Ray Marano

Tuesday, 04 November 2003 07:00

Breaking conventions

Bruce Hartman landed the first funding for a new product he developed in an unusual way: He won a contest.

He landed a $37,000 prize from the Enterprize competition for the business plan he developed for a product used in storm water drainage systems. It's far from the nearly $1 million he will need to get the product marketed and into mass production, but for Hartman, it's a way to show potential investors that someone with some smarts thinks he has a good idea.

For Karl Forssman, president and CEO of Parent Plus LLC, a start-up that offers a solution for male infertility, the journey started in a more conventional way but took a less expected turn. Forssman got an angel investor to pony up the initial funding for his company, but the next round of support appears likely to come not in the form of cash but through a strategic alliance with a major medical center with expertise in infertility treatment, Forssman says.

Financing their ventures hasn't been a neat and tidy process for Hartman and Forssman, demonstrating that while there are general models to follow for funding a company, there are often detours that lead down unconventional paths. Or is the unconventional approach actually the more conventional?

"Everybody tends to think of venture capital as the conventional money source," says Vic Petri, a consultant with PricewaterhouseCoopers.

But the experience of some entrepreneurs could lead one to believe that experiences like Hartman's and Forssman's are closer to reality.

Pamela Lipson, president and CEO of Imagen Inc., a Boston company that was spun out of MIT's artificial intelligence research center, shared her experience at a recent MIT Enterprise Forum. Imagen, like Hartman Products, got an early infusion of capital by winning a cash prize of $30,000 in an entrepreneurship competition in 1997.

Imagen scored some early successes in the electronics and telecommunications sectors, but by 2000, the capital markets had dried up and tech companies had lost their luster for most investors. Finding venture capital was a faint hope for the fledgling technology company.

The technology that Imagen had developed, Lipson and her partner concluded, could have several broad applications. It could be used in instances where human faces needed to be identified, such as in security systems. Another use could be in identifying similar images from a group of photographs or other images, like trademarks.

Imagen also saw potential for the technology to be used for inspecting circuit boards for quality control purposes, the application it settled on as the most promising.

"The technology was very general, and it needed to be targeted," says Lipson.

But with little cash in Imagen's coffers, Lipson says, it was necessary to find a partner that had an interest in the technology, valued having a share of the intellectual property and had the resources to shoulder the risk of development. The potential partner would also have to meet the demands of the marketplace once the product was commercialized.

Imagen approached Teradyne, a $1.2 billion company that manufactures automatic test equipment for electronics inspection. Teradyne saw real potential in using the software to increase the speed of its products, which are used to inspect printed circuit boards.

The two struck a partnership agreement that gives Teradyne a share of the intellectual property, and early this year, it introduced a product that utilizes the Imagen software. It is now in use in Asia and North America.

While the end-around approach may seem unconventional and less direct, moving a business by using a strategic partner -- if the process is well-executed -- can take a company a step or two forward without necessarily raising a lot of additional cash.

In Forssman's case, the halo effect of partnering with a major player could make raising capital easier in the future. He says that the partnership with a prestigious medical research center will raise his company's prestige within the technology and medical communities, a factor he believes will increase his visibility, bring new contacts and potential investors, and make it easier to raise additional capital for his venture.

"They will look at who I'm partnering with and say, 'Hey, this guy is serious.'" How to reach: Hartman Products Inc., www.hartmanew.com; ParentPlus, www.parentplus.net; Imagen Inc., www.imagen-inc.com; Teradyne, www.teradyne.com

Sunday, 21 September 2003 20:00

Coaching and mentoring

J.T. Thomas recalls that when he ate his first meal in a white-owned restaurant in his hometown of Macon, Ga., at age 16, he wasn't familiar with salad, and ordered French dressing only because someone else at his table had.

And, Thomas says, he was a little confused by the assortment of flatware at the table settings. Institutionalized segregation and nefarious tradition still kept African-Americans out of white establishments in the South in the 1960s, and his upbringing hadn't included a habit of dining out.

His father scoffed at spending money in restaurants when perfectly acceptable food was available in the home. And the only black-owned eating establishments in town, Thomas says, were "greasy spoons."

James T. Thomas encountered other firsts after his days as a high school football star. He was the first African-American to play football at Florida State University, where he earned a business degree. In 1973, he was a first-round draft pick of the Pittsburgh Steelers, the beginning of a nine-year career in the National Football League during which he achieved All-Pro status.

Two decades after retirement from football, Thomas looks as though he could still intercept a pass or flatten an opposing running back. These days, however, he is more interested in tackling new opportunities in the equally challenging game of the restaurant business -- "maybe because of all those years when I was a kid in Georgia that I wasn't allowed in restaurants," Thomas offers, partly in jest.

Thomas and his partner, Larry Brown, a former Steelers teammate and African-American as well, own 13 Applebee's Neighborhood Grille & Bar casual dining restaurants, operated under a company known as B.T. Woodlipp Inc. and employing more than 800 people. The company has been involved in numerous philanthropic efforts and commits its resources in the communities where it does business, yet Thomas and his partner have retained a low profile since he and Brown incorporated in 1987 to develop restaurants in Pittsburgh.

Sixteen years later and two decades after leaving football, Thomas thinks it's time to make the most of the association with the Steelers.

"A lot of people probably don't even know we're the owners of the restaurants," says Thomas. "We feel it's probably to our advantage to leverage the Steelers connection."

Ola Jackson, an entrepreneur who publishes Onyx Woman, a magazine targeting African-American women, didn't have that luxury of remaining in the background when she launched her business, although she admits that wasn't necessary, since her magazine is aimed exclusively at black women. But she says she understands why Thomas and Brown might have chosen to keep a low profile in a business designed to serve the general public.

"They were smart, in a sense, to let the brand speak for itself," says Jackson.

The restaurant business is a natural choice for him, Thomas says. During his final season in the NFL, spent with the Denver Broncos, he saw a lot of his friends in football going into restaurant ventures. For Thomas, the industry seemed like a comfortable fit.

"I think that kind of focused me on the restaurant business," Thomas says.

And going from sports to the restaurant business isn't an uncomfortable stretch in some respects, he says.

"I think it's kind of similar to what I was doing in sports; you're dealing with people, primarily, and it's kind of entertainment," Thomas says.

"The double whammy"

Being African-Americans posed an obstacle as Thomas and Brown made the transition from sports to business careers, but it wasn't the only limiting factor.

Despite the fact that they were well-known athletes from one of the most storied football teams of all times -- the standard by which all other Steelers teams have since been judged -- they found that their status as professional athletes wasn't necessarily an asset. In fact, Thomas says, stereotypes about athletes can be almost as limiting as negative racial attitudes.

"That was a double whammy," he says.

Thomas says the white business community isn't accustomed to black entrepreneurs, and African-Americans, equally unfamiliar with seeing other African-Americans in business leadership positions, often view black businesspeople with skepticism, sometimes considering them fronts for white-owned enterprises.

Despite their notoriety, bankers took especially hard looks at their business plan, Thomas says, and held them to the most stringent credit standards.

"They're used to business plans," says Thomas. "They're not used to your pigmentation."

Beyond Applebee's

It's a cinch that Thomas now knows plenty about the business that was a mystery to him when he was a teen-ager, and he and Brown expect to leverage their accrued experience to expand Applebee's, as well as to spin out a new concept.

Beyond additional Applebee's locations, B.T. Woodlipp is planning to introduce Red, Hot & Blue barbecue restaurants to Pittsburgh, a Memphis-based concept that features traditional Southern barbecue dishes like grilled catfish, beef brisket and barbecued ribs. The first most likely will be in the South Side Works development.

While a formidable number of local and national competitors vie for scarce prime spots in Western Pennsylvania, Applebee's Neighborhood Grill & Bar has snared some of the most desirable retail sites in the area. Thomas says he looks for a dense population within a three-mile radius, proximity to a main artery with heavy vehicle traffic and placement within a cluster of at least 1 million square feet of retail space.

The group can expand easily to 30 stores within its Pennsylvania and West Virginia footprint, Thomas says.

Mentoring and coaching

While negative attitudes toward athletes and racial stereotypes were handicaps at the outset, Thomas gained rich insight into what it takes to run a successful business through his experiences in football.

"Business is trying to get quite a few people focused on a mission, a vision," Thomas says, not much different from what is required from an athletic team to win on the playing field.

Accomplishing it, he says, takes leadership that develops talent and brings it out on the diamond, the gridiron or in the workplace.

Thomas says B.T. Woodlipp has been successful at limiting turnover in an industry that is dogged by it by providing a favorable work environment and outstanding training for its employees. The industry average is 200 percent turnover a year, a factor that increases recruitment and training costs for restaurant operators.

The National Restaurant Association reports the median cost of replacing an hourly worker is about $2,500. The price tag jumps to about $24,000 when it comes to replacing a manager. Thomas estimates it costs between $500 and $2,000 to train servers and kitchen workers, and about $10,000 to train a manager.

"And those are the dollars you can count," he says.

Lost productivity, potential dips in morale because of personnel changes and labor shortages can take their toll, as well.

Thomas says his restaurants have held hourly employee turnover to 80 percent, and turnover for management employees at about 25 percent.

Sports, business and leadership

Patricia Carr, president of Oakmont Consulting Group Inc., does leadership consulting and works with the Washington Wild Things, a Frontier League baseball team, to help businesspeople develop their leadership and coaching skills. She says there are many similarities between successful business leaders and outstanding coaches, and that the teamwork and coaching skills acquired on the athletic field often transfer well into the business world.

"Athletes are used to clearly focusing on the outcomes necessary to achieve to win games," says Carr.

And, says Carr, a good coach gives players feedback, direction, training and discipline, then trusts them to go onto the field and perform effectively, putting their skills to effective use as situations present themselves in the course of a game.

"There is a balance between the discipline and letting people do their job," says Carr. "Once they've practiced that, they're on their own."

That view squares well with Thomas' experience. He says that while he was with the Steelers, Chuck Noll, the Steelers head coach, concentrated on skill development and discipline in training and practice, all the while encouraging players to use their own skill and judgment during the game to accomplish the goal of winning.

Managing a business, while necessary, isn't enough to create a successful enterprise.

"You can manage things, but you mentor and coach people. I'm really not running a restaurant; it took me about six years to figure that out," Thomas says. "What I'm doing is mentoring and coaching people." How to reach: B.T. Woodlipp, www.steelapple.com; Onyx Woman, www.onyxwoman.com; Oakmont Consulting Group Inc., DrPatCarr@msn.com

Monday, 22 September 2003 12:01

Betting on biotech

What's the big picture in biotech in Pittsburgh?

Maybe there isn't one.

"It's really a bunch of small pictures," says Babs Carryer, founding partner and board member of LaunchCyte, an investor in early stage biotech ventures.

Nearly everyone in town agrees with that assessment, and that any one of the small pictures could break out as a panoramic success that would fuel the fortunes and sow the seeds of scores of others, either by creating spinoffs or by attracting attention of entrepreneurs to a region rich with resources for starting and growing life science ventures.

In that sense, biotech isn't unlike information technology, where, in some instances hundreds of successful companies can trace their roots to a few big scores. Indeed, some in the local biotech scene believe there are several companies in Pittsburgh on the verge of breaking out.

"I think there are some blockbuster stories ready to erupt," says Raymond Vennare, CEO of Immunosite Inc., a Pitt spinout.

Vennare says the big breakthrough will likely come out of a combination of efforts that includes life science research, data collection and statistics, all disciplines in which Pittsburgh institutions excel.

If one or more comes to fruition, they can have a powerful leveraging effect for the region‚s biotech industry. Such successes draw the attention of investors and scientists and put Pittsburgh in the spotlight, not to mention the synergy they create in the local biotech community.

"Once you have a couple of successes, they feed off of each other," says Vincent Jannetty, CEO of Bonecraft Inc., a company that has developed a less invasive system for joint replacement that uses new surgical tools and computer software, and that promises fewer complications and faster patient recovery.

Those successes tend to draw people like Jannetty, who co-founded a successful spinal implant company in Austin, Texas, that raised $20 million in venture funding and was sold this year to Abbott Laboratories for $170 million. Jannetty says the opportunity with Bonecraft and the presence of the universities and health care system to support its efforts drew him to Pittsburgh.

Bringing people like Jannetty to the region, seasoned businesspeople with experience in building biotech companies, is critical. There aren't that many businesspeople in Pittsburgh with deep experience in biotech ventures, says Carryer, and those who are here are stretched thin, serving on multiple boards and sought by entrepreneurs to invest in fledgling ventures.

The human capital that the universities and health system can offer means that companies in fast-growth stages won't be stunted by a lack of technology talent.

"For us, as we grow, it's really important to have access to top-notch scientists," says Phil Yeske, president and CEO of Fluorous Technologies Inc., a company that offers solutions to companies conducting drug discovery and development areas.

Not all, including Yeske, agree that waiting for the holy grail of the big hit is the wise approach.

"I tend to lean toward the notion that we need more companies and not just that big anchor," says Yeske. "I think that's been a mistake in the past."

Yeske says, "more swings of the bat" will offer better odds of developing more strong businesses.

The driving force

Pittsburgh, most in the industry conclude, is exceptionally well-positioned to participate in the current wave of biotech development, with clusters of key institutions and intellectual capital that could support a blockbuster company or a plethora of smaller enterprises.

"The key thing that drives biotechnology is universities," says Chris Capelli, director of technology management at the University of Pittsburgh, and Pittsburgh has two world-class research institutions, Pitt and Carnegie Mellon University.

Pitt alone has more than 40 technologies currently available for licensing in the biotechnology area. And University of Pittsburgh Medical Center, a health care system with an international reputation for medical research, has hundreds of clinicians involved in research with potential for commercialization.

The investment factor

Finding capital is always a challenge for start-ups, but biotechs face their own set of obstacles in Pittsburgh. Early stage capital is in extremely short supply, even though organizations like Innovation Works and the Pittsburgh Life Sciences Greenhouse have tried to close the gap.

When it comes to early stage funding for biotech, "There's a lot of money in Pittsburgh, but not that kind of money," says Capelli.

Pittsburgh's old money community, some say, has a hard time grasping biotech concepts and buying into them as investments. And the protracted development cycles can scare away venture capitalists who are used to much shorter investment horizons.

To locate early stage capital, many biotechs have had to look beyond the region for sources of early stage funding.

"A good portion of our money comes from out of town," says Carryer.

"There's no shortage of savvy people, great ideas, promising business opportunities," says Steven Chang, CEO of Immunetrics. "Still, access to capital certainly isn't as abundant as in Boston, New York City, San Diego or even Philadelphia."

The last three years have been tough when it comes to raising money because of the sagging financial markets, Capelli says, but his opinion is that the investment picture isn't all that different in Pittsburgh than it is anywhere else.

"It's tough everywhere," says Capelli.

Bootstrapping

While there may be a huge success in the offing, Vennare's not waiting to make the next big headline. Rather, he says, Immunosite is focusing on profitability and leaving its options open, to remain independent, become an acquisition target or launch an IPO.

Immunosite has an advantage over many start-ups, says Vennare, in that it is already generating revenue. It's looking at partnerships with research institutions, and licensing of technology it can development into new products, like biological tests and assays.

Biotech companies face enormous financial hurdles before they can succeed. Long development and testing cycles, approvals by the Food and Drug Administration or other government agencies and marketing expenses can burn through millions of dollars.

Despite the huge amounts of capital required by commercialize biotech companies, there's an appetite on the part of some venture investors to bankroll them. Precision Therapeutics, a company that provides cancer management services to physicians, landed $15 million in venture funding this year in a round led by Adams Capital and joined by Birchmere Ventures and Draper Triangle Ventures, all local venture funds, and three out-of-town VCs. Precision Therapeutics raised $17.5 million in an earlier round in 2001.

But for all of those who are bullish on biotech, others warn that it is folly to bet the house on a single branch of the technology tree.

Says Capelli: "Don‚t put it all on biotech."

And while the ingredients exist to build a successful biotech industry in the region, getting all the players to work together -- the university hierarchies, the technologists, business talent and the investment community -- is a complex and often daunting task.

Says Vennare: "All the components are here. Getting them to work together is a different matter."

How to reach: LaunchCyte, www.launchcyte.com; University of Pittsburgh, Office of Technology Management, tech-link.tt.pitt.edu; Fluorous Technologies, www.fluorous.com; Bonecraft Inc., www.Bonecraft.com; Immunetrics, www.immunetrics.com; Immunosite Inc., www.immunosite.com

Tuesday, 26 August 2003 11:03

A question of timing

I went on a casual shopping trip to a big discount store one recent weekday evening.

When it came time to check out, it was apparent to me that it would be a long wait before I was on my way. The couple in front of me had about $200 worth of groceries in their cart. Four customers stood ahead of them.

I looked at my watch a few minutes after getting in line. Five minutes to eight, I noted.

By the time I had paid my tab, it was 8:35. I'd spent more than forty minutes in line, and probably close to that strolling through the store.

I looked at the things I bought and tried to figure how much I had saved by buying at Mr. Discount rather than going somewhere else that might have been more expensive. I figured I might have saved $5. At that rate, my time waiting in line is worth about $7.50 an hour, what some fast food restaurants are paying these days.

On the other hand, if I change the oil in my car instead of going to one of those convenient oil change places, I pocket about $20 of value in exchange for less than an hour's work.

I got to thinking about the time/money relationship in our lives. Time is money, goes the old bromide, but do we really believe that? We expend a lot of effort and consideration when it comes to spending our money, but do we consider how important it is to spend our time wisely and productively?

I thought about the things I could do in 40 minutes. I can do a pretty thorough interview in that stretch of time or write a short article for Smart Business. I can walk a couple of miles and improve my cardiovascular function. In that case, I might extend my overall stay on the planet and, in effect, leverage some of my time to buy some more time.

A press release on my desk touts the wisdom of cutting costs rather than chasing after additional sales. Find $5,000 worth of savings in your company and you can save the effort it takes to land $50,000 in sales.

Maybe I'll stay home and change the oil instead of going shopping. And pay someone else to stand in line.

Tuesday, 26 August 2003 10:59

Wired for success

You might sum up Tom Toth's success in three words: luck, work and determination.

The founder and president of Cabco Inc., a 42-employee fabricator of custom and off-the-shelf cabling for industries that range from transportation to computers, says his 25-year-old company has been hit pretty hard by the slump in the telecommunications industry. Yet Toth is optimistic, because something always seems to come along to help the company bounce back.

And his track record indicates his instincts are right.

"We always seem to make up our losses with new customers," says Toth.

Toth says customers in the transportation, pharmaceutical and power control industries are buoying business in the wake of the telecom crash.

Cabco started out making off-the-shelf cables for computer interfaces and other electronic devices, sending them out at random to purchasing agents. Standard cables became a commodity as off-shore manufacturers began to produce them at lower cost, and Cabco graduated to fabricating customized cables for everything from experimental prototypes cooked up by university researchers to wiring harnesses for San Francisco's rapid transit system.

"If you sketch it out on a napkin, we can build it," says Toth.

Although the bread-and-butter of the business is customized components, Cabco has hundreds of standard items like cabling and connectors in its catalog. To strike the hottest markets, the company prospects businesses with the same SIC codes as other customers that are actively buying from Cabco.

Right after Toth started his company, selling cable items primarily to mining companies, coal miners went on a 26-week strike. So he mailed fliers to businesses and landed a sale with the predecessor of Black Box Corp.

On another occasion, a trade show organizer asked him to exhibit at its event at Greensburg just as he was tearing down at another in Monroeville. Toth balked, but decided to give it a try. At the show, a purchasing agent from Alcoa, a company he had been trying to break into for some time, stopped by Cabco's booth.

Toth told the buyer he had been trying to sell to Alcoa but hadn't had any luck.

"I'm the reason you haven't gotten in," the purchasing agent told Toth.

The buyer contacted Toth shortly afterward, and Alcoa became a customer.

"That table cost me $50," Toth says.

To emphasize that it takes more than luck to be successful, Toth says Cabco won't scrimp on materials or processes, even if the customer suggests it.

"We've had customers tell us, 'Just smash that connector on,'" says Toth. "That's not in our vocabulary." How to reach: Cabco Inc., www.cabco-usa.com

Monday, 28 July 2003 05:38

Hitting the endwall

Bruce Hartman's business is at the end of the pipeline.

Far from being at its terminus, however, HartmanEW Inc. is only getting started. Hartman says his product, a linear low-density polyethylene endwall -- the structure that lies at the end of drain pipes carrying storm water into streams and rivers and under and away from roads and highways -- is an improvement over existing technologies.

The product and his business plan this year won Hartman first place in the Enterprize business plan competition and landed him $37,000 in prize money.

Now, he's looking for $900,000 to develop additional molds, manufacture product and boost his marketing effort.

Hartman got the idea while working as a highway maintenance manager for PennDOT. The conventional solutions -- pre-cast concrete endwalls or concrete poured into wooden forms to create the endwalls -- seemed to Hartman outdated and overly expensive.

"I said, 'There has to be a better way of doing this,'" says Hartman.

He came up with the notion of building an endwall out of plastic, then filling it with sand or other ballast to hold it in place. He enlisted the Webb Law Firm to do a patent search. No product like the one Hartman was proposing turned up.

With the help of engineers at Bucknell University, Hartman developed prototypes of the endwalls, complete with a faux stone finish in three colors, and came up with a design that went into production in early 2001. He has been field-testing the endwalls with the help of several states' transportation departments in an effort to have the product approved for use in those states' construction and maintenance projects.

To date, Pennsylvania, New York and Maryland have approved the product for use in their state projects. The endwalls are sold in 14 states and Canada, and to date, about 600 have been sold.

Hartman says the plastic endwall can be installed in about a half hour, as opposed to pre-cast or poured versions which take a full workday. The plastic endwall costs $425 for the basic unit and can be placed in service in about 30 minutes, Hartman says, while a precast version costs about $600, plus labor costs.

The weight of concrete endwalls makes them more difficult to transport to the jobsite. They require heavy-lifting equipment to install and are more dangerous for workers to handle.

Overall, says Hartman, his system reduces costs by about 35 percent. And that could mean better cash flow for his fledgling company. How to reach: www.hartmanew.com

Monday, 30 June 2003 06:04

Kris Kirk

Kris Kirk has been working for nearly six years to sell technology training to teachers, and it looks like her persistence is about to pay off.

In 1997, Kirk, president of Mentors Consulting & Training, a firm that offers computer training to a wide range of professionals, including physicians, accountants and executives, saw a need for similar instruction for teachers.

Not simply training on how to use computers, Mentors' instruction is designed to show teachers how to use technology to enhance their students' learning.

Says Kirk: "It's having the light go on -- 'Oh, now I understand how I can use this for my social studies or my sciences' or whatever their specialty is."

Beginning in 2000, Mentors conducted a pilot program for teachers at a local school district. The pilot, concluded last year, trained about 400 educators.

This year, Mentors secured status from the state as a provider of training for teachers, who are required to accrue continuing professional education credits to retain their teaching certification. While its approach has been to sell training to school districts, Kirk has found that their tiny technology training budgets have made the effort difficult.

Mentors is now approaching teachers directly via e-mail marketing to take its courses as a way to fulfill their professional education obligation.

This month, Mentors will kick off training for teachers throughout the Pittsburgh region at computer facilities in four school districts.

For Kirk, the size of the market -- 130,000 teachers in Pennsylvania alone -- and a belief that she could overcome the barriers have been enough to keep the effort going.

Says Kirk: "If you have a gut feeling, especially if you look at the numbers and you realize that if you can hang in there and give it some of your time and try to make money in other places, it can work."

Kirk spoke with Smart Business about her company and her marketing strategy.

How is what you are offering teachers different from what's been available from Mentors Consulting and Training in the past?

Our program now is very much customized toward teachers. We had been training in schools since 1995, but it was not customized to teachers.

There were classes they could take, and often they would ask what the software was, what it did. They weren't familiar with it, so we had an inkling there was a large need there.

When we started looking at the market ... it's not one that we could ignore.

What are the challenges in selling to this market?

The fact that they simply do not spend money on it. The studies coming out now have confirmed that schools spend 3 or 4 percent on staff development in the area of technology, and businesses easily spend upwards of 15 percent. So, that's the biggest challenge, that they simply do not invest in their teachers for staff development; there's no money there.

But (there is) a challenge in business, too, to go into physician services, for example, to go and survey and figure out how doctors are using technology, how they want to use it, that's a similar challenge.

How do teachers respond to this approach to using technology?

We found most of the teachers were very excited, they were very appreciative of having a good, high quality program that we were able to bring to them at low cost because it was funded by the foundations. Once that light bulb goes on, they're very excited, they get encouraged to use it in the classroom.

I think it has a lot to do with how the kids react, too, to the use of technology in the classroom. A really good teacher -- and there are lots of them out there -- they'll do whatever it takes to get their (students) to learn; I've seen that over the last four years, and technology helps that.

When technology is used, there's higher attendance, there's more excitement, the learning's increased. Only recently are studies coming out and saying that, but teachers who start implementing it see it almost right away.

How have you altered your marketing approach?

In the past we've been trying to work with the administration of the schools, and we still do that, but this is offered directly to the teachers and marketed to them, and they can pay a low cost for it. I think we'll just increase our audience.

We work with the administrations and they disburse the information to the teachers about the program. Then we go directly to the teachers, and most of that is done online, so our cost isn't increasing.

One thing we've found that's been clear in our targeting of schools is that the teachers are our market, they are the ones that need the most help, and they are the ones that get most excited when they go through the program.

How do you reach your target audience?

We've generated e-mail lists, we have a very large database just from years of collecting the information. And then we've collected e-mail lists from different sources, intermediate units, and I've had a couple of people in-house go out looking for e-mail lists.

Pursuing this kind of market can often be difficult because of the bureaucracies and politics involved.

How did you sustain the effort over the long run?

I'm the extreme optimist, I guess, because there have been times when many people told me that I was crazy for staying with it because, you know, it won't go anywhere, you have government, you have unions, politics, you have bureaucracies.

Yes, we do have all of that. That's why we're taking several approaches to try and figure out the best way to get in and stay in. But it is extreme optimism. How to reach: Mentors Consulting & Training, www.mentors.com

Monday, 30 June 2003 06:01

Survival of the misfits

If you thought the Enron and WorldCom scandals were bad, hold on to your hat -- and maybe your wallet -- for the next round of corporate misdeeds.

The Sarbanes-Oxley Act will block the kinds of rascals who would prey on the unwitting institutional and small investor alike, right? I'm not so sure.

To illustrate my point, let's look at the war on drugs. If you assume that the illegal drug trade operates much like any other market, then you have to conclude that the most efficient providers are the ones who reap the biggest rewards.

When law enforcement puts the squeeze on the dealers and makes it harder for them to get drugs to the street, prices go up. When prices rise, the incentive to deliver the goods goes up as well, and the willingness to take higher risks to get the drugs to customers increases.

With more to gain, it's attractive to employ more sophisticated means to complete the distribution -- better planes and methods of concealment and fatter payoffs to crooked law enforcement officials. If you make it harder for the dealers to get the drugs to their markets, you push out the inefficient operators and reward the efficient ones.

If you accept the premise that the fastest, strongest and smartest business people survive and flourish, you have to assume that the fastest, strongest and smartest white-collar crooks will find a way to beat just about every regulation thrown up to thwart their evil ways.

None of this is to say that we're better off letting drugs come into the country unfettered or that we should allow business to go unregulated. It is to suggest, however, that it might be just as critical to pay attention to the demand side. In the case of drugs, that means figuring out how to take the profits out of the drug trade by means other than the counterproductive practice of interdiction.

In the legitimate business world, where the dishonest executive can wreak havoc on investors, shareholders need to demand answers when the company spouts public relations mumbo jumbo instead of straight explanations.

Sarbanes-Oxley has raised the bar for the crooks, and for those who have to watch them as well. Perhaps fewer corporate criminals will get through as a result, but the ones who do will be able to jump a lot higher.

Friday, 30 May 2003 06:59

Burton Patrick

For Burton Patrick, the most important thing in the pet supplies business isn't selling the most dog food.

"It's not about turns, it's about getting people to understand what they need and then selling the supplies that they need to do a good job," says Patrick, partner and COO of a group of six Pet Supplies Plus franchise stores.

The iconoclastic and outspoken Patrick will relegate a major brand to a secondary position in his stores in a blink if he finds a product he believes is better than a heavily marketed item. Still, he's is smart enough to realize that he has to sell merchandise to stay in business and thrive, so he's turning to what he perceives as the strengths of Pet Supplies Plus to carry the day: A level of service and expertise that big competitors like PetsMart and Petco can't match.

A substantial number of his approximately 100 employees have as many as 10 years with Patrick, a factor he says is a marked advantage in retailing, where turnover is typically high and experience levels are often low. To educate customers and showcase his expertise, he hosts a weekly radio program on which he doles out advice on pet care.

To leverage its strengths, Pet Supplies Plus will open a new store in Chartiers Township, slated for July, that will include considerable space and facilities to help pet owners learn about their animals and engage in do-it-yourself pet care. A groomer, for instance, will show owners how to wash and groom pets, and the store will offer seminars and training sessions on a variety of other care issues.

All of this is part of an overall strategy to build a relationship with customers that will keep them coming back.

Says Patrick: "I want them to think of us as their pet's friend."

What is your business philosophy?

I want people to enjoy their pets. And if they enjoy their pets, and people start getting more hands-on, I consider that important, especially for kids, to have adults lead the way into pet ownership and quit sitting in front of the TV all the time.

With animals, you have to have patience, work with them, understand them. It's not like turning on the Discovery Channel and turning it off when you don't feel like looking at it anymore.

Because pets are such a big part of people's lives, there ought to be someone out there to help them care for them better rather than sell them the new fad of the week, and that's what I think the radio show does.

In our case, I want to give people a balanced view of how to take care of their pets by having a place where people can come in and ask questions and get them answered. We don't want to sell something at the expense of an animal's well being.

We're in business and we need to pay our bills, and God knows that the business community doesn't appreciate anyone who doesn't pay their bills. We're also a firm believer in treating people fairly and helping them take care of their pets. You've got to impart something besides selling things to be part of a community.

How did the radio program come about?

A fellow came in from KDKA and asked me if I wanted to step in and do four slots that were open that month. I didn't know if this was something I wanted to do, I didn't know if I could carry the show.

I didn't know why anyone would want to listen to what I had to say for an hour. I mean, my managers had to (listen to me), but that's not the public. So I did it, and I was so amazed at the number of people who came in and said, 'Gee, what great information.'

So the following May, they had that space open again, so I said, OK, I'd take it. We did it for a year, and we got a lot of good feedback. By the end of the second year, it really began to mushroom.

Every store, every day, people were coming in saying, 'I heard Burton talking about this and it made so much sense. I want to do that, I want to try that.' People come in every day and talk about the radio show giving them things that seem so simple, but that they had never thought of them.

That's what I like about the radio show.

What's the purpose of the service center in your new store?

What this service center does is, for instance, let's say you own a ferret and you're going out of town on a two-week vacation. Currently, there's no almost no place to take that ferret to have it cared for.

We're going to have a place we're going to call the bed and breakfast, where people can drop off their pets, small animals, not dogs but birds, ferrets, gerbils, hamsters, and they're going to have quality care while their owners are away. Birds in particular are a problem because nobody wants to take care of them, so what do people do? Absolutely the worst thing; they leave the bird alone and have somebody come in once in a while to look in on it.

Parrots are very interactive, and all of a sudden you're gone for two weeks. The stress level of that is a lot higher than you would imagine.

Part of the service center will be a demonstration area. Small groups of kids can come in, there will be reference materials, we'll have videos there. We'll also have an updated library of pet care. Too often, people read one book and they'll get one viewpoint and that's all they want to believe.

I try to encourage people to listen to my view and tell them that they need to look at this book and that book and then to get involved with their pet's care.

After the first service center is off the ground, will you expand the concept into your other stores?

It's going to evolve -- there's going to be, how should I say -- tweaking. There's a training area, and we're going to do different types of training. We're going to do agility training, common obedience training.

My concept of puppy training is a little different than most, and I've got to test that out. I believe it's not the puppies that need trained, it's the humans.

It's kind of like everything else; once you make a change, you're going to have to find out how it's going to function, and I don't perceive every store having this. We're going to have to find people to fill the positions before we continue to expand.

Right now, we have all the people to do this store. Once we start expanding, then I've got to start doing a lot of training.

I look at that as being my job, creating enthusiasm for the subject matter and then training them after they've got the enthusiasm for it. How to reach: Pet Supplies Plus, (412) 369-7530 or www.petsuppliesplus.com

Thursday, 29 May 2003 20:00

After the gold rush

Chat with FreeMarkets Inc. founder and chairman Glen Meakem for a short while, and it grows apparent that he has a passion not only for business, but for politics and history as well.

He is every bit as animated and enthusiastic when he talks about geopolitics and world affairs as he is when he's telling the FreeMarkets story.

The windows of Meakem's office in FreeMarkets Center offer a striking vista of the Allegheny Valley. Given his perspective, the generous view of the landscape could be more than the usual corner office that so often comes as an executive perk.

One could argue that it stands as a metaphor for the way he views the world and his company's place in it.

"We don't have too many deals where there isn't an international component," says Meakem.

Which comes as no surprise, given that FreeMarkets' business is built around arranging reverse auctions online for its clients, often large international companies. In just eight years, FreeMarkets has gone from an idea to a public company that serves clients like Eaton Corp., Cooper Industries Inc. and Heinz Inc.

What might be surprising to some is that while lots of dot-com start-ups came, raised millions and flopped, FreeMarkets has survived. That survival, says Meakem, has come out of a culture that demands performance and a desire to create value for customers, not extravagant fortunes for its founders.

"People started businesses during the bubble not to serve customers but to try to cash out quickly and make billions on the stock market," Meakem says. "I've never heard of a successful company that was around one, two, three, four, five years later that was started on that basis."

FreeMarkets, a company that provides its customers with software, service and information to assist them with every phase of supply chain management, could have been just another dot-com fizzle. By contrast, FreeMarkets, founded in 1995, posted revenue of $170 million in 2002 and employs more than 1,000 people in 14 countries.

Business at the speed of light

Meakem, who earned an undergraduate degree at Harvard University and then went on to get his MBA there, got the entrepreneurial bug early. He started a lawn cutting business as a youngster, and later, a house painting company.

"I always wanted to start my own company," Meakem says. "I'd always seen myself as an entrepreneur. I'd always felt that the way to make a lot of money and have an impact on our society and the United States was to not just work for a corporation in the ranks somewhere but to actually start a company."

Meakem was looking for an idea for a business when the Internet was just beginning to show promise as a tool that would transform business. He spent time with the marketing arm at Kraft-General Foods Corp. and with consultant McKinsey & Co.

At General Electric Corp., he worked on a team that was looking at the concept of Internet auctions, then left in February 1995 to start FreeMarkets with partner Sam Kinney.

"Once I conceived of the idea that we could have people from businesses from all over the world bidding against each other in real time at the speed of light for business with other companies, I realized that the whole world was going to change," says Meakem.

FreeMarkets went about restructuring the procurement system, attempting to replace golf games, relationships and manual negotiations with an online marketplace that proposed to pit bidders against each other in real time online transactions conducted on the Internet. A company would put out for bid commodities or services, and a group of vendors, pre-screened by FreeMarkets, would vie for the contract.

The model proved successful, and FreeMarkets went public in 1999 in a highly anticipated IPO that found the stock at $370 a share at the end of the first day of trading and raised $200 million. The stock remained high for a time, but ultimately plummeted, dropping in value as the dot-com bubble burst.

Although its market capitalization is nowhere near the $8 billion it reached at one point, Meakem points out that creating a company that is valued in the hundreds of millions of dollars is no small feat. And, he adds, cashing out wasn't the object for him.

"I wasn't worried about getting rich fast," Meakem says. "I wanted to get rich in the long run. We designed it to go public, but I didn't know if that would take five years or 10 years, and it didn't matter to me."

While the dot-com gold rush helped FreeMarkets raise millions with its IPO, in other ways, it hurt the company. Competitors scooped up cheap venture money and burned it quickly. Many ultimately crashed, but they created competition in the marketplace nonetheless.

"It would have been a lot better for us if the bubble had never occurred," Meakem says. "Any crackpot person who put together 10 pages of PowerPoint could get $10 million in 1999. Most of the competitive entities along the way have failed, but a lot created a lot of noise for a long time."

The historical data tends to back up his assertion. According to research firm VentureOne, venture-backed IPOs in information technology numbered 175 in 1999. In 2001, that had dwindled to just nine.

By the second quarter of 2002, there were just three.

A culture of performance

If a dedication to providing value to the customer is the first objective at FreeMarkets, then the way to deliver it springs out of a culture based on individual performance.

"When I started FreeMarkets, I was 31 years old," Meakem says. "I believed that I had a unique capability to hire great people."

Now, he says, he's learned that hiring the right people isn't as easy as he once thought.

Holding onto those high performers is accomplished through getting people into the right roles, frequent evaluation of performance and a combination of financial incentives, professional opportunities, job satisfaction -- and a willingness to cut loose those who, for whatever reason, aren't cutting it.

"We evaluate performance every six months, everybody," Meaken says. "As people get feedback and they get career direction, we get a feeling for how strong or weak we are in different parts of the company."

At 39, it would seem that Meakem has opportunities at least as wide as the global market where FreeMarkets does business. He says his top priority is raising his five children and not allowing them to become "a bunch of lazy rich kids."

As for FreeMarkets, "I intend to be at FreeMarkets for years to come. There's a lot of work left to do here."

Clearly, the downside of the tech bubble hasn't blunted Meakem's enthusiasm for technology-based businesses and their potential to earn fortunes for their founders and investors. He's launched a venture capital fund, Chamberlain Investments, which led a $2.25 million investment last fall in Akustica Inc., a South Side-based provider of advanced-design speakers and microphones for wireless communications and consumer electronics.

Says Meakem, "I've got a lot more money to make." How to reach: FreeMarkets Inc., www.freemarkets.com