Kim Palmer

Thursday, 26 February 2004 09:03

Living together

In the 1990s roll-up craze, a lot of business commitments were made without the proper due diligence or regard for corporate culture compatibility.

Even with the lessons learned from past mistakes, it's still not uncommon for service firms to acquire or merge with other small firms without doing their homework. But there's much more to these transitions than just handing over a book of clients.

"We have acquired sole practitioners who are looking for an exit strategy or smaller practice groups who want to be able to offer more services and need a resource base to do so," says Robin Baum, managing partner at accounting firm Zinner & Co.

Zinner has done nine mergers or acquisitions as part of its growth strategy. But it has taken a different approach from the " roll up whatever lies in your path approach" that many larger companies have taken. Instead, the firm "lives together for a year" with its potential partner.

"Living together is a strategy that Zinner has used that dates back to the early '90s," says Baum.

The process allows for thorough due diligence, increasing partnership's chances for success.

"We would rather know about them before we go through the process, and before finding out that we need a divorce," says Braun.

In the living together strategy, the firm or practitioner in question subleases space at Zinner's location and shares administrative and computer resources while maintaining separate client files.

This approach, Baum says, allows her and her staff to observe their prospective partner's method of conducting business while determining if there are any deal-breaking problems or differences.

"It allows there to be an apples-to-apples comparison," she says. "We go through one tax season (and) you see how people have operated during a very stressful time."

Zinner's management can also observe how the firm's leadership handles a higher level of accountability that comes from going from entrepreneur to partner.

"When you are picking people that have grown their businesses successfully, they've had a certain level of autonomy," says Baum.

Some entrepreneurs simply can't handle the change in responsibility. But it works both ways. As much as Zinner wants to make sure the firms it is living with will be a positive addition, these companies are concerned with the service their long-term clients will receive.

"In many cases, they have a great concern that their clients will be serviced well," says Baum. "In our arrangement, they (the co-habitating firm) are willing to do whatever is necessary to make the right introductions and facilitate that transfer of integrity."

The seamless transfer that comes from living together is much more effective in retaining clients when it comes time to make it legal, says Baum.

"We learned very quickly that clients don't like to be treated as chattel," she says. "If they feel that way, it is a prelude to losing that account. It's important not to make any client feel that they are not big enough or don't fit into the organization."

It all boils down to a touchy-feely approach to growth through acquisition, which has previously been considered more of a numbers game.

"The corporate culture aspect has been the driving force in our due diligence ... it is a driving force in any niche practice," says Baum.

And it seems to be working.

"We've had a total of nine living together arrangements," says Baum. "And in only two cases did we make the decision not to merge or acquire ... and both were mutual decisions." How to reach: Zinner & Co., (216) 831-0733 or www.zinnerco.com


Now for some good news

The hiring of full-time accounting and finance professionals is expected to increase a net 6 percent in Cleveland during the first quarter of 2004, according to Robert Half International Hiring Index, outpacing the projected national average of a net 2 percent.

* 11 percent of local CFOs surveyed plan to expand their accounting departments, while only 5 percent anticipate reductions in personnel. The majority, 88 percent, anticipate no change in hiring.

* 11 percent of CFOs in the East North Central region plan to expand their accounting departments, while 1 percent anticipate staff reductions.

* 15 percent of financial executives in the insurance, real estate and finance industries expect to hire more personnel -- a trend that has continued for the last three quarters.

* 37 percent of CFOs who said they plan to hire accounting and finance professionals during the first quarter cited anticipated business growth as the primary factor driving the demand, up from 30 percent in the fourth quarter.

Thursday, 29 January 2004 19:00

Workers' complication

Most likely, you don't know a teacher with the last name of Coolidge. Nor could most of us point out Riverdale Local School on an Ohio state map.

But if you are an Ohio employer, those two names may have a profound effect on your company's leave of absence policy.

Recently, the Ohio Supreme Court unanimously decided in Coolidge v. Riverdale Local School that an employee receiving a specific type of workers' compensation (temporary total or TT) may not be discharged on the basis of absenteeism or inability to work.

"The decision says that Ohio employers cannot terminate employees who are out on total temporary disability leave for (violations of) the company's extended leave policy," says William L. S. Ross, partner-in-charge of workers' compensation at Calfee, Halter & Griswold. "What this ruling does is render most leave of absence policies illegal in the state of Ohio."

 

Status power

Temporary total benefits are available to employees who are off work with a temporary medical inability to return to their former position due to an injury or exposure sustained on the job.

"In the pre-Coolidge era, there was a definite separation of an individual's employment status and the maximum allowed leave of absence from their workers' compensation rights," says Ross.

But in light of this new ruling, employers' policies are overruled by an employee's workers' comp status.

Many employers have policies in which leaves of absence max out, usually at from six months on the short side, to a year, which is more common. When an employee exceeded that time, "they would remove you from the payroll ... and that was considered legal," says Ross. "It didn't matter why you were off - personal reasons or sabbatical, health or family."

There have always been antidiscrimination rules in place to protect injured employees, but the real sticking point is the TT designation, especially for work forces prone to injuries over time due to age or other factors. Ross says that something as common as a back injury can take up to six months to heal.

"The court went out of its way to further the rule so that those employees have no obligation to fill out leave of absence paperwork or notify employers of their medical status or expected return," Ross says.

This means that as long as they have TT status, they are untouchable.

 

Deciphering the court's wishes

Since the ruling is relatively recent, many of the details are not yet clear. Questions such as how long an employee can be on TT disability or whether normal benefits should be extended have yet to be answered.

Ross' best advice at the moment is to follow up on all current workers' comp claims, especially those of employees who are actively seeking or are currently on TT disability.

"We advise our clients to be on top of their worker's comp claims," Ross says. "We urge them to maintain ties to the employee or the company managing the claim ... or you will lose. It is important you maintain a record that reflects that the employer communicated with the employee."

There is some good news, says Ross.

"The workers' comp system has gotten more streamlined and efficient in last few years," he says. "With a well-crafted and timely filed motion, the case can be heard within two to three months of filing. It used to take several months to a year." How to reach: Calfee, Halter & Griswold, (216) 622-8221 or www.calfee.com

 


Lingering questions

The Ohio Supreme Court, hearing Coolidge v. Riverdale Local School on appeal, overruled prior Ohio case law and joined Kansas and Maine in a minority position that provides job security to workers' compensation claimants receiving Total Temporary disability benefits.

However, for Ohio employers, there are numerous unanswered questions.

* Are employers still obligated to provide continued payment for health insurance and related benefits?

* What is the retroactive scope of the Coolidge case in regard to employment terminations prior to the release of the court's decision?

* Does the ruling confer Family and Medical Leave Act (FMLA)-style rights on all Ohio businesses, regardless of size?

* Must employers return the claimant to the same job/position and pay, seniority, benefits, etc., levels?

* At what point does a claimant lose the protection of the Coolidge case?

* Does Coolidge apply to employers that continue paying wages in lieu of TT benefits to hold down workers' compensation claim costs?

There are motions and amices briefs asking the court to water down or reconsider the decision, but given the unanimity of the court, it is unlikely that it will withdraw the decision in its entirety.

Thursday, 20 November 2003 11:29

Pro bono

Many companies donate to local causes, but for Calfee, Halter & Griswold, writing a check is often not as useful as writing a brief.

In fact, nonprofits need legal advice and services almost as much as for-profit organizations do.

"Government regulations every day are getting more complex for both nonprofit and public companies," says Thomas McKee, partner at Calfee, Halter & Griswold. "We provide services that help the bottom line ... at the least cost basis. We have lawyers that specialize in most areas. And even with a nonprofit, there are always employment issues, personnel issues, HIPAA regulations and a number of other day-to-day operational things."

Calfee, Halter & Griswold has a longstanding philanthropic tradition and recently its staff was called upon to help maneuver through a number of legal and financial issues regarding Achievement Centers for Children's (ACC) capital campaign. Besides making $50,000 in cash contributions to ACC over the past seven years, the firm clocked more than $30,000 worth of hours of pro bono work in 2001 alone.

"We've ramped up our work with ACC the last few years, but to be honest, we had no idea what we were getting into," says McKee.

What it got into was a land purchase from the city of Cleveland that took 18 months to negotiate and a complex analysis of the best financing structure for the new building.

"All these (nonprofit) organizations have to live within their means, and we are trying to help out. There are limited resources because of the economy and especially within this region ... the number of people that use these services has grown dramatically."

Regardless of whether the law firm's staff is building a house for Habitat for Humanity or doing what it does best -- practicing law - the results are the same.

"At the end of the day, it is whatever you can do, whether it's cleaning up the (ACC) camp or cash contributions," says McKee. "We all get a great deal of satisfaction for doing their part." How to reach: Calfee, Halter & Griswold, (216) 622-8420 or www.calfee.com

Wednesday, 22 October 2003 20:00

Miller's crossing

If you type "Sam Miller" into a Google search, you get a grad student's personal Web page and sites about Sam Miller the actor and the author. There's also a Sam Miller's restaurant, and a painter with the same name.

At about the fifth page, you'll run into Sam Miller, executive management at Forest City Enterprises.

And that's how Sam Miller wants it. He likes a certain measure of professional anonymity. The only irony is that if you ask any businessperson in the city of Cleveland or in Ohio, for that matter, they all know exactly who Sam Miller is.

In short, he's the chairman of Forest City Enterprises, a commercial and residential real estate development company with $5.3 billion in assets. But to get the whole picture, you need to know that he is also the son of immigrants, a World War II veteran, a Case Western Reserve University and Harvard grad, and one of the community's most generous philanthropists.

He began working at Forest City in 1947, and has been credited with moving the company into land development after the war, growing it significantly. And like all good business leaders, he's also the recipient of multiple honors and awards, but he doesn't want to see that list in print, he says.

"People could care less," Miller says about the countless dinners at which he's been the honored guest. "You know, you go to those events, and they only care about a few things. Did it start on time? Did it end on time? And how is the food? You ask them what was said, and they tell you they can't remember."

He may not care, but with his title and influence, Miller's name could go on any board in the city. But that's not his style. Instead, he has chosen very specific causes to align himself with.

"I'm very passionate about anything I do ... my involvement with the Catholic church, my involvement with the state of Israel. I just don't join organizations to get my name on the board. That is worthless, and you do a grave injustice to the organization," he says.

If you look beyond the resume and the official bio, what you'll find is a man who's had a lot more presence and influence than most people know or that he cares to talk about.

Son of immigrants

"I couldn't speak English until I was 7 years old," Miller declares.

But he did speak Yiddish, Hebrew, German, Russian and Polish, a common story for the son of Eastern European immigrants who landed penniless on Ellis Island.

Miller's life is definitely an Horatio Alger story: Son of poor immigrants teaches himself English, goes to war, gets a good education, works hard, gets a few breaks and makes good.

"All along the way, even in college, someone gave me a nudge. Someone has always been there," says Miller, who points to power-hungry executives as one of the great ills of business. "Humility is one of the greatest virtues."

The Forest City story is somewhat similar. The company was founded in 1920 by the Ratner family after they emigrated to the United States. It is the nation's largest publicly traded commercial real estate developer, with 14.6 million square feet of retail space, 7.3 million square feet of office space, 2,939 hotel rooms and 34,907 apartments.

Forest City has grown its pre-tax earnings (before amortization, depreciation and deferred taxes) each of the last 23 years. In 2002 alone, it started 13 projects with combined earnings of more than $660 million, bring the company's total assets to more than $5 billion.

Without a doubt, Forest City is one of the remaining old guard companies based in Cleveland. It has withstood a world war, Cleveland's downward economic spiral and three generations of succession, and everyone wants to know the secret.

"We don't have to worry about our stock price," Miller explains. "We run a good business, so that (the stock) is taken care of automatically."

In the same breath, he notes that "our stock today is at the highest it's been in the history of the company. We're just good. There's no secret."

And as to how he has led a successful company for so long, Miller comes down squarely on the side of being very involved.

"I'm totally hands-on. And hands-on to me is surrounding yourself with good people and talking to them every day about, 'How is this going?' and 'How is that going?' I'm not running this company. This company is being run by the employees. All I am is an adviser, or I suppose you would call it that."

Interviewing Sam Miller

You can't talk about Sam Miller without mentioning Forest City. He, however, can and does.

Actually, he'd rather not talk business. He'd rather talk politics. A better way of putting it is that he'd rather take a much more Socratic approach and get you to talk about politics.

The whole thing becomes more like being a guest on the MacNeil/Lehrer NewsHour.

"What do you think of Jane Campbell?" he asks curtly.

Not that everyone doesn't ask that question, after a few drinks at a business function or over dinner, but to have Miller ask is a little daunting.

It's one of those questions you could easily waffle on, but I have a sneaking suspicion he'd call me on it. Best to think about it for a moment and just go with your gut, so I do.

He doesn't kick me out, so I must have said something right -- or he's just learned the art of tacit disagreement that comes along with more than five decades in business.

It's not easy interviewing Sam Miller, and I found out quickly that he's not fond of giving interviews or of the press.

"I was going to give you $50 and tell you to go buy yourself a sweater," he blurts out a half an hour into an interview. "I believe in the freedom of the press but ... Power and visibility are contradictory. You're just set up as a target. I believe that the most powerful people in this community are invisible."

Sam Miller says he knows if he likes someone in the first seven seconds after he meets them. And if you do get past that seven seconds, you'll be asked your opinion, you'll get advice, you'll hear stories and you'll receive either a tie or a scarf from a collection he keeps in his office for visitors. (After two visits, I now own two such scarves.)

If you've known him for a while, you may even get personally delivered bagels in the morning. This is all par for the course; for years, Sam Miller has built relationships first and worried about the business repercussions later.

"One of my big secrets is helping people when I don't need them," he says.

This launches Miller into one of many stories about some good deed that came back to him years later.

"That councilman or ward leader that you help years later becomes some kind of power, in some administration, some place, and when you go and you ask them for something, you don't have to give them anything," he says. "He remembers that you helped him, and you didn't ask him for anything."

This was true for Miller a few decades ago.

"It was a Saturday morning, and it was raining," and a man came to Miller's door to raise money for the local library. "He introduced himself and told me he was trying to raise money, and I said, 'On a day like today?' He said, 'This is my only day off.' ... He was soaked to the skin. He asked for anything, and I gave him a check for $500.

"Twenty years later, I'm at a meeting, and I need one critical vote. That guy gets up and says, 'I vote to break the deadlock.' He said the reason I'm doing this, and he repeated that story, and that's what I meant when I said it's important to do good. It comes back to you in a thousand ways that you can never know."

There are more stories like that one. They involve students needing money or an organization about to fold or, in one case, 16 parochial schools that were in danger of closing in the inner city. Sam Miller was there to help, and doesn't have one regret.

"I never give a loan -- I don't want to be paid back," he says. "I just help out if needed."

Art of the deal

Eleanor, Miller's secretary for the last 50-plus years, brings out a handful of brightly colored scarves.

"Pick one," says Miller.

Miller's convinced he has the longest-serving secretary in the country.

This is my second scarf. I grab a red and white Chanel to go with my drab beige raincoat. I wonder which one Jane Campbell picked when she undoubtedly met with him.

You can try to protest; you come to his office -- in my case for an interview, but most others come for support, advice or money -- and he is giving you a gift. But I learn that is part of what makes him so successful. For him, it's all about people and relationships.

"The deal is second," says Miller. "It's the people who are going into the deal that are most important. You can have a great deal, but it's surround by a bunch of people who don't know what they're doing and it goes into the toilet, or you can have a deal that is moderately good and have smart people working on it and put it together and make it outstanding.

"I have an inborn radar that allows me to make a judgment on a person who I don't know almost immediately," he adds.

Many businesses involved in real estate have ridden the wave of success, only to crash when the market changes. Forest City has been able to navigate all those changes and come out on top.

"Real estate is an art, not a science," says Miller. "No two deals are the same. Every one is new and an immediate challenge. We have a policy here. We tell our people that a smart man remembers all his mistakes and a wise man learns from others mistakes."

Community and relationship building are at the heart of the company and close to the heart of Miller.

"We take on almost impossible projects, but our reputation for honesty and ethics has helped us in every major city," he says. "One mayor will pick up the phone and tell another mayor that these are good people, and that is more important than what your share price is right there."

Business ethics

"No business can survive without ethics," says Miller. "There is something to be said that this company is some 80-odd years old and has never been involved in a major scandal. If you really want to know what my feelings are about the Tycos and the WorldComs ... the employees have no respect for (the leaders), and the company suffers for it."

And the issue of CEO fraud upsets him.

"It's not so much the consequences for them, but they've robbed these employees of their futures," says Miller.

But he adds he wasn't surprised by the news.

"Wall Street was taking companies and putting them on a 90-day treadmill. Every 90 days, they wanted 10 percent more. It fostered this kind of attitude, and in many instances created dishonesty. When you run a business you can't worry about stock price," says Miller. "Those CEOs were running their business on a treadmill.

"We in this company are not on that treadmill, nor will ever be."

His approach is to run his business well. And how does he do it?

"I make the decisions, and most of them are right."

Even when he's gone, those right decisions will be made.

"The first generation is gone, but the second generation is still here and the third generation can see what a good work ethic is and what honesty is and running a proper business is and how important it is to be good to your employees and good to your stockholders ... it has to go together," says Miller.

The convention center and Cleveland

"Do you have enough yet?" Miller asks after half an hour.

I assure him that I'm willing to stay as long as he'll have me.

"You enjoy sitting here listening to an old man bragging."

In a serious tone he adds, "And don't forget to mention my wife. She is very important to me. We've been married 25 years. You know what they say, behind every successful man is a surprised woman."

In reality, the whole experience is fascinating. The walls of Miller's office are jammed with photos of every religious and political dignitary you can think of -- the names of these people are the answers to a hundred Trivial Pursuit questions.

There's young Miller and older Miller, with bishops, Israeli prime ministers, Nobel Peace Prize winners and an array of politicians, all segregated on different walls depending on their religious and political affiliations.

"See there, over on your right, over there," Miller points over my shoulder at a picture of him and a relatively young man in uniform. "That's [Ariel] Sharon. That was taken sometime around the Six Day War."

The office and the stories are so fascinating, I'm a bit nervous about asking the next question: "So let's talk about the convention center."

"It's part of solving the problem," Miller says. "It's not the entire answer, but it will be a start, it will give us something that we're missing. I think a new convention center will automatically draw people, but at that point you have to make sure that they keep coming back."

Next question: "Why keep Forest City's headquarters in Cleveland?"

"It's the culture here, it's our home. Others have left. It's been good to us. We are in many cities, and Cleveland is the only one we're not really active in, but we would like to active in Cleveland," he adds.

Do unto others

Whenever you interview a business icon like Miller, the goal is to get that golden nugget of advice, that one quote that really sums up the secret of their success, so you can report it to the world and everyone will understand and life is good.

After all, that's why we read books by successful businesspeople -- to emulate and succeed where others without this precious information don't. We all just want the secret of success in a nutshell, a phrase.

Miller's story is the perfect example of why there is no one thing, but a number of circumstances and opportunities that come together to make a career. But there are some truths, some principles that seem so obvious it's sometimes hard to realize their value.

"No act of kindness, no matter how small, is wasted," says Miller. "When you do a good thing, it comes back to you. There is no such thing as a self-made man." How to reach: Forest City Enterprises, (216) 621-6060

Monday, 22 September 2003 13:17

Ben Curtis played here

There's a plaque on the first hole at Mud Run Golf Course, Akron's newest public course, stating that Ben Curtis teed off here in April 2003, shortly after he won the British Open.

Curtis is the perfect example of a PGA champion who started young and got a significant part of his golf education at a public course.

Former caddy, golf enthusiast and Akron councilman John Conti was one of the driving forces behind developing Mud Run -- a 100-acre, former flood management and illegal dumping ground located in Southwest Akron -- into the new 9-hole, public golf course and home to the First Tee program.

Conti credits his early experiences on the golf course with influencing his success and believes the First Tee program, which teaches children of all ages the game and life lessons of golf, is just the kind of development Akron needs.

Smart Business met with Conti, vice president and Akron councilman-at-large, to talk about the success of the First Tee program, future plans for housing and, of course, Ben Curtis.

Getting funds for a public golf course, Akron's second, in these times is impressive. Was it a hard sell?

Some folks asked, 'Why are you building another public golf course when we already have one?' The problem was that we didn't have enough staff to run a junior program or access because, in fact, the golf course has been very busy.

We already owned the land, and I said, 'I think we could build a golf course here.' And through the contacts with the PGA tour, Akron was asked to get involved with the First Tee program.

I had been on council for seven years and I was an officer and basically convinced the other members that, here's a national program we can bring to Akron to help all the children of Akron. So, of course, they bought into it.

What made it work and expedited it was that a number of people that were involved in the tournament were behind it. Otherwise, it was crazy Conti coming up with this idea and wanting to spend this money. With the council and the mayor, we understand making long-term investments.

You're training all these young golfers. You know as they get older, they're going to show you up.

Well, we could use them. We are just so glad to have Ben Curtis from here. He drove the green, by the way.

Ben Curtis opened his mouth up when he was here and said that any time he is in town and can help with the kids to let him know, and believe me, that's what we wanted to hear.

The Chi Chi Rodriguez program has a Pro-Am tournament every year that raises well over $1 million -- so that is what we need to have with Curtis. Akron used to have a Pro-Am through the tournament, but no longer. You have people that are willing to pay $5,000 to play from around here in Akron and all over.

If Ben Curtis would hold one for First Tee and invite his buddies, then that would be great. According to his coach, Ben's the real deal, and I believe it.

How is golf, a traditionally older, nonminority sport, going over with these younger kids?

We had about 450 kids in the program this summer. So the program has gone beyond what we had planned, and it makes golf affordable and accessible.

There is also the life skills. The thought is that each summer, they will have about 500 kids in the program, and about 100 of them will become hardcore golfers. We made that goal the first year.

It is like a sanctuary for them. They are protected while they are here, and they get support and positive reinforcement. When they are here, this is their place and it's for them.

Like Vincent King (First Tee director) says, I can sit in the classroom and beat them over the head with these ideas and character traits and they look at me bored. But put a golf club in their hands, and the wind blows through their hair and the sun on their face, and they will listen to me all day long.

Talk a little more about the First Tee program.

They are on the course each day from about 11 to 1, and on Thursday, there is a league. You can be in the league and not in the First Tee, and then they can come in on Saturday after 2 o'clock and play as well. So the kids get quite a bit of access to the course.

When they are here for the First Tee program, they are in uniform -- none of the girls' bellies are hanging out. Here (with the uniforms), boys and girls don't relate to each other on a sexual basis but on an equal basis as competitors

They are out here to learn the character traits. Vincent King is a taskmaster. He tells them off the bat, 'To whom much is given, much is expected.' He says there are no three strikes and you're out. So they love him.

We want to teach them a lot of different things. Vincent is going to take them to the opera and the ballet. He went to the beauty college in Akron and the barber, and he has it set up so the kids can go and get free haircuts to help with any self-esteem issues.

I can't change your home life, but for a few hours each week, I can show you a better way -- and maybe a college scholarship, too. We will be the opportunity that these children didn't have before.

What's in store for future development?

We are going to run about 120 houses over here, and this will be part of an urban renewal project, too. There is a shopping mall, but ideally, over the next three to five years, we will be able to acquire that.

We are hoping to put some moderately upscale housing up there, because we don't have housing, new housing in Akron, of the range of about $200,000 to $350,000. You can buy more, and we have less, so that the middle-class folks that are looking for that size of a footprint, they have to move out, and we don't want to lose those folks.

Why is this so important to you?

I had the good fortune, when I was 12 years old, I had a friend who told me I should caddy at the country club because I could make all this money. I started caddying, and they let you play on Mondays. And I really love the game and learned so much from the members. They were role models.

They told me I had to go to college, and I always thought that we needed that here in Akron. You need a program where you get the kids on the course, so for about 20 years, I've been trying to do this.

In 1997, I got the Parks and Rec department to do a program called 'Hook a Kid on Golf.' And the second year, we got a league going.

What's the course like?

This is equal to any private club. There is a half-acre putting course for the kids for training.

There are 20 heated and covered tees. This is the premier First Tee facility right now. And like with the tournament, when people want to learn how to run a PGA tournament, they came to Akron.

And now, when a community wants to put together a First Tee program, they will come to Akron.

What, in your mind, is the return on the investment into creating Mud Run?

If we have 500 kids and 100 decided that eventually they are going to go to college. There are a number of predominately black schools that provide scholarships to play golf, and there are girls' schools that offer scholarships.

When I was a kid, my parents didn't make a lot of money, but I went to that country club and asked the members how they got the Cadillac and those nice clothes, and they were telling me I should go to Brown University.

They served as role models. I got a work ethic, then I had people that were trying to encourage me. And that's what the thing is here. How to reach: Mud Run Golf Course, (330) 375-2728

Sunday, 21 September 2003 20:00

Recharging Invacare

"See this?" Mal Mixon asks as he picks up a mobile oxygen canister, housed in what could easily pass for a trendy athletic water-bottle carrier.

"You can take this with you outside, and you don't have to roll around one of those huge oxygen tanks. It helps people live their lives."

For a seemingly healthy man, A. Malachi Mixon III is extremely preoccupied with products for those with disabilities. It's an occupational hazard of sorts for the CEO of Invacare Corp., the leading manufacturer and distributor of nonacute health care products such as oxygen tanks and wheelchairs.

As he walks through the Invacare store on the first floor of the company's Elyria headquarters, it's easy to see he's passionate about these products, which range from walkers to state-of-the-art custom wheelchairs.

"You can pick this one up with one hand," he says.

It's true. At 15 pounds, the titanium chair is lighter than most bicycles, one reason Invacare is the wheelchair of choice for 75 sponsored wheelchair sports teams around the world.

And if he has his way, gone are the days of 50-pound, avocado green wheelchairs with the turning radius of a '69 Buick. In their place are sleek, maneuverable chairs and scooters that -- as the marketing material states -- "Anyone would be proud to be seen in."

"You can get a chair to match your evening gown," boasts Mixon.

Chairs come in colors including Deep Blue and Candy Red, with or without handles, and in a number of weights and sizes.

Under Mixon's direction, Invacare has focused on changing perceptions, changing laws and changing the way consumers pay for health care products. This is, in part, why it has grown from $19.5 million in sales in 1979 to more than $1 billion last year.

However, it's not only how Mixon runs the company; it's also how the company is changing the industry that explains Invacare's success and how he plans to double sales to $2 billion in just three years.

Perceptions

No one wants to think about getting sick, losing mobility and having to rely on a wheelchair.

Of course, there's an entire population of people who don't have the luxury of "not thinking" about these things. But for everyone else, it's difficult and uncomfortable to comprehend the life changes that come with being confined to a wheelchair, bed or oxygen tank.

In 2000, spending on health care in the United States totaled $1.3 trillion or 13 percent of the Gross Domestic Product, the highest among industrialized countries. Most estimates predict that by 2012, the nation's health care spending will increase to $3.1 trillion, an annual growth rate of more than 7 percent.

The latest report from the U.S. Department of Health and Human Services states that the average life expectancy for men and women who reach the age of 65 is now 81 and 84, respectively. That will bring the percentage of Americans over the age of 65 from 12 percent to 20 percent of the population by 2050.

In the past, wheelchairs and other products were viewed as necessary evils, filling a need with basic efficiency and little thought for those using it. A wheelchair was merely a way to mobilize an individual.

Mixon took Invacare in a much different direction, breaking from the traditional perception of a wheelchair being a necessary evil to one of it being something that can enhance life and facilitate activity.

Design, innovation and patents

Long before handicap spaces were mandatory for businesses and curb cuts were designed into every downtown street, people weren't always comfortable going out in public, let alone with putting a lot of money into a wheelchair.

That was conventional wisdom in 1979, when Mixon and his partners took over Invacare. Sales were at $19 million, the company employed 350 people, there was no business plan and there were no new products in development. Things had to change.

Mixon understood that in order to dominate the market, Invacare was going to have to effect change. That change would have to come from a mix of factors, including what he refers to as "disruptive technology," best defined as a new product or service that disrupts an industry and eventually wins most of the market share.

"The jet engine was disruptive technology," Mixon says.

By 1982, Invacare had developed and commercialized the first computer-controlled wheelchair. A few years later, it acquired a company that specialized in ultra-light sports chairs, becoming the leader in that field.

Since then, it has continued to ramp up product innovation. With a healthy R&D budget -- enhanced by inexorable improvement in technology -- the company has a rolling three-year product development schedule.

"Customers are never completely happy," Mixon says. "And if you ask them, they will always want more options. We have to keep improving our products and driving down costs. The objective is to strategically obsolete our own products so that the importers of copycat products have to chase a moving target."

As with any retail product, the market is competitive with foreign knock-offs -- a real threat, even for something as complicated as a motorized, electronic wheelchair.

"We have a patent attorney sit in on every product development meeting," says Mixon.

The idea is to get products to market quicker, and in the process, slow down the copycats.

"We failed to do that in the early years," he says. "We failed to protect our intellectual property ... they would copy it in China and come in under our price."

While disruptive technology is a key factor in keeping ahead of copycats, Mixon also focuses Invacare's efforts on branding and marketing home heath care products. He firmly believes the market will become more consumer-driven as government and private insurance reimbursement change.

Mixon is well aware that this aging generation will not settle for the limited product choices previous generations accepted with little hesitation.

"Aggressive product development and stronger marketing are going to refuel our growth," he says. "We held back a bit on development in the late 1990s because of reimbursement and a competitive environment, and we may have delayed some innovation in the process."

Invacare introduced 45 new products in 2002. It is the market leader in six of nine product categories and often second in others. And by driving the market, Mixon can stay on top of consumer needs.

"By the fourth quarter 2003, we want to have 90 percent new product, and we will achieve this," he says. "We are always wrestling with the next product because every product can be improved. Our job is to make our old products obsolete."

The Palmer method

It is a sensitive and daunting task to create positive brand awareness with products that traditionally no one wants to think about.

"You have to understand your customer," says Mixon.

Under his direction, the company has taken "a lifestyle approach" to developing and marketing its products.

"How they feel is just as important as what the product does for them," he says. "We are not just dealing with home mainstreaming and keeping active. We care about how the chair feels. We are making them wild and different. Our chairs look like Harleys."

To drive home the lifestyle image, Invacare also designs for sports, ballet, pediatrics, and, in the case of Christopher Reeve, movie roles. It all ties in with the "Yes, you can" tagline that Invacare affixes to its brand.

Mixon points out that Invacare spends significant R&D dollars on products that are lighter and sturdier and allow customers, regardless of their disabilities, to lead as normal a life as possible. This is where Arnold Palmer comes in.

Why use an able-bodied, famous athlete as the spokesman for products targeted at less-mobile and disabled consumers?

"Arnold Palmer represents all the things we stand for," says Mixon. "He's world-renowned, highly regarded, known by young and old, and in good health, but at the age we're identified with."

Invacare's identity is essential for the company's long-term strategy, Mixon point out.

"We want to influence brand choice, we want them to try a different brand ... we are a long way from that, but we want to educate the consumer," he says.

Invacare is banking on the health care products industry moving from a provider-driven necessity to a consumer-driven, brand-sensitive retail product. Thus, Mixon wants to create a strong awareness of its product line, one that will drive consumers to choose and, in some cases, request his products over others.

Mixon realizes this is a long process.

"Building a brand is a journey, not a destination," he says. "It's a 10- to 20-year decision. You really never know what's going to happen, but you hope all the effort creates a halo effect of awareness."

The new health care consumer

Although sales of its various wheelchair models make up only 50 percent of its overall business (down from 90 percent in the late 1970s), Invacare is still known as a wheelchair company.

Mixon plans to change that by increasing awareness and brand recognition of Invacare's growing home health care line, which is essential to the overall growth of the company.

"Many consumers don't know these (other) products exist," he laments. "We are the only company in our industry working on branding."

The global market for home health care products is approximately $4.5 billion, with a 5 percent to 7 percent growth rate projected in the United States in the next three years and 23 percent to 25 percent growth in the next 10 years.

"Recent surveys show that approximately 70 percent of adults would rather recover from an accident or illness in their home, while approximately 90 percent of the older population showed a preference for home-based, long-term care," Mixon says. "Our focus is on the home and what our customer needs at home."

For Mixon, it's not enough that internal growth can be achieved simply through overall market growth. Instead, he is driving Invacare into new consumer-focused markets with two new product lines this year.

"We are planning a major introduction into the sleep apnea market," he says. "It's a $500 million market and we estimate we can capture 10 percent."

And a new line of scooters for consumers who do not need full-time mobility assistance will be marketed through medical distributors and to the general public in an attempt to capture some of an estimated $125 million market.

As part of this process, Invacare is changing the way health care product companies are approaching and selling to consumers. Its market was traditionally health care providers and suppliers but is now becoming the end user. The focus is on marketing products more like a retailer and less like a manufacturer.

"Now most of our products are paid for by a third party," Mixon says. "Our breakdown is about 40 percent paid for by Medicare, 10 percent Medicaid, 40 percent private insurer and 10 percent out-of-pocket, cash."

While Invacare's primary customer remains the home medical equipment provider, Mixon is banking on that last 10 percent growing as the company moves from provider-driven sales to consumer-direct sales.

The company is also focusing on reaching the end user, creating distribution networks for its home health care products that include retail drug stores, HMO-based stores, mass merchandisers, direct sales and the Internet.

Invacare's top 10 customers account for about 13 percent of 2002 net sales, although no single customer accounted for more than 5 percent. Internet sales made up approximately 14 percent of North American sales.

While home health care products are largely recession resistant, they are highly susceptible to the vagaries of government policy. With health care policy and regulations in constant flux, any small ripple of change can have a profound effect on growth and profitability. In fact, Invacare is directly affected by government regulation and reimbursement policies in virtually every country in which it operates.

The company is acutely aware of and involved in any governmental movement involving home health care. After 10 years of lobbying, Congress in 2000 enacted the Benefits Improvement and Protection Act (BIPA), which included annual cost of living adjustments and eventually implemented a consumer choice upgrade, allowing patients to pay for upgrades in minimally medically necessary items.

Many of those issues fall directly in the lap of government. Legislation dictates reimbursement, subsidies and approval of many, if not most, of Invacare's products. And with Medicare at the forefront of the government's domestic agenda, Invacare is taking every opportunity to be part of those changes.

Mixon is acutely aware that the changing government regulations and reimbursement policies will continue to dictate a good part of Invacare's growth patterns, but he remains optimistic.

"We plan to return to double-digit growth. We will be at $2 billion in 2006, half through internal growth and half through acquisition," he says.

Invacare plans to expand in every direction: new products, new countries and new acquisitions. According to its 2002 annual report, it expects its 2003 acquisition program to bring in $75 million to $100 million in annualized sales.

Foreign acquisitions will certainly be part of the mix, as more than a quarter of Invacare's sales and earning come from outside the United States.

"A couple of years ago, Europe was a problem we needed to fix," Mixon says. "Now we see Europe as a major profit generator."

Involved with a cause

All of this seems to be personal for Mixon. You only have to talk to him a short while to figure out that he's deeply interested in the rights and advancement of the disabled.

He can talk at great length about making eye contact with someone in a wheelchair, the challenges of seeing a movie or going to a restaurant.

"We've become involved with a cause," he says. "We tried to live the lives of the disabled ... previously, there was no sensitivity to their issues."

His hope is that Invacare will be part of changing all that.

"With technology and innovation, the disabled can do whatever the able-bodied can do," he says. How to reach: Invacare, (800) 333-6900 or www.invacare.com

Monday, 22 September 2003 13:08

What's up, doc?

If the health care industry seems chaotic from the outside, with aging baby boomers, managed care, new technology and nursing shortages, you should see it from behind the scenes.

Medicine, like anything else, is a business, and faces the same issues as any other business.

But to understand where medicine is today, you need to know its roots. Back in the days of house calls, hospitals were not the huge multibuilding facilities they are now.

"Hospitals really started out as physicians' clinics," says Tom Onusko, of counsel in Vorys Sater, Seymour and Pease's health and health care practice.

These small facilities grew and absorbed the very practices that made hospitals a necessity. As managed care and the roll-up mentality of the 1980s arrived, more doctors' practices became part of the hospitals' infrastructure.

"Seemed like a match made in heaven," says Onusko. "But like many relationships, there came the realization that some of these practices weren't run well. The doctors weren't happy, and the hospitals weren't happy."

Once again, the switch was on. Practices began breaking off and going it alone. At the same time, the health care landscape changed, and so these practices are trying to find new ways to turn a profit.

"Doctors are looking for other sources of revenue because they are getting paid less for traditional hands-on treatment," says Onusko. "They now want to do lab work and have their own equipment ... instead of sending people to the hospital. There are only so many things they can do to increase profitability.

"Now there is a trend for doctors to ask, 'Why don't we own our own hospitals?'"

The concern is that community hospitals will be stuck with the unprofitable cases. Lobbyists for the hospitals argue that these specialty hospitals are illegal, based on an Ohio law involving a "certificate of need."

The certificate of need prohibits the building of new hospitals unless there is a necessity based on demographics. But regulations to control supply and demand smack up against anticompetition issues, promising that this issue will have a long and complicated life.

"The community hospitals look at it as skimming the cream off the top. And some hospitals won't let those doctors on staff ... The doctors have sued arguing that the hospital can't keep (them) off staff. It's a highly charged issue," Onusko says.

Another health care issue coming to the forefront is "pay for use" arrangements that medical equipment vendors are making with doctors' practices.

"A lot of vendors are going to doctors and offering deals," says Onusko. "They want to charge a per procedure fee for every time someone uses the machine."

This can be beneficial for practices, erasing upfront costs and guaranteeing profit every time diagnostic equipment like MRIs or CAT scans are used and eliminating loss on downtime.

And it's convenient for the patient. However, there are ethical concerns regarding the captive referral structure.

"There are some basic kickback laws that have no safe harbors for these types of joint ventures," says Onusko. "There is the possibility that these turnkey operations may run afoul of fraud and abuse laws."

The issue is an ethical one involving a physician's referral bringing him or her financial gain.

"This is all very complicated and very scary," says Onusko. "But today, the financial pressure on these practices are so great."

There are basic medical questions as these facilities perform more complicated procedures.

"'Is it safe?' is the other question," Onusko says. "Is it safe to do a cardiac catheterization in the office? They are doing some pretty aggressive stuff in the office, and issues are going to surface there, too."

Finally, add the issue of medical malpractice insurance, the bane of certain types of practices. Although conventional wisdom is that these cost have risen drastically in the last few years due to an increase in medical malpractice lawsuits and their subsequent awards, this is not entirely true.

"It's a combination of factors," says Onusko. "Some of it is an ever-increasing number of lawsuits ... but when the stock market was doing great, the profit from investment subsidized the claims paid. When that went away, premiums went up."

All these issues speak to a medical practice's bottom line and the profitability of some medical fields, not to mention the role individual physicians and hospitals will play in the future. How to reach: Vorys, Sater, Seymour and Pease, (216) 479-6175 or www.vssp.com

Tuesday, 26 August 2003 12:02

Lien on you

As if it weren't hard enough to manage a new construction project, businesses must also be aware of their financial responsibilities to the subcontractors and suppliers that work on a project or they could find themselves at the wrong end of a mechanic's lien.

"Mechanic's liens are specifically for the construction industry, and you don't need to go to court to get one," says Tim McGarry, attorney at Chriszt McGarry Co. "The statute in Ohio gives contractors and subcontractors the right to file a lien as long as they follow the proper procedures."

Mechanic's liens were put in place to protect contractors and subcontractors from nonpayment on services rendered. However, in some scenarios, it is possible that a building owner could get caught paying for subcontracting services twice.

In some cases, you can actually pay the contractor, but if he or she doesn't pay the subcontractors, a lien can be filed against the property.

"And what a lien does is shut things down (and) ... it can also effect a company's ability to refinance," McGarry says.

To file a mechanic's lien, there must be a notice of furnishing filed with the court. If payment is not forthcoming, the lien must be filed within 75 days after the last day of work, even if the project is still underway.

The good news is that owners have options to keep from finding themselves going to court and dealing with overpayments. One is to ask the contractor for a comprehensive list of every subcontractor working on the project, with the name and address of each person, and what he or she will be doing.

This goes for material suppliers as well. Depending on what state the project is in, each person who works on the project has the right to file a lien if he or she is not paid.

And there is always the option of making payments to each person owed money, but this can be a logistical nightmare.

Another comprehensive and less involved option is to require a waiver of lien from the general contractor.

"It's a document you send to the general contractor they sign ... It's good to do it for all the subcontractors you've received notice of furnishings from," says McGarry.

Bonds can also be put in place to ensure subcontractor payment, or an owner can withhold partial payment for 75 days to ensure the lien deadline is exceeded.

But if all else fails, the owner has options of redress. In some cases, it may be necessary to serve papers to file suit in 60 days.

"You may want to bring this situation to a head and get it resolved," says McGarry. "Liens are often used as bargaining chips ... They file in order to let the owner know they are out there and need to get paid."

The eventual resolution for some liens is foreclosure, but most situations are resolved well before that happens because the process is lengthy and expensive.

"They (the plaintiffs) have to incur legal fees and additional costs," says McGarry. "Liens aren't a great way of getting paid right away." How to reach: Chriszt McGarry Co., (216) 861-8248 or www.cmclaw.com


Office of the future

What is the future of the law firm? Economic pressures, client expectations and legislation all have had and will continue to have an effect on the structure of the law profession.

In a survey of attorneys from the largest law firms in North America, commissioned by The Affiliates, technology advances and legislative changes topped the list of concerns for the future.

* 66 percent of attorneys indicated that law firms or corporate legal departments plan to increase spending on technology over the next five years.

* 77 percent of attorneys report their law firm or corporate legal department has a well-defined disaster recovery plan.

* 69 percent say the Sarbanes-Oxley Act of 2002 and other regulations concerning corporate governance have increased their workload; 29 percent said their workload has not changed.

* 87 percent of attorneys employed with law firms said their firms are able to bill clients electronically.

* 42 percent said that within the next 10 years, paralegals will have more professional autonomy than they do today.

* 29 percent said they dedicated more than 50 hours to pro bono work in the past year; 45 percent volunteered between one and 50 hours, while 23 percent donated no time. Source: The Affiliates

Monday, 30 June 2003 07:28

All in the family

Nearly 70 percent of the costs related to cancer illness and treatment incurred by patients are nonmedical.

And with estimates that three out of four American families will at some point be affected by cancer, Howard Lewis, founder, president and CEO of Family Heritage Life, a supplemental health insurance company, warns his clients not to underestimate the limits of some health care policies.

With rising premiums, higher deductibles and less coverage available in health insurance policies, "there has been an increased awareness of supplemental insurance," Lewis says.

That, in part, explains the growth of his company. Family Heritage Life has grown to more than $150 million in assets and will collect approximately $500 million in premiums based on sales of its first 13 years.

"We are a 14-year, overnight success," says Lewis.

Slow and steady has won the race for Lewis, who believes in building his business one policy at a time.

"Nothing happens until someone sells something," he says.

Agents sell directly, as well as cross-market with trade associations, and small and medium-sized businesses.

"It's a reality of consumer confidence," says Lewis. "Americans are sensitive to buying from sources they have an affinity to, like buying clubs, associations and such."

Lewis believes the secret to success is not only understanding his customer but also being in tune with his employees. In fact, that company motto is, "We build people; people build our company."

"Everyone in the company has an equity position," says Lewis. "In the field offices and at our home office, everyone has the opportunity to earn stock options."

Since the company sells supplemental insurance including cancer, intensive care and accident insurance, its work brings the employees face-to-face with the devastating effects of disease. So Lewis has made it his mission to give back to the community.

To date, his company has donated more than $500,000 to St. Jude's Children's Research Hospital, Family Heritage's charity of choice. It also sponsors monthly charitable drives.

It all goes with Lewis' philosophy of helping those in need, and he does that for his customers, employees and others.

"We all feel that we provide a good service, and that what we do really matters," says Lewis. "We are there when people need us." How to reach: Family Heritage Life: (216) 520-2800 or www.heritagelife.com

Friday, 25 April 2003 11:30

Toy story

In an office strewn with toy trucks, giggling hippo flashlights and play kitchens, Brian Kirkendall, vice president of global product marketing for The Little Tikes Co., puts all his weight on the bed of a toy dump truck.

"It's designed to hold up to 250 pounds," says Kirkendall, explaining that Little Tikes has long been a stickler for high-quality manufactured toys. "That's always been important here. You can kill a brand by making it cheap."

And in the world of highly publicized product recalls, parenting magazines and Web sites devoted to parental assessment of toys, quality control is key. But for Hudson-based Little Tikes, it's just half the battle.

"We have always been a good manufacturing company," Kirkendall says. "People know, 'If I buy it from Little Tikes ... it will last.' "

Little Tikes has two very distinct purposes. One is to design and manufacture safe and appealing toys for its target market -- children 6 months through age 5. The other is to convince parents to buy those toys.

To accomplish the second task, Little Tikes must get its name in front of parents and, just as critically, ensure the right stores stock its products.

These goals are the same as those of every retail manufacturer in the industry, and have been for a long time. But times have changed since Little Tikes began making toys in 1970.

The world today is much more kid-centric than it was 30 years ago, and the toy industry is more competitive. The challenge has become to successfully compete against the continuous onslaught of new products.

In 1994, Rubbermaid acquired Little Tikes from its founder, Thomas Murdough. Newell Inc. took over Rubbermaid in 1998.

A few years later, after six straight quarters of declining sales at Newell Rubbermaid, the board of directors brought in Joe Galli as CEO to turn things around.

Galli brought with him impressive credentials, beginning as a marketing wunderkind with Black & Decker. There, he worked with Rory Leyden, Little Tikes president & CEO, and Kirkendall as part of a successful management team.

Galli has nothing less in mind for Newell Rubbermaid than a complete corporate-culture overhaul.

"He has laid out six strategic initiatives," says Leyden.

Notable among those were an increased focus on marketing and increased key account management.

So far so good for Galli and his team. Newell Rubbermaid has posted sales increases and the stock price has climbed since he came aboard.

Newell Rubbermaid's overall 2002 fourth quarter profits rose 33 percent, driven in part by acquisitions and higher product sales. Revenue was $2 billion, up 11 percent over the fourth quarter 2001.

Estimates of Little Tikes' contribution to overall annual sales fall somewhere between $300 million and $500 million. The company is part of Rubbermaid's infant/juvenile care and play division, which makes up 13 percent of total sales revenue.

"We actually had a good year," says Leyden. "Despite the market, we grew 6 percent last year."

Looking at the average child's bedroom, it may be hard to believe that the toy industry as a whole has flattened out over the past few years. However, despite the explosive popularity of video games, which have grabbed one-third of the toy sales market, Little Tikes has held its own.

According to toy industry statistics, annual sales of traditional toys (not including video games) hit an all-time high in 1999 at $20.5 billion, only to fall in both 2001 and 2002 to a little more than $20 billion a year -- an average annual expenditure of $328 for each of the estimated 60 million children in the United States.

Little Tikes' specific market -- infant/preschool toys -- also experienced a 14 percent drop in revenue when sales nationwide fell from $3.2 billion in 2000 to $2.8 billion in 2001.

The industry is not recession-proof, but it has fared better than other expendable consumer goods.

"Toys are one of those last things that you cut back on," says Kirkendall. "Grandparents are not going to stop giving presents to their 2-year-old grandchildren."

Sales figures notwithstanding, toy prices have followed the same consumer trends that many other consumer goods have. And that's where Leyden's new focus comes in.

Today, Leyden's and Kirkendall's job is to do for Little Tikes what their team, under Galli, did for Black & Decker -- increase sales. At Black & Decker, under their leadership, sales grew from $35 million to $1.3 billion in a seven-year period. And while children's toys may seem a long way from power drills and hand tools, selling is selling.

"We've always had a good brand," says Kirkendall. "We just didn't tell people about it. We're not going for the hard sell. It is more about having a presence."

One new initiative under Leyden is an aggressive marketing campaign. Explains Kirkendall, "We now have one of the biggest PR agencies on board, and we ran spots on TV for the first time. The prior management always thought of manufacturing as the company's core competency, but we want to make the current core competency marketing. We know we're great manufacturers ... now we want put more investment in marketing."

Leyden has put the company's money where its mouth is, tripling Little Tikes' marketing staff and doubling its marketing budget

"We dramatically increased funding," says Leyden. "Before, they would put a little product booklet in with every order. There were things here and there, but for the most part, it was spread a little too thin."

Now Little Tikes has a much more specific marketing agenda. Part of that is a focus on the company's target market -- moms.

"There is a 'nag factor' that kicks in at about 3 years old, when kids start saying for the first time, 'I want that,'" says Leyden.

But even though children beg for toys and sometimes get their way, 65 percent of the time it's mom who makes the buying decisions without input from their children. So part of Leyden's campaign is to simply make customers aware of new products.

To do that, Little Tikes recently sent a catalog with the Sunday Plain Dealer. Also, Newell Rubbermaid's corporate structure helps with marketing, and in conjunction with GRACO, a Newell Rubbermaid company, catalogs are integrated to include Little Tikes products.

And the company has tapped into Newell Rubbermaid's sponsorship of Winston Cup car No. 97 to help promote Little Tikes. Recently, it set up a miniature racetrack and had Winston Cup fans race its Rugged Rig toy trucks against each other.

"It's just another way to get the product out there," says Leyden.

One of the unique challenges Leyden and his staff face is that Little Tikes must make toys that appeal to children but market them to parents and, perhaps most important, keep its other big customer -- the big box discount store -- happy.

Retail success today is measured by Wal-Mart and Target square footage for your product. Says Kirkendall, "Wal-Mart space is the most valuable space in the world."

On average, toys take up 40 to 60 feet in any given Wal-Mart store. The space becomes even more coveted when you consider that Wal-Mart and Toys R Us together make 50 percent of total toy sales.

"Wal-Mart and Toys R Us have been our biggest customers for 10 years," says Leyden. "We work very closely with them. We share our plans with them and let them know what we are working on."

"Wal-Mart doesn't like it when they give you space and your product doesn't sell -- they will pull within six weeks if its not doing well," says Kirkendall. "They literally make decisions within weeks -- they can track sales that quickly."

On the flip side, if something takes off at Wal-Mart, it means a big return for any company. And return on investment is important to Little Tikes, considering what Wal-Martization has done to consumer prices across the board.

Profit margins have decreased significantly, and Wal-Mart is known for squeezing suppliers.

"This dump truck three years cost $19.99," says Kirkendall, pointing out one of Little Tikes' well-known products. "But because of competitive activity, it dropped to $14.99. Then last year, it sold for $9.99."

If there is any further question about the power of the big boxes, these stores can also do the unthinkable -- fold time and space.

"By this May, they want the next spring's product," says Kirkendall. "There are toy fairs in February, but by then, Wal-Mart has already made its decision. They know what's going to be on the shelf."

That relationship with the big box stores is worth its weight in shelf space, but it has changed the face of product longevity for Little Tikes.

"The retailer makes that decision," says Kirkendall about when to continue with a new product line. "If it isn't selling, they pull it."

Understanding what customers are looking for is one thing when they can tell you. But what about when they can't?

Leyden looks to the parents for answers.

"Parents of young children are always concerned about creativity," he says. "You watch kids play and talk to mom. Ask them what they look for. You have to think like a kid to be successful."

This has led Leyden to make new product development another of the company's strategic priorities.

"Our goal going forward is to introduce at least 100 products a year," says Kirkendall. "The idea is to take the best 100 products and go forward."

It costs a few thousand dollars to bring a product to the model stage, but the last thing the company wants is a toy that makes it into the market and elicits a negative consumer reaction or a recall.

Little Tikes conducts an exhaustive product research process, from formal studies to introducing new products into its on-site daycare center.

"Within 15 minutes at a daycare, we know how the toy will go over," says Kirkendall.

That may sound like fun, but the average toy customer is a fickle and ever-changing consumer. Take, for example, the trend toward children maturing at an earlier age.

"At eight, they don't want to be little anymore," says Kirkendall, adding that with children, nothing is ever really certain. "We watch and see how kids interact with the toy all the way from the beginning of the design process."

In this hyper-consumer awareness that has developed post-Sept. 11, marketing products that are sensitive to the new trend of cocooning have become a priority. The six-month to 5-year-old market that Little Tikes serves, albeit healthy, is not prone to large growth. So for the company to increase its traditional single-digit growth, it's imperative to focus on organic growth.

To facilitate that, Little Tikes recently launched a line of child-sized wood furniture.

"It has been a big departure for us internally," says Kirkendall. "But it really resonates with the parents. In our research, we have parents saying, 'It's about time.'"

Some of its standard products have also become more adult-friendly.

"We launched a new line of outdoor sandboxes," says Kirkendall. "We re-colored them to be more natural ... to be considerate of all the money people are spending on landscaping."

And, he adds, "We've tried to meet the needs of the customer. Moms don't want a big, rugged metal truck in the house they just spent a ton of money redoing. That's why we put soft rubber tires and rounded edges on the truck, so it won't scratch up the coffee table."

It's a nice idea, but don't be fooled. In the end, kids still like what they like.

"Kids love noise," says Kirkendall. "And the more obnoxious, the better." How to reach: The Little Tikes Co., (330) 650-3374 or www.littletikes.com

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