23 to do some commercial spots for the first time with them this year.

One of the big things we have to offer, which a lot of companies don't, one of our biggest advertising mediums, is our pocket schedule. We do 500,000 pocket schedules in the area, so once we get those printed in March, the staff picks a different area and we just go out and drop them off.

Miller is a sponsor of ours, as well as Pepsi, so their drivers take them to all the stores and bars they visit. I bet 95 percent of the calls coming in to our ticket office, they're looking at a pocket schedule. That's a key marketing tool for us.

How important is it for sales to have a marquee player?

To be honest, in the surveys we've done in the past, most people think a winning team would be a pretty key component to that. It's actually not. It ranked about eight out of 10 for people wanting to come to the park.

I would say the fan-friendliness, the pricing, safety, a clean ballpark, all played in to why people want to come down here. It's a great family atmosphere and a good value, so it certainly doesn't hurt to have a marquee player like a Victor Martinez, like last year, and having a team that won 93 games last year doesn't hurt in any way.

But even more so than the marquee player, we found because we have had some teams that weren't quite as successful on the field while we've been here, we still ranked in the top 10 in minor league baseball attendance, and first in AA. The key to that is our affiliation with the Cleveland Indians.

Without a doubt, it's great for fans in Akron and surrounding areas to come out and see these players and follow them up through the system. Now what Cleveland has done with having Buffalo not very far away as their AAA, and us here as their AA, it's very nice for the fans of Indians to see those players develop and keep track of them.

You've mentioned "fan-friendly" quite a bit. How do you create that atmosphere?

Staffing is by far the No. 1 thing. We have a great front office staff, we have a great group of ushers in our ballpark. We get phone calls and letters quite often telling us, 'Our trip to the ballpark was enjoyable.'

We get letters from people who are retired and travel around the country going to major league and minor league parks, and wrote back or called telling us what a great time they had at our park, everybody was friendly, helpful.

You want to be, not only friendly and helpful, but have your staff and ushers be knowledgeable. If somebody has a question, you don't want a lot of 'I don't knows.'

We also do the on-field entertainment in between innings to capture their attention. We want to make the whole night an event, for four hours, not only while the game is going on.

What do you do as leader to create this environment?

It's the old adage, what comes around goes around. The ownership has been very good to me in my position, and has been very fair and worked closely together with me. That's exactly how I treat my staff. I don't treat them as someone being under me. We're all on the same level.

That's worked very well. If you just work together and you show courtesy and respect to your co-workers, then that transfers to them showing the same to the game day employees, which are the ushers and the on-field promotional staff and all that.

If that's what you expect from your staff, then you have to show that from yourself first and foremost. It's leading by example and not by words.

Is the pre-season the most important part of year for you?

It's funny the number of times we get the question, 'What's your job in the off-season?' Some people think we just leave Sept. 1 and come back on April 4 and everything's ready to go, the wall signs are done, everything's sold, the program's ready to go.

Our most important time of the year is the off-season. From November to March is when our season is going to be a success or not a success. We work longer hours during the season, but we're not as hectic or busy.

In the off-season, we're not here as many hours, but we're much busier. How to reach: Akron Aeros, (330) 253-5151 or www.akronaeros.com

Thursday, 27 February 2003 08:10

Special agent

Most business owners use a real estate agent to sell a former office headquarters or manufacturing facility.

While using an agent saves time in the long run, you must first do research to find the best firm to sell the property. Here is a checklist to follow from TotalRealEstateSolutions.com to make sure you'll get the most profit out of your sale.

  • Do a phone interview. Place a call to each of the agents on your list. Document how quickly they return your call. Remember, these agents will be returning calls to your prospective buyers. Do an initial feel-out interview over the phone so when you meet, you will both be prepared.

  • Request a complete plan. From title to escrow, request a complete plan as to the services the agent can provide for you.

  • Evaluate the team. Top producers will have established relationships with lenders, title reps and inspectors. They are there for your benefit, and if they are ill-prepared to handle all the steps, you are being short-changed.

  • Get a detailed report of your property. Request a complete report of your property, with ideas for improvements, cosmetic changes, structural repairs or anything that could add value. Remember, a small investment up front will pay higher dividends at the time of sale.

  • Ask for an alternative report. Request a complete report of alternatives to the sale. What would current market leases generate? Rentals? Responsibilities attached with leasing? Have your agent educate you as to all your options.

  • Insist on prequalification. Don't waste valuable time negotiating or showing your property to unqualified prospects. Insist your agent prequalify candidates to screen out unwanted prospects.

  • Have a marketing plan. Insist on a step-by-step marketing plan of how your property is going to be sold and marketed. Look for innovative ways to attract buyers. Demand 24-hour advertising, lead accountability and tracking services.

  • Create a negotiation strategy. Have a written, well-conceived negotiation strategy. The old adage, "You don't get what you deserve, you get what you negotiate," rings true in real estate. Insist on a sound negotiation strategy before you entertain buyers.

  • Get a written closing checklist. You need to know in detail how you will conclude the sale of your property. This should provide a step-by-step procedure that is easy to understand and follow.

Source: www.totalrealestatesolutions.com.

Sign of the times

Good signage isn't just for attracting pedestrian traffic. It also helps your suppliers find your facility faster, when every minute counts.

The U.S. Small Business Administration has compiled three tips for designing your signage.

1. Keep it visible and legible.

People of all ages are looking through a windshield, in traffic, day and night. They must be able to see and read your sign easily.

2. Save the details for the sale.

Don't attempt to sell them with information on the sign -- save that information until they are in your business.

3. Keep it simple.

The proper design of your sign is critical to its effectiveness. Crowding the sign with too many words or lines of text makes it impossible to read from a distance.

Use as few words as possible so your signage is legible. Fewer words are better, and three to five are optimal for quick readability. Source: The U.S. Small Business Administration

Thursday, 30 January 2003 19:00

Bogged down

The U.S. Army Corps of Engineers and the Ohio Environmental Protection Agency used to play good cop, bad cop when it came to wetlands regulations.

The Corps previously required that real estate developers replace an equal number of wetlands acres for every one disturbed by a building project. The Ohio EPA, on the other hand, categorized each type of wetlands destroyed, and at times, required developers to replace more acreage than was lost.

But on Christmas Eve, the Corps of Engineers and the U.S. EPA issued a joint memo which appears to say that the Corps will follow the EPA's lead and start to crack down on developers when it comes to protected lands.

The memo, called a Regulatory Guidance Letter, said the Corps will start to analyze the function of the wetlands -- what the wetlands do on the site, how they perform and what function they perform in the ecosystem or the watershed.

"This is a big shift in policy," says Robert Karl, a senior attorney and member of the environmental group at law firm Ulmer & Berne LLP. "The Corps is looking not simply at doing a mathematical calculation as much as a scientific analysis. They're no longer looking at 'one-for-one' anymore."

The recent guidance letter is not officially law, but it's a good indication of what the law will say in the coming years, Karl says.

"It's like an evolving policy," says Karl, formerly an environmental enforcer in the Ohio Attorney General's office. "It looks at the court cases that have come down, it looks at the policies. It guides its regional officers how to interpret the law."

Previously, when a building project disturbed wetlands, regulators said the developer could preserve other wetlands to make up for the loss. However, regulators are now dismissing preservation, which is usually less costly for the developer, and focusing instead on creation of new wetlands in exchange for those destroyed.

Preservation is now reserved for only "exceptional circumstances," according to the guidance letter.

"This is much more strict," Karl says. "You're starting to see the federal government moving away from things that a couple years ago they said were OK."

What this means for business owners is most likely a more costly and longer building project, if the development is located on wetlands, due to the closer scientific analysis.

"For now, I would tell my clients to proceed as they have before," Karl says. "Submit your application, but call (U.S. Army Corps of Engineers) Buffalo District, which controls Northeast Ohio, and see what they're thinking." How to reach: Ulmer & Berne LLP, (216) 621-8400

Thursday, 30 January 2003 19:00

Equal time

It's easy to get stuck in rut when running a business. You tend to solve problems the same way, try the same growth strategies and call on the same people for advice. Eventually, you run out of new ideas.

That, in part, was why the Young Entrepreneurs' Organization (YEO) was created. The group, which has chapters all over the world, accepts business owners from all industries, as long as you join before your 39th birthday. The Cleveland chapter includes entrepreneurs from around Northeast Ohio including Akron, Canton, Alliance and Bath, says chapter President Adam Kaufman, who is also vice president of Renewal by Andersen window replacement.

"It's a forum where entrepreneurs with growing businesses can get better educated, better connected, and get more confident," Kaufman says. "I've gained a lot more confidence through my leadership of YEO and being exposed new things beyond my own industry."

The Cleveland chapter was founded in 1998 and had 32 members as of press time.

The average YEO entrepreneur age is 36 years old. The average company has $22.6 million in annual sales and 44 employees, although company sizes range from $600,000 in sales and two employees to as much as $500 million in annual sales and 140 employees.

The Cleveland chapter was awarded last year as one of the "healthiest" mid-sized chapters by the International YEO, which includes 130 chapters in 36 countries.

As with other peer groups, entrepreneurs meet to discuss how they solve problems and grow their businesses, but the YEO includes entrepreneurs from different industries for more perspectives on common business issues.

"We sell windows," Kaufman says. "If I were only to talk with window people or remodeling people, I would be limited in what type of brain power I would be exposed to."

YEO offers networking opportunities, but also partnerships with firms like law firm Arter & Hadden LLP, for legal seminars on business issues. Educational seminars are usually held about once a month.

"There was a tremendous amount of take-home value that I could take home and apply," says David Lazor, president of Lakewood-based Lazorpoint. "Having the opportunity to spend some time with firms like Arter & Hadden to educate us, when I go back to the office, I have new things to think about that I didn't even know about. There's a tremendous amount of value."

YEO Cleveland's annual membership fee is $800. International dues are $849 a year, plus a one-time $300 initiation fee. How to reach: The Young Entrepreneurs' Organization, (216) 476-8400

Tuesday, 26 November 2002 08:12

Empower suit

In 1995, Dress For Success founder Nancy Lublin appeared on the "Today Show" to tell America that she planned to start a unique organization to dress women who had been out of the work force for several years for job interviews.

One of the millions of people who watched that morning was Ricki Weiss, who immediately called Lublin to ask her one question, "How can I bring this to Cleveland?"

Three years later, Dress For Success Cleveland was founded, and to date, it has clothed more than 5,600 women for job interviews. The Cleveland chapter is one of 73 affiliates in four countries.

However, says Traci Felder, executive director of Dress For Success Cleveland, the organization is trying to get the word out that it also does much more.

"We're not just about suits," she says. "Once the women get employed, they get to come back and get a second suit, and once they keep their job for 30 days, they're invited to our Professional Women's Group, which is our retention program. It's easy to get the job; it's harder to keep it."

The retention program provides nine required classes, including how to help improve credit, establish housing, behavior modification, and stress and anger management. Once those courses are completed, other elective classes are offered.

Dress For Success works with women who have been out of the job market for any number of reasons: economic difficulty, incarceration or a change in their personal life which forces them to become self-sustaining.

Women are referred to Dress For Success through any of the 137 public agencies that work with the organization.

The majority of clothing is donated, but some of the suits and accessories must be purchased based on special needs.

"We have wonderful vendors that really keep the costs down for us," Felder says.

Felder plans to expand the organization to include younger women entering the work force for the first time.

"We're about preventing the cycle from beginning," Felder says. "These are young women who maybe can't afford to go to college and are ready to get into the workplace, but have no idea how to create a resume. We'll be able to give them a six-week prep course." How to reach: Dress For Success, (216) 781-3372

Friday, 30 August 2002 05:47

Last laugh

 

 

Imagine your company split in two. One side can't talk to the other, even though doing so would greatly improve service to your customers.

Then picture 15 competitors from all over the country trying to swoop in and snatch those customers. How do you innovate in that climate?

Ask Anthony Alexander, president and COO of Akron-based FirstEnergy Corp.

In 1999, the state of Ohio deregulated the generation of electric power -- which let consumers for the first time shop for their electricity -- while the distribution and transmission side of the business remained regulated. Effectively, FirstEnergy, created from the merger of Ohio Edison Corp. and Centerior Energy Corp. less than two years before deregulation, was forced to chop itself in half between the regulated and nonregulated sides.

"We just put up Chinese walls inside the company," says Alexander, a 25-year industry veteran. "You have to start to live under a set of rules that frankly don't make sense to our customers, and make it somewhat more difficult to provide them with the kind of service they've been used to over the years. That's probably the biggest challenge we've had at this point in the process."

Alexander, however, was still able to grow the company thanks to strategic acquisitions and moves.

"It's no different than many other companies," he says. "You just have to learn to react faster and to anticipate faster than you would have otherwise done when the business was more defined on a year-to-year basis."

One key component was FirstEnergy's $4.5 billion acquisition of New Jersey-based GPU Inc. in 2000. The merger doubled FirstEnergy's size in terms of number of customers, giving it a greater presence in Pennsylvania and New Jersey.

It was the second time the company had doubled in size. Since 1998, revenue has increased from $2.5 billion to $12 billion. FirstEnergy went from distributing 34 billion kilowatt hours a year to 123 billion. Those are kilowatt hours going to customers, not traded with other utilities.

FirstEnergy was forced to trade, or "source," more kilowatt hours after the GPU acquisition because GPU sold most of its generating equipment before the transaction. FirstEnergy's generating ability peaks at 12,000 to 13,000 megawatts, but peak demand can soar as high as 22,000 megawatts.

"There isn't a company that buys and sells power that's not trading," Alexander says. "To the extent we're buying power, we're selling it at the same time. We're not doing speculative trading, what you heard Enron doing or Dynegy, or all the others."

 

The deregulation that created a company like Enron created many companies trying to buy and sell power to make a profit, not to serve customers. FirstEnergy avoided that kind of trading, which, during Enron's heyday, made the company look stodgy and old-fashioned.

How times have changed.

"If you look at the industry over the last few years, if you weren't a big trading house, your stock was discounted," Alexander says. "That's no longer the case."

FirstEnergy sold all of its international assets, many of which it acquired during the GPU deal. At first, the move seemed misguided. Now, utility companies are taking huge losses on international facilities.

"We've decided to focus on fairly straightforward strategy," Alexander says. "Retail, focus on customers. It's integrated, so it has all parts of the business associated with it, and it's regional. We're not trying to look at international operations or areas of the country that are outside our areas of expertise. You can define that narrowly, you can define that broadly, but we like this narrower approach that allows us to really focus on what we think is important to our customers long-term, as well as our shareholders."

With Enron's collapse and investigations into utility companies like Duke Energy Corp. and Mirant Corp., the industry is more uncertain than ever. But FirstEnergy is emerging relatively unscathed and as a leader due to its conservative approach.

Alexander says the secret is communication.

"You've got to stress an internal bubbling up of ideas from the bottom of the organization," he says. "They are the ones that are closest to what's happening; they can see things and can see the changes occurring.

"From the top, you have to have a broad sense of where the market's going, where your industry is heading, and you get that from a lot of different sources. Hopefully, you're getting from the rest of the organization some alternatives of what you're going to be faced with in the future." How to reach: FirstEnergy Corp., (800) 646-0400.