Daniel Bates

Monday, 22 July 2002 10:01

Glen Meakem

When Glen Meakem set out with partner Sam Kinney to launch FreeMarkets Online Inc. in 1995, he knew they would have to change the very fabric of how business is done between manufacturer and supplier to succeed.

And they have.

Meakem and company quickly developed a rather complex computer software-based purchasing process that offers manufacturing clients extensive market research to identify the best possible suppliers of a given component. Then FreeMarkets brings those suppliers together online via a secured computer network in what amounts to a reverse auction designed to establish a fair market price for the buying client. The buyer then chooses among lowest bidders.

For the suppliers, FreeMarkets becomes, in effect, a sales agent/distribution channel for their products, and for the buyers, the purchasing process becomes more cost-efficient and quality-based.

While the complex process could be applied to virtually any industry, Meakem says the company has focused mainly on custom-fabricated plastic injection moldings, metal fabrication, custom electronics and, as he puts it, “near-commodities” such as coal, steel and steel scrap.

Trying to change the way manufacturers and supplier have done business since the beginning of time remains a daunting task. But Pittsburgh-based FreeMarkets Online has made daunting headway in the purchasing game. In 1998, the company transacted $500 million in market volume for roughly 10 clients, up from $20 million in 1996.

Meakem won’t disclose sales figures, other than to say the company’s revenue is growing at an annual rate of 350 percent. It also grew from 37 people at the end of 1997 to about 115 people by the end of 1998.

“We beat our plan by a good chunk,” says Meakem, who adds that his company is profitable—something he didn’t expect until next year.

He attributes last year’s growth to the fact that two major clients “really adopted” the FreeMarkets method of buying components.

“Before 1998, we had a lot of ‘pilot use’ in the market, but now we’re growing quickly and gaining critical mass,” Meakem says.

That growth should continue at even higher levels this year, he says. He notes the company has booked new business that will double the current amount of business conducted. He also expects both revenue and employee numbers to double. To fund the growth, Meakem says he’ll use profits first and possibly additional outside capital, and the company is considering the possibility of an initial public stock offering within the next couple of years.

Says Meakem: “We intend to grow fast and we intend to be a big, valuable company.”

Cash should flow like a torrent from small businesses this year, according to Pittsburgh-based SMC Business Councils’ premier issue of the Pennsylvania Small Business Barometer.

The survey, conducted by phone with more than 300 small business owners in the state, found that more than 30 percent of respondents plan to spend upwards of $5 billion on property, plants or equipment in Western Pennsylvania alone this year, averaging $271,500 per company.

Ten percent said they plan to hire more employees, while 4 percent expect work force cuts. The average salary of new hires is around $24,250, the survey indicated.

Almost 90 percent of respondents expressed optimism about their business prospects for this year. Only 11 percent in the western half of the state expressed concern that sales would decrease.

The biggest negative was that 80 percent of business owners view lawsuit abuse as a serious problem.

As for technology, the good news is that telecommunications and computer-oriented companies should have great opportunities in the state targeting small businesses. That’s because, according to the survey, only about 31 percent of small businesses use e-mail to communicate with customers or suppliers and 22 percent maintain their own Web sites.

“Our region has long known the importance of small business to our economic well-being, but no one has quantified its significance,” says Cliff Shannon, president of SMC, a statewide organization of 5,000 independent businesses. “A succession of regional, statewide and national economic studies have described the small business sector as the most dynamic part of the economy, the engine of growth—whether measured in terms of job creation or capital investment.”

Shannon says the Barometer will be published quarterly this year in an effort to “call attention to the views and opinions of small business owners in the state on economic and other important issues.”

To get a full copy of the latest survey, call SMC at (412) 371-1500.

Monday, 22 July 2002 09:53

Short-sighted seller

You’re an entrepreneur who has run the same company for 30 years, and one day you wake up with that great retirement epiphany: It’s time to sell the company.

It’s time to sell the company. That sudden realization sends you scrambling to put your company’s best face forward as you secretly launch your quest for a buyer. The results are disappointing.

Sound like an exaggeration? Not according to Mel Pirchesky, managing director of Eagle Ventures, an investment banking firm that acquires select manufacturing companies. He tells SBN in this recent interview that business owners more often than not find themselves in that selling position ill-prepared to maximize the return on the assets they’ve built and nurtured for years. The reason, in many situations: simply poor planning.

Here’s Pirchesky’s take on where these owners fall short — and what you can do to greatly improve the profitability of your exit strategy.

The company owners who turn to you typically are older, mature, aren’t growing but aren’t necessarily doing poorly. What is the typical shape of such a company when the owners come to you and say, “Hey, I’m interested in getting out?”

It’s not that they’re in trouble. Actually, the ones I see are mostly doing okay and they’re making money. But they’ve kind of plateaued out in the sense that the owner — these entrepreneurially owned situations, there’s only so much that the owners can — or even want to — handle in terms of the size of the business. Typically, an entrepreneur, having started the business, is a strong-willed individual, exercises lots of control and spreads himself fairly thin. There’s not necessarily anything wrong with that because they’re also making money. However, they become a self-limiting factor in the business because they need to have their fingers in all aspects of the business in order to keep it profitable.

It’s difficult. A fella told me a story about how he brought in somebody who could help him grow the business, somebody with real talent and who was creative, and that individual didn’t work out. When you got into it ,you could see in talking with this individual that it had to do with the fact that the owner probably didn’t give up much authority to this guy. That’s typically what you find.

What do they typically do wrong in that they want to talk to you in the first place about possibly buying them out?

They haven’t created an orderly transition situation. An orderly transition can be just as much with me as with employees within the organization. For instance, there may be a good middle manager whom he’d like to groom for the future, and he or she feels that individual can’t afford to buy the business from him. But instead of concluding that that is that, what that individual ought to include is that there are guys like Pirchesky out there. And if that’s the right middle manager in terms of talent and so forth, we’ll back that guy.

What other things should business owners be thinking about in approaching the sell-out stage — even five years prior to that point?

Well, they’re not thinking about investing in capital equipment, you can be sure of that. Their attitude is, if I put $50,000 into a piece of equipment, that’s $50,000 less that I’m going to get on the sale. In fact, if it’s a good investment to begin with, the profits which that additional piece of equipment would generate are such that the owner would get more than $50,000 in additional proceeds from that sale because they bought that piece of equipment. And that’s really typical. It’s almost an exception when you see somebody who keeps investing up toward the end, and I can understand that.

They also haven’t told anyone about their plans. In many cases, they haven’t even thought about it until one day they think, boom, I’ve got to do something, as opposed to thinking about it, planning for it, laying out a strategy — just the way you would do to build a business. Why don’t they do it? One, they love what they do so they don’t want to face the facts. They know the time will come, but until that time comes, they pretty much don’t do anything about it in terms of planning.

What would you say to those people?

If you spend 20 or 30 years building your business, you should spend more than a few weeks or a few months in planning for how you’re going to provide for a transition of ownership.

It used to be that people always said their businesses are nothing but their employees. Well, I say businesses are nothing but their employees — and the customer or client base that has been built over 20 or 30 years in quality service, and that’s a tremendous asset. And to not get full value if I was the seller, it’s just not a good thing to do. You’re not only not looking out for your employees, you’re also not looking out for the customers who have relied on you for so many years.

That’s not smart, because you can be sure that, especially as an individual is getting older, his employees start to become concerned about that, start to worry about that, start rumors about that. It’s bad because, if who you’re going to sell to is someone who’s going to take care of your business well — if that’s your intention and commitment — that someone’s going to grow it to the next level of success, making that commitment to your employees goes a long way to alleviate the concerns and fears and rumor-mongering and the distraction from what they’re supposed to be focused on.

In companies that I’ve come across, that fear is very debilitating. People don’t work as effectively — they’ll put in their hours — if they don’t know there’s a future other than tomorrow. If they can see that you’re going to sell this to someone who’s going to take it to the next level and really add on and build and so on, that’s a future for them.

What if they think you’re going to do nothing?

If they think you’re going to do nothing — or if they have no idea what you’re going to do, which is the same as nothing, what happens, in that void of nothing, rumors and suppositions will fill up that space. So if I was an entrepreneur, I would make sure I would provide leadership in how people were looking at my exit by telling them I may not know who I’m selling to but this is the kind of person I’m going to sell to.

If owners did have the right mindset in such a transition, where would they begin and at what point?

Probably a year in advance. The first step is that I would talk to my close advisers, whether accountants or attorneys or whomever to figure out the best way to skin the cat, so to speak. Should they use a broker or investment banker? Well, that depends. If he doesn’t have an adviser, he might. You don’t want to be penny wise and pound foolish.

What steps to you need to take put that sale package together, one that has legs?

This is not magic. Of course, the package is going to include traditional information such as historical financial statements and listing and description of the business. But that’s not really the important stuff. The important stuff is more like what could somebody do with this business? What is the market and, more importantly, the market opportunity for the business? If business is X, how would you get it to three times X over three years?

If they were 40 years younger and they were going to take it to the next level from where it is today, how would they do it and what makes them think they can do it that way? And what would it take in terms of money, resources, people? Lay it out for somebody.

All of a sudden, then, I’m coming in cold and I see y our dream and I can get excited.

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:53

Behind the growth...

A former neighbor of mine had been standing atop a steel beam, working with a team of ironworkers who were building a new cinema in North Versailles. This 41-year-old father of four, a talented craftsman, had been doing that kind of work for years, and was satisfied with staying behind the scenes as he contributed to the commercial growth and prosperity of the region.

Certainly, the companies commissioning the building remain in the forefront when it comes to who gets credit for the region’s economic prosperity, even if folks such as Tom Speakman, my former neighbor, are quietly responsible for the work behind it. Maybe he hadn’t even thought about how he was contributing to the region as he gazed from several stories above the growing development around him that day. He was just doing his job, like the countless others responsible for facilitating the region’s current building boom.

Sadly, the work he did for that cinema became his final contribution. That day, he lost his footing ... and his life.

Building and expansion are serious businesses. It’s more than just quality of life or well-planned urban sprawl. It’s about entrepreneurs risking their life savings, their homes and their professional reputations to follow their dreams. It’s about bankers and angel investors and venture capitalists risking millions of dollars to bankroll those dreams.

And it’s just as much about the ironworkers, masons, carpenters, electricians and building suppliers who often risk their lives on behalf of economic growth.

Unfortunately, such risks are necessary to build cities the size and stature of Pittsburgh and keep them growing and prospering. Unless your company is participating in such growth and expansion, it likely won’t survive long enough to enjoy the long-term fruits of the region’s labors.

Thanks to such risk takers, these are exciting times in the Pittsburgh region. Quality of life is being boosted immensely with two new stadiums, a new downtown theater, renovated loft and office space throughout downtown Pittsburgh, a new convention center, and all of the riverfront development, not to mention the road improvements and new highways connecting the region’s far reaches to metropolitan Pittsburgh.

Then there’s the Airport Corridor with its new hotels and retailers, and Southpointe in Washington County. Murrysville, Monroeville and other points east are celebrating dramatic growth. Even the outer counties, such as Armstrong, Indiana, Westmoreland and Butler, are seeing their share of building and expansion.

As John Bonassi, director of business development for Dick Corp., notes, “The construction industry in the region is enjoying its most robust level of activity in 10 years.” He expects that to continue for at least another two to three years.

Just as important, says Brooks Robinson Sr., head of the Regional Industrial Development Corp. (RIDC), “It’s a lot of commercial and business; it’s not just stadiums.”

This special supplement takes a look at some of the more practical aspects of building and expansion, from deciding whether to serve as your own general contractor to incorporating “green design” into your next expansion. It’s full of helpful resources, including a listing of state funding sources and a host of advertisers ready to supply your next building project.

But as you think of the practical, let’s not forget the souls behind the scenes whose efforts turn your dreams into the monuments of growth and prosperity we collectively call Pittsburgh. To the Tom Speakmans of this region, I salute you. May your legacy live on in the growth and prosperity you leave behind.

Dan Bates (dbates@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:52

Confronting Congress

The Washington, D.C.-bound Butler Motor Transit bus pulled into the shopping center parking lot at about 7:15 a.m., parking next to the bus that would be taking senior citizens to Atlantic City.

As tempted as many of the business owners — all members of local business association SMC Business Councils — say they were to board the seaside casino-bound bus that early summer morning, they dutifully climbed aboard the motor coach that would take them to the steps of the U.S. Capitol building.

From there, these local business people would spend two days knocking on the doors of local congressional leaders. Their mission: to make sure the voice of small business is heard by those making important national decisions that can have a profound effect on their companies.

For members of the 5,000-member SMC Business Councils, it’s far more than a two-day field trip to our nation’s capital. Rather, it’s an annual trek which puts business owners in front of the likes of U.S. Sen. Rick Santorum, Rep. Ron Klink and Rep. Frank Mascara, among others, with sharp opinions about business-related issues such as bankruptcy, tort and estate tax reform, job training, minimum wage and self-employed health care insurance deductions, coming before Congress. (See sidebar for the latest issues.)

According to Cliff Shannon, president of SMC Business Councils, it’s an effort in which all business owners should participate in one form or another if they want to have a say in the decisions that can make or break their livelihoods.

“It matters two ways,” Shannon says. “First, I know first-hand that a motivated group of constituents commands more attention when they appear before elected officials, and they make a bigger impression.”

Shannon would know. Prior to becoming SMC president, he was chief of staff for the late Sen. John Heinz and later a Texas senator.

“Second, it boosts the notion in the minds of business owners that they can see officials face to face, and they can make a difference,” he adds.

In the association’s latest organized trip, led by Shannon and Janice Lanyon, the association’s vice president and director of federal government relations, 40 local business owners took their views on 14 major issues to at least a half-dozen congressional leaders with whom they had official appointments.

The only congressman who didn’t show up for the meetings was Rep. Mascara of Washington County. Even then, the business owners sat with Mascara’s staffers, who begrudgingly listened to their concerns.

Like Shannon, Lanyon says she believes more business owners should be communicating regularly with government leaders.

“It puts a face to the name on both sides,” she says. “I think that’s important. It’s a one-on-one thing which I don’t think you can do any other way. People ought to realize how important it is to the future of their companies to get one-on-one. It may change their way of voting [for their government leaders].”

Does such grassroots activism from local business owners make a big difference? Shannon thinks it does.

“Are we going to change a lot of yes votes to no, or a lot of no votes to yes?” he asks. “Not often, but if we can just persuade someone to listen ...” Daniel Bates (dbates@sbnnet.com), who took the SMC trip to Washington, D.C., this summer, is editor of SBN magazine.

The issues you should pay attention to

SMC Business Councils has prepared a booklet on what it considers the 14 most important issues to watch, along with the stance you should be taking on them. Among them are the following, taken from the booklet:

Bankruptcy reform

For the small business community, the most important issues are protection from frivolous bankruptcy filings and ensuring that affected small businesses recover as much money as possible when a customer/client files for bankruptcy.

Current law heavily favors the interests of larger businesses over small businesses, in that representation on the vital unsecured creditors committee is limited to the handful of creditors that are owed the most money. Although this makes superficial sense, large and small businesses often have very different interests in such situations.

The stance: Small businesses should have fair representation on creditor committees and a greater voice in bankruptcy proceedings. SMC strongly supports the floor amendment authored by Congresswoman Nydia Velasquez which was added to H.R. 833, the Bankruptcy Reform Act of 1999. This amendment authorizes bankruptcy courts to compare the amount of a business claim as a proportion of its grow annual revenue to determine if the business is disproportionately affected and should be added to the creditors committee.

It also assures that affected small businesses will receive timely access to critical information about the committee’s actions.

Estate tax reform

The Joint Economic Committee found that 28 percent of family-owned companies subject to the Federal Estate and Gift Tax during the 1990s were sold or discontinued, in part to meet estate tax obligations. An estimated $6 billion is spent annually on accountants, lawyers and life insurance to comply with and minimize estate taxes.

This hidden tax punishes savings and subtracts from the capital and energy that small businesses have to succeed and grow.

The fact is, the FEGT brings in less than 1 percent of annual federal revenues. Most experts agree that the amount of federal tax revenue lost due to business liquidations to pay estate taxes exceeds the total amount of estate taxes collected.

To spur economic and job growth, and to encourage entrepreneurship and savings, SMC contends, the outdated estate tax should be eliminated.

The stance: SMC supports legislation authored by Congressman Christopher Cox (H.R. 86) which would repeal the FEGT immediately. If that measure doesn’t win sufficient support in the 106th Congress, SMC advocates the incremental repeal encompassed in legislation sponsored by Congresswoman Jennifer Dun and Congressman John Tanner (H.R. 8).

The Dunn-Tanner bill would: 1) eliminated the top estate tax rate of 55 percent by 2010, and 2) reduce the estate tax by 5 percent each year, beginning in 2000.

Job training

Skilled employees are at a premium in every segment of the economy. The challenge is particularly difficult, says the SMC, for small businesses, which typically lack the resources to recruit and train new employees.

The stance: SMC supports H.R. 1824, which would give small employers (those with fewer than 250 workers) a $15,000 annual tax credit applicable to the costs of training an individual in a highly skilled apprentice program. As drafted, the bill would directly affect training of highly skilled metalworking workers, where the shortage of skilled workers is particularly acute.

Minimum wage

Even in this growing, dynamic economy, some old rules still apply. Raise employment costs, and the result will be less employment. A higher minimum wage won’t, by itself, reduce current employment, the SMC contends, but it will cut the growth of entry-level jobs and hurt those who are just starting out.

The stance: SMC believes that Congress should not increase the federal minimum wage further at this time. To do so would be flawed economic and social policy.

Self-employed health care deduction

Current federal law doesn’t allow sole proprietors, partners and S Corporation shareholders to deduct the entire amount of their own health care costs. Current law allows for incrementally increasing percentages of their health care costs to be deducted, reaching 100 percent by 2003.

Meanwhile, all other types of businesses today are permitted under federal law to deduct 100 percent of health care costs. Says the SMC: “That successive Congress es since the 1980s have failed to deal resolutely with this indefensible situation is an outrage.”

The stance: SMC supports congressional approval of S. 343, introduced by Sen. Kit Bond. This legislation would accelerate the health care deduction to 100 percent as of Jan. 1, 1999. S. 343 also would make an important technical change to current law relating to sole proprietors and spousal eligibility for health care benefits through his or her own separate employer. For a copy of SMC’s complete 1999 Washington Presentation to Congress, call SMC at (412) 371-1500.

Monday, 22 July 2002 09:48

The ugly truth about change

Jaws dropped and executives squirmed in their seats as world-renowned businessman and entrepreneurial motivational speaker Dan Pena ranted and raved to his recent Pittsburgh audience.

Pena bragged about his 15th century castle in Scotland, complete with its own 18-hole golf course. He noted that he once owned the largest limousine in Texas.

And he told the group that he amassed a $440 million fortune before the age of 40.

“Money isn’t everything,” he shouted, “but it’s the only thing everyone counts.”

But that’s not what stirred the group. Rather, it was what he said next:

“Most people in the CEO Club haven’t accomplished anything in six years,” he said.

Dead silence in the audience after that.

It’s little wonder. After all, he was speaking at the inaugural luncheon of the latest era of, you guessed it, Pittsburgh’s own CEO Club, a membership of local CEOs hoping to share their experiences with one another as they try to seek their own levels of success. And Pena was supposed to be there to tell them how to find it.

Then he said, “Unless you want to listen to the people up here [like him], you might as well close down.”

More gasps, of course.

Now he had their attention. That’s when he finally qualified his straight, crass monologue with the one point that got even my attention. “Most people today are no better off than six years ago for one simple reason: To get people to change their belief system is difficult,” Pena said. “I am a Red Zone guy. I know how to get every one of you across the Red Zone line, but I can’t make you. You have to take action.”

As much as I disliked his Howard Stern-like style and his views on money, he was painfully right, or as he put it, “I may be wrong, but I’m never in doubt.”

Without a doubt, we all recognize the need to continually change and adapt, as well as take action. To help us with that, we attend seminars and post-graduate courses. We read how-to books. We read publications such as SBN. And we talk to lots of our peers — even the Dan Penas of the world. Then we file away that insight — that cheerleading motivation — and continue to carry on business as usual.

We complain about finances, taxes, the Internet, those twenty-somethings and the seemingly stagnant local economy. We blame our customers, vendors, competitors and employees for our lack of growth. And then we continue to carry on business as usual.

To change requires action, which requires us to get up out of our proverbial easy chairs and look closely at where we’ve been, where we are — and where we should be in the future.

Both Campos Market Research (this month’s cover subject) and Mathews Printing (the lead Managing Your Business feature) stepped up to the concept of change and took action.

Campos wanted to break out of its long plateau and start growing aggressively again. For the owners of Mathews Printing, status quo almost killed the company. But once both companies accepted the fact that they absolutely had to change to grow or even survive, they put their own plans together and took action.

Mathews Printing president Paul Mathews isn’t ashamed to admit that the process proved excruciatingly grueling at times. But the biggest challenge, he says, wasn’t the implementation of a new plan, but something much more fundamental.

“Our biggest challenge was overcoming inertia,” Mathews says, “because we were so used to doing things one way. That change took a fair amount of effort on our part.”

When you get right down to it, I think that hits at the heart of what Dan Pena was trying to get across to this open-jawed group of entrepreneurs. Let’s face it. So many people talk about it, but few actually follow through.

Part of the problem, he says, is that people don’t usually set their visions high enough. The reason?

“It’s a fear of failure. With all of these high-performance people, self-esteem is at the very core of what they’re all about.”

His solution is to hang around people who are more successful than you.

“How can you grow your business to $100 million hanging around people with $2 million businesses?” he chides.

OK, so you may never acquire a medieval castle in Europe or own the biggest limousine in Texas. But you get the idea. Regardless, make this promise to yourself going into the new millennium. Don’t just talk about change anymore. Plan and take action. And along the way, keep aiming higher.

Pena’s only regret in amassing his $440 million fortune by age 39, he said, was a simple one: “I should have dreamt bigger.”

May God bless you during this holiday season and into the new millennium.

How to reach:The CEO Club, (412) 281-4227

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:46

Are you branded?

The full-color Ultimate Edge catalog didn’t sit on the table long before the 11-year-old kid started flipping through its pages.

“There’s the one I want,” he said of one of the many colorful snowboards covering the catalog’s pages, along with photos of snowboarders in action and plenty of accessories. “Or how about that one? And those boots? And there’s the skateboard I want. Cool.”

Clearly, this small, West Mifflin-based company has gotten the full attention of a whole category of teen-agers and pre-teen wannabes, those with the purple hair, lip or eyebrow piercings, tattoos, baggy pants and a penchant for extreme sports. They’re spending hundreds of dollars each to equip themselves with brand-name boards that make them look as hip and edgy as their defiant attitudes when tail-grabbing down a snowy slope.

Way cool? Perhaps if you consider that, according to Ultimate Edge owner Tony Gyke, the company’s image has taken it from annual revenue of less than $100,000 to more than $1 million in only a few years. What’s much cooler about Gyke’s story, however, is the fact that Ultimate Edge began as, of all things, Skip’s Propeller Service, named after its former owner. Its primary business: repairing motor boat propellers and motors.

How the company evolved into Ultimate Edge involved a dramatic transformation by a man who knew his growth opportunities would be forever limited if he didn’t step back, take an uncomfortably fresh and creative look at his business — and turn his little repair shop into a brand with a future.

This is a story about rethinking what you do and how you do it — and what others think you do and how you do it. It’s about a willingness to change your identity with the times and then manage it. It’s about branding.

The problem, local marketing experts say, is that smaller companies think they have to be the size of Nike, Coca Cola or Tommy Hilfiger to be able to afford to build solid brands that matter to consumers and which secure the companies’ futures. Or they mistakenly believe their reputations are their brands. In either case, they wind up with no brand.

“Branding exemplifies the character of an organization or product,” says Larry Werner, managing director of Ketchum Public Relations in Pittsburgh. “It creates an instant identity or feeling, good or bad, about the company. But it’s a serious problem for a lot of companies — even large companies ... Sometimes not having a reputation is worse than having a bad one.”

Dan Droz, a Harvard graduate who has spent his life helping companies create brands, images, products and marketing strategies, says branding is really a management issue.

“When people say, ‘I don’t have an identity,’ guess what? You do,” he says. “Perception happens, but branding is the way you manage that perception. And it’s being able to manage that perception to and for a certain audience.”

Panic mode

Droz, president of Droz & Associates in Pittsburgh, says smaller companies tend to ignore the need for branding, right up until they face any number of problems.

“Ultimately, companies feel one of a few things happening,” Droz says. “They’re starting to lose sales, it’s getting more expensive for them to get accounts, or there’s more competition.”

Nonetheless, business owners tend to go forward with business as usual as long as nothing drastic happens to the company.

“Then they usually follow a certain pattern,” he continues. “First, there’s denial — a feeling that our customers will never leave us. Usually a defection of a client initiates the second stage: panic.”

Panic leads to a reactionary stage, when business owners take steps which they hope will stop the proverbial bleeding.

“Most companies believe they can save their business by lowering prices,” Droz says. “For some, it’s a response that works for a while, whether price cutting or offering gifts with each purchase. In a panic situation, price cutting may be the easiest thing, but your competitors can drive you into a wall on a price to price situation. Then there’s the tailspin.”

But that’s not the clincher. With their continued problems, they often turn to the likes of Dan Droz, because they think they need a new brochure, or, at worst, a new logo or sales strategy.

“Some prospects come to us and say they need a brochure, which is a solution to a problem,” Droz says. “They have made a strategic decision to spend dollars on a specific tactic. But what problem are they trying to solve?”

Suffering Sufrin

When Droz offered members of a local networking group a free, one-hour consultation, brothers David, Michael and Adam Sufrin decided to try it. Together, they run what used to be called Adolph Sufrin Inc., an East Liberty-based office supply company started by their family in 1935. The three took over ownership five years ago, when their father died.

The problem, says David, the company’s president, was that they felt the company, which they considered a rather “old-school mom-and-pop” operation, was losing ground against the likes of Office Depot, OfficeMax and other giants that have broken into the Pittsburgh market with seemingly deep discounts.

What they needed, perhaps, was a new logo. What Droz helped them create, however, was an entire brand. But to get there, the Sufrin brothers had to overcome a long-held philosophy against branding.

“Dad never put any emphasis into image or logos,” David says. “In his world, there never really was a brand that resellers had to maintain. We sold brands. My dad’s philosophy was that we didn’t need a brand.”

David says he was happy when all three brothers agreed to discuss their situation with Droz.

“When the offer was made, in my mind it was maybe another chance for a logo,” he says. “We knew we did the job and knew we could compete, but we didn’t have the perception that our competitors have. And [potential customers] aren’t looking for a quality mom-and-pop relationship.”

The first thing they agreed to do was change the name of the company to Sufrin Supplies,while maintaining Adolph Sufrin Inc. as the legal name.

“We needed to create an image, a brand,” David says. “And using the word supplies was important. Adolph Sufrin Inc. doesn’t say much to people who don’t know the name. Now Sufrin Supplies has given us a higher level of respect and recognition with customers and suppliers.”

Droz stresses that business owners need to be well aware of the importance of their customers’ perceptions of them within the first 10 seconds of the initial contact, which set the tone for any future relationships. Managing that first impression, he says, begins with the right name, logo and image.

That’s why the company created a long-desired logo, which includes a yellow piece of lined notepaper with the company’s name, underlined in what looks like red crayon and pinned to a clean white surface with a red push pin. The new image appears on the cover of the company’s office supply catalogs — which previously appeared terribly outdated, David admits, with a drawing of its showroom — as well as on presentation folders, business cards, letterhead, uniforms and its white panel trucks.

In addition, the Sufrins changed the company’s motto from “Our service is the difference,” which, according to Droz, wasn’t enough to stand apart from the giant discounters, to a more image/perception-making motto, “Bringing More To The Office!”

But the design package was more than just a new look, Droz says. “Their response was, ‘These guys helped us change the way we thought about ourselves.’ It’s not just a logo, it’s the experience that a [customer] has. We call it total user experience.”

David agrees, adding that the new image even changed the way he perceives the business.

“The first day, when I actually saw the logo, I didn’t sleep that night,” David says. “Just knowing the potential of what it could do — I was just proud of it.”

Just as important as what customers thought, however, was the effect on employees.

“I think it was a boost for our employees — even our drivers,” David says. “And our sales reps just ate it up, because it was tougher to get through to younger people with our old-school efforts.”

Not that the transformation occurred without doubts or problems, David and his brothers acknowledge. For one thing, the effort cost at least $50,000 to implement — a price tag which had all of them second-guessing their decision at one point or another.

“We were gung-ho early on, then we started to question the cost,” David says. But not following through, he adds, “would have shown a lack of commitment to the employees that would have amplified our problems.”

Nor has it solved all of the problems.

“It hasn’t made our problems magically go away. But it makes some of the challenges a little bit easier to face. Before, we wouldn’t have had a chance.

“Nobody’s going to say they’re buying because of our logo,” David adds. “But it definitely gives us the structure to continue into the future.”

Ultimate dilemma

Tony Gyke, owner of the former Skip’s Propeller Service, needed more than a new name or logo to jumpstart his small business. In 1996, when he bought out partner Skip Dunlap, who started the business in 1974, Skip’s Propeller Service repaired outboard motor propellers, engines and engine drives and sold boating accessories.

Gyke says he had a solid business serving 30- to 55-year-olds, but he had one significant problem: “The fact is that boating is very seasonal — but my payments were not.” He also had trouble holding on to good employees because of the seasonality of the business.

Before Gyke met Droz, he says, his first thought was to expand his boating repair and replacement parts service to Florida, where he could stay in business year round. Then Droz engaged him in what he calls a roundtable discussion, at which he teaches clients to “play.” Droz encourages them to let go of their preconceived limitations to openly explore what they could become if they really wanted to and didn’t have any obstacles.

In Gyke’s case, the exercise led to the recognition that one area within the boating accessories market was growing rapidly: the wake board market. Who typically rode wake boards behind a boat? Young people who are into a wide variety of extreme sports, from snowboarding and skateboarding to in-line skating and extreme biking. Gyke overcame the narrow notion of regional expansion with a grander plan to go after the explosive market for extreme sports accessories — which covers all seasons.

Like Sufrin, one of the first things Gyke did was work with Droz to change his company’s name to Ultimate Edge to reflect its new direction and give it a sense of identity. While it continues to operate its boat propeller and engine repair services, its new brand reflects an edgier attitude, fit for teen-agers with baggy pants, purple hair and pierced eyebrows.

To support that, Droz helped Gyke create a full-color catalog full of snowboards, bindings, boots, skateboards wheels, wake boards and other accessories. The catalog features daredevils and full-color shots of customers in action, with an invitation for customers

to send photos for possible use in the next catalog. The catalog is on the Web at www.ultimateedge.com.

And its tone is, well, way cool. Case in point is the introduction on boarding, which states, “Boarding is not a sport. It’s a life. A mission. A religion. At Ultimate Edge, the boards are what we live for; what we love; why our heads, backs and butts hurt after a week’s worth of ollies, fakies, Haakonflips and J-tears.”

It’s not exactly the way one might talk to the 30- to 55-year-old crowd — the same crowd that turns to Gyke’s company for a new outboard motor propeller.

But Gyke says the catalog did well for a first attempt, although he lost money on it. The second catalog, he says, was a money maker.

Perhaps his greatest challenge wasn’t so much in transforming his company from a mom-and-pop repair shop to a hip boarding sports and accessories company, as much as it was in trying to relate to his newfound market. It didn’t help that this quiet, laid-back entrepreneur with virtually no boarding experience was in his early 40s and that he employed a generally older staff.

“For the first two years, I tried to do it all with the same sales force [that worked under Skip’s Propellers], and it didn’t work for us,” Gyke says. “The older work force — it kind of scared the customers. And the teen-agers did irritate some of the older employees.”

But as he points out, he’s not talking about just any teen-agers. These kids typically have piercings, bleached or bright-colored hair, tattoos and baggy clothes.

“At first it was a shock for me — until I got to know them,” Gyke says.

To solidify the creation of his managed perception, or brand, Droz recommended that Gyke find a boarding “hotdog” at a local high school who knew the language and could draw customers — starting with his own friends. That’s when he found Ace, who worked for him until he went to college. Gyke says teen-aged customers no longer are scared off by older staffers and often come into his store above the repair shop to talk shop with younger employees.

“Don’t let looks deceive you,” he says. “They knew the product, and they knew the sport.”

As part of the brand build-up, Gyke launched a newsletter written in that “seditious” teen-aged tone, and he sponsors boarding sports events and athletes entering those tournaments.

The overall cost of Gyke’s branding transformation: $50,000 to $60,000 over a two-year period, along with continual investment in inventory for the catalogs and retail store. But it also purportedly boosted his company’s annual revenue to more than $1 million.

Gyke’s advice to others considering such drastic change: “You’ve got to change with the times. But stick with it and don’t second guess.”

Asked whether he is glad he turned his company on its head, he doesn’t hesitate to say yes.

“I think it got people to take us seriously,” Gyke says. “We’re not just a mom-and-pop shop anymore.”

How to reach: Dan Droz, (412) 338-1818; David Sufrin, (412) 363-8000; Tony Gyke, (888)470-2161

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:44

Lawyers for rent

When the former Ben Franklin Technology Center of Western Pennsylvania faced massive mismanagement and a government investigation into other improprieties, the government leapt into action.

It fired the top management and all but closed the local state-funded program that was supposed to spur economic development by funding the commercialization of new technology.

But then the completely revamped center, now called Innovation Works, found itself with a rather odd and cumbersome legacy: more than 400 funding contracts with local technology developers, in which the recipients promised to pay royalties to the center if and when the technologies became revenue generators. The problem was, few had ever paid royalties. Worse, nobody had monitored or enforced the agreements.

Enter Innovation Works’ corporate counsel, Klett Leiber Rooney & Schorling. According to Doug Goodall, director of Innovation Works, the law firm acknowledged that someone needed to review all of those contracts to make an assessment of who might owe what.

That someone needed not only legal expertise in the area of contracts but also a technical understanding of technology transfer and development — as well as the time to commit to such an enormous and unusual project. This wasn’t something Klett Leiber wanted to tackle — nor could this government program afford to pay its hourly rates for the project.

This was a job for Legal Network Ltd.

Legal Network Ltd. is, in effect, a temporary services firm that gives companies access to a database of more than 2,000 attorneys who either work as sole practitioners or have been downsized out of their corporate counsel jobs and decided to free-lance their services. Clients pay between $50 and $100 an hour to rent an attorney, who is hired on an hourly or project basis. The firm then pays each attorney an hourly rate, but only for number of hours worked.

This alternative form of practice gives attorneys the freedom to pick and choose assignments without having to hustle new clients themselves. In fact, many on file are sole practitioners who use the service to fill in the gaps during slow periods.

As Karl Schieneman, managing director of this 5-year-old firm, notes, the attorneys best suited for this kind of work are “not the rainmakers in law firms.” Rather, they often are the ones with the best technical expertise who are good with document review, research and other sometimes tedious legal work.

For clients such as InnovationWorks, the service gives them access to a large pool of attorneys with often highly technical niche expertise, without having to pay the much higher prices of a large law firm with lots of overhead expenses.

Michael Betts, a Blawnox-based sole practitioner who specializes in commercial corporate litigation, often turns to Legal Network to help fill the legal ranks in particularly large projects.

“It works very well for me because I’m able to manage my overhead a lot better than if I had to hire other lawyers,” Betts says. “I use the services when I have a major or more complex matter that requires more than one lawyer, or if things have to be done in a certain timeframe. A lot of those projects are cases where I need a lot of document review or research.”

Legal Network Ltd. is the brainchild of Schieneman, an attorney who earned a master’s degree from Carnegie Mellon University’s Graduate School of Industrial Administration in 1992 and a law degree from the University of Pittsburgh. His partners in the firm are Brad Franz, an attorney with Houston Harbaugh, and Lawrence Kolarik, a national accounts manager for ADP.

Schieneman came up with the idea while working as an associate-on-contract with Pittsburgh law firm Marcus & Shapira. He had been hired on contract specifically to help with a large lawsuit against Phar-Mor during its sizable financial scandal.

“No. 1, it got me through the door without having to go through a difficult hiring process,” Schieneman says, “and my performance is what opened up new doors.”

The idea of being hired on contract to work on a project, he says, “appealed to my background of being a businessman and a lawyer.”

While continuing to work for Marcus & Shapira, he formed Legal Network in 1995, and by 1996 was breaking even. In 1997, the firm experienced 200-plus percent growth in revenue over the previous year.

“I thought we were catching the national trend at that point,” Schieneman says. “After all, it’s the fastest-growing segment of the professional services industry. It’s a $500 million industry that is growing at a rate of 30 to 40 percent.”

At the same time, he found it more and more difficult to manage on the side. So he “took the leap.”

Today, the firm employs three full-time people and maintains an active database of more than 2,000 lawyers. Active lawyers, he says, likely will earn between $60,000 and $100,000 a year, annualized. Schieneman says the firm’s revenue this past year was expected to climb to between $1.5 million and $2 million, although he would not be more specific.

“But there’s no overhead involved here,” Schieneman says, except for the small office space his firm occupies in the Regional Enterprise Tower in downtown Pittsburgh.

Back at Innovation Works, Doug Goodall says he liked Legal Network because it has “a cadre of specialists who are available on a free-lance basis.”

For its contract project, Innovation Works hired attorney Patricia Koehler, whose background was in technology transfer and development, through Legal Network. She set up shop full-time in the organization’s offices, offered an initial assessment of the scope of the problem, then set out to scrutinize every one of more than 400 contracts that had been established over the past 10 years.

As a result of her work, Innovation Works has secured a commitment from the funded companies to pay back nearly $600,000 in royalties, and Goodall expects that number to increase as the organization moves forward in its effort.

“It not only was a legal issue but a technology issue,” Goodall says. “And [Koehler] did a masterful job for us.”

So masterful, in fact, that, when the Legal Network contract between Koehler and Innovation Works ended, the organization secured her services directly for future projects.

Says Schieneman of his success: “It’s a fun business when you’re helping lawyers and helping businesses solve their problems.”

How to reach: Legal Network Ltd., (412) 201-7470 or www.legalnetworkltd.com

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:44

When customers come first

I hadn’t really been thinking about customer service that morning as I drove my Jeep toward Pittsburgh along the Parkway West.

On that Wednesday, I faced a blinding sun, wet pavement and the usual stampeding herd of rush-hour road warriors. With that kind of stress, I didn’t need to think about the fact that I had lost all hope in good customer service, that businesses just didn’t seem to care anymore about making sure their customers were happy.

Service with a smile, in my estimation, had been replaced by service with a huff. Businesses found it easy to exceed customer expectations because customers expected little. And customers could expect guaranteed satisfaction only if they purchased the extended warranty policy. I tried not to think about it as I dodged the mad rush on my way to the office.

Then it happened.

As I crested a hill, squinting to avoid the glare, the car in front of me braked suddenly. That, of course, is when I braked suddenly, which threw my Jeep into a bit of a fish-tail. A van swerved around me, only to catch my swerving front end. Before we knew it, we both were parked along the side of the road like caged zoo spectacles, exchanging insurance information.

This being my first real accident, I wanted to cry as I thought about the aggravation that lay ahead. I could imagine fighting with the auto body shop for a month as it “waited for the right parts” and to make sure the workers painted my vehicle correctly — those nightmares you hear about frequently. And I would face delay after delay, steep car rental payments and plenty of excuses. Then, with a final huff and a demand for payment, I finally could pick up my vehicle within a half-hour time slot convenient only to the body shop.

In my cynical world of customer service, that’s what I could expect. Just thinking about it made my tear ducts ache.

That is, until I met the Wolbert brothers.

Don, Bob and Greg Wolbert, in some miraculous way, managed in one week to instill in me an entirely new hope for customer service and everything it’s supposed to stand for.

The Wolbert brothers have been running Wolbert Auto Body & Repair in Crafton since 1972, mainly, Don says, because of their love of cars.

“We enjoy automobiles,” says Don, the always-smiling, low-key president of the company.

You could see that by the years of toil and grease etched into their calloused hands. You could also see that by the work they did on my Jeep. But I don’t believe that’s what has allowed these lifelong Crafton residents to build a local service that employs 21 workers and generates roughly $2.1 million in business. For these brothers, it’s simply about treating people right.

My experience began with a short wait in a waiting area with free coffee, plenty to read and a gurgling fish pond to watch. The Wolberts painted the walls a light mauve color, Don says, because “through reading articles, I found out that women are doing most of the shopping for estimates, so I wanted to have a waiting room that was appealing to women.” OK, fine.

Then Don took me to the garage, where he made his assessment of the damage. The accident proved costly, but he assured me the work would be done in about a week. And it was. He also told me what the insurer would and wouldn’t allow.

“When the customer walks in the door, you have to do what’s in their best interest,” he tells me later. “It’s about educating our customers to what the possibilities are.”

The day I came for the Jeep, I hardly recognized it, and not just because the front bumper no longer was tied to the frame with a piece of rope. The shop’s workers had buffed out most of the scratches that had adorned the doors from a few off-road excursions. Better yet, the half-inch of gravel, mud and other debris collecting on the floor inside had been swept clean. The vehicle even smelled new again.

Then Don made a visual inspection of the vehicle as I stood there and found a small problem under the fender — a problem I never would have noticed. His brother Bob promptly corrected it. When I drove off, I realized an electric window and door lock didn’t work. When I called the Wolberts, Don, seemingly embarrassed, offered several humble apologies and asked me to bring it in. I did the next day, and his team repaired the problem as I waited. After more apologies for any inconvenience, I was sent on my way, wondering what had just happened.

With such customer service, I didn’t quite know how to react. That’s when I decided to write about it. After all, I’m never afraid to rail against bad customer service, which abounds. How could I ignore this seeming phenomenon?

So I went back later that week to ask one simple question: Why bother? All three brothers say they live in Crafton and would hate to have to worry about dodging dissatisfied customers every time they run into one in the local supermarket. And besides, they say, Wolbert Auto Body & Repair couldn’t survive without such customer service.

“It can be a burden to do that stuff, but it makes the customer happy,” Bob admits. “It gets the person back.”

But perhaps Greg says it best. “It means everything to business. Without customer service, you have no customers.”

As for this customer, I almost can’t wait for my next accident ... I said, “almost.”

Daniel Bates, a customer service cynic, is editor of SBN Magazine.

Correction

In the March issue of SBN, the name of the woman in the Women in Business series profile was misspelled. The correct spelling is Antoniette Paliotta.

Monday, 22 July 2002 09:41

Just leave us alone

The busload of Pittsburgh business owners, led by executives from SMC Business Councils, herded one by one through the metal detectors and into the corridors of the Cannon House Office Building.

The diverse group, which included me, had finally arrived to experience first-hand the grandeur of our nation’s political process.

We were here, after all, to share with our local House and Senate leaders our concerns about the government’s involvement in business. We wanted to make sure our voices were heard. To me, this was the center of change, and we were there to effect it.

We shuffled down the great halls, fighting swarms of school students, foreign tourists, Boy Scouting groups, slick-dressed lobbyists and even a stirred-up group of American war veterans as we made our way to our first legislative stop. Of course, I’m the political skeptic, there to observe these business owners in action. I wanted to see for myself what bothers them and how passionate they are in their efforts to chew the ears of our elected officials. And I especially wanted to see how our representatives would respond.

But even with a packet of well-prepared issue statements in hand outlining concerns about estate taxes, health care, OSHA regulation, etc., I had no idea what they really wanted.

That is, until one older gentleman in the group, surrounded by others waiting outside one legislative office, proclaimed to anyone in the hall who would listen, “All of these people around here want something from the government. All we want is to be left alone.”

All we want is to be left alone This group didn’t want more money. It wasn’t looking for new programs to support development and growth. And it certainly didn’t come looking for more laws or regulation. These folks — many of them newcomers to the whole political process — just wanted their legislators to know that they would rather be left alone.

Instead, they continue to face a business-crushing estate tax. Sole proprietors still aren’t able to deduct the entire amount of their own health care costs. If business owners sell their businesses today but finance the cost for the buyer over a period of years, recent legislation still requires the seller to pay taxes immediately on the full amount of the sale. And if OSHA gets its way, business owners will have to spend lots of money to make sure everything in their offices remain ergonomically correct.

Let’s not even think about current liability laws, increasing the minimum wage and the proposed expansion of the Family Medical Leave Act to provide paid leave.

All we want is to be left alone. Such a simple request from a group of hard-working manufacturers, distributors, franchisors, franchisees and service firms. But I’m not too sure many of our nation’s power brokers could even hear the simple request over the deafening screech of, shall we say, partisan politics.

This month’s issue is all about change. Calgon Carbon Corp., for instance, is teaching a culture of change to its 1,100 employees all the while it changes its leadership and product focus. The special Entrepreneur’s Growth Guide addresses change in attitudes and hiring practices to keep up with changing times. We’re seeing it everywhere, and most of it fertilizes the economic growth that we’ve been experiencing here in Pittsburgh and beyond.

But the one place where I don’t see much change — the place where the most dramatic change should originate — is in the halls of Congress. I had the privilege, along with my designated group, to visit the offices of U.S. Rep. Mascara (D-Washington) and Rep. Klink (D-Allegheny). But as we discussed our concerns with aides from both camps (neither Mascara nor Klink could make it for our meetings), the aides would nod occasionally, take copious notes and even squeeze out an occasional “We weren’t aware of that.”

But the pervasive message from both Democratic offices was strikingly the same: “I know what you mean, but there’s really not much we can do about it right now. We’re in the minority, you know, and our hands are tied. What can we do?”

Perhaps not surprisingly, Mascara’s voting record on behalf of business in our region is a weak 23 percent out of 100, according to the combined calculations of the national business organization National Small Business United and SMC, which hosted the bus trip. And Klink’s? A whopping 8 percent.

“Talk to the majority party about it,” the aides concluded.

And we did. Sen. Rick Santorum, who did make it to our meeting, in the past year managed a 100 percent voting record, along with Rep. George Gekas (R-Harrisburg). Sen. Arlen Specter managed a 50 percent record.

In this age of such dramatic change in our economy and business philosophy, why can’t Congress change with it all? Why do its members manage to make decisions that hamper business growth, even recognizing thereafter the error of their ways, but then simply shrug when you ask them why they can’t change such stupidity?

Their answer: politics. And yet all we want to do is be left alone.

Indeed, some things never change. Special thanks to SMC Business Councils for giving me the opportunity to witness our political system at work, and to the busload of participants willing to humor me with their feelings and concerns.

Daniel Bates (dbates@sbnnet.com) is editor of SBN.