A little more than a year ago, West Penn Airport was a tiny, obscure, public-use airstrip known only to a close-knit group of flying enthusiasts.
Then, one day, everything changed. Suddenly, that little airstrip and the property surrounding it were propelled into massive economic development that made even the governor's office sit up and take notice.
That was the day Rock Ferrone flew over it.
Ferrone, president and owner of printing industry equipment manufacturer Rock-Built, simply wanted a place to land and keep his four-seater Cessna. So when he found out the airport's owner wanted to sell, he couldn't resist. He also couldn't sit still.
Ferrone didn't see just a tiny airstrip. He envisioned an entire business community built around a slick, new airstrip, with business owners flying in and out all day long. And he saw himself leading the way.
If skeptics existed back then, when he started articulating his high-flying ideas to anyone who would listen, they're gone now, thanks in large part to the giant earth movers, bulldozers and dump trucks that have begun to reshape the land around the airstrip. The earth-moving equipment is preparing the land for a 270-acre office park, which he has named Rockpointe Business Airpark.
Ferrone, with help from Pennsylvania Lieutenant Gov. Mark Schweiker and a host of other local dignitaries, recently kicked off the development with a ground-breaking ceremony. However, Ferrone himself has been breaking new ground, figuratively, for the past year as he works every state and federal government angle in his efforts to talk up the project. He was also trying to line up early funding for a project which he predicts will cost about $30 million before it's all finished.
His efforts have landed him as a poster boy of sorts for general aviation-driven economic development in the state as he cuts through bureaucracy with speed and a welcomed sense of wide-eyed naivete. In fact, he managed to convince not only state officials but township and school district officials as well that his development project was worth getting behind.
As a result, the combined taxing bodies have designated Ferrone's site as a Keystone Opportunity Zone, a program launched last year which allows businesses to locate to the site free of local, school and state taxes for 12 years. Ten-and-a-half years remain on that program, compelling Ferrone to forge ahead even more aggressively than before.
Said Schweiker at the event: "Suddenly we stand here looking at the soon-to-be-developed 300-acre airport industrial park. Together, there's no stopping Allegheny County. There's no stopping Pennsylvania."
Rita Pollock, executive director of the economic development and planning agency SPC, sums up Ferrone's efforts simply.
"He's an absolute dynamo," she says of Ferrone. "You don't see people like Rock Ferrone who are so driven and so active. There's something about him. He's such a good guy. And this project is outstanding, because it combines general aviation and industrial sites. It's so clearly a winning opportunity."
Mulugetta Birru, county development director for Allegheny County at the time of the ground-breaking, adds: "He has the energy to move a mountain."
In a very real sense, that's just what Ferrone and the earth-moving crew are doing. They are preparing the land for a new airstrip that will extend 5,000 feet --almost double the size of the existing strip -- and be 100 feet in width. Plans also call for a new terminal building, which will house a restaurant and fuel service company for aircraft, as well as facilities for the two flying clubs that use the airport.
The airstrip and terminal ultimately will be turned over to a public authority as a requirement of receiving state and federal grants that are available to improve public-use airports.
But the biggest part of the development is the rest of the land surrounding the airport, which Ferrone hopes to turn into a parklike office complex housing 30 to 40 businesses and providing amenities such as a walking trail, a golf course and even racquetball, to name a few.
"I want it to be a country club environment," Ferrone says.
Ferrone has secured a significant development commitment from Zambrano Corp., which has known the Ferrone family for years, according to Eugene Zambrano III, vice president of Zambrano Corp. and a general partner in the firm's commercial real estate holdings. Zambrano, which provides commercial construction services, owns 16 commercial and residential buildings throughout the Pittsburgh area, including a 70-unit high-rise in Leetsdale, a 10-story, 100,000-square-foot building in Monroeville and a 50,000-square-foot commercial/industrial building in the RIDC Park in O'Hara Township.
"What we bring to the deal is 40-plus years and tons of real estate development credibility," Zambrano says.
For starters, Zambrano plans to build a 25,000-square-foot headquarters building for its own company, which currently is located in Sharpsburg. The firm is doing so on a five-acre parcel it purchased from Ferrone. Zambrano says the company will use three of the acres for its headquarters and the other two for other "real estate investment."
Zambrano says he reacquainted himself with Ferrone last year after seeing a cover story about him in the November issue of SBN. From that point, Ferrone took him for a ride to the airport for an early look.
"As soon as we drove up there last November, it's like I got it -- I understood," Zambrano says of Ferrone's vision for the property. "He's a fireball and a great entrepreneur."
Zambrano and Ferrone also have entered into an agreement to jointly develop a 52,000-square-foot flex-space office building on speculation and are in discussions for others.
Moreover, Zambrano Corp. is in line to provide construction services for any third-party developers who plan to purchase land in the air park for office buildings. Zambrano won't disclose specifics, but he says he's in discussions with at least seven people who have expressed an interest in building.
Says Zambrano: "Right now the action is fast and furious." Ferrone, himself, plans to build a new headquarters and manufacturing facility there for Rock-Built sometime "in the middle of next year." He also has plans to build a new home on the property which would allow him to taxi from the runway right to his home. Daniel Bates (firstname.lastname@example.org) is editor of SBN.
It's amazing what $50 million, the removal of 25,000 tons of debris and a little attention to historic detail can do for an old department store building in the heart of downtown Pittsburgh.
That's what it's taking to transform an 86-year-old building, which has far outlived its original intent as a sprawling, 14-floor urban shopping experience, into one of the region's most colorful -- and state-of-the-art -- Class-A office buildings. It's a model of what can be done downtown to bring old, architecturally significant buildings into the 21st century.
The Gimbels building, designed by architectural firm Starrett and Van Vleck of New York City (the same firm that designed Lord & Taylor at about the same time), was built at the corner of Sixth Avenue and Smithfield Street in 1914. The building was constructed with structural steel covered with hard-baked clay tile, with a façade of brick and custom-made terra cotta tile moldings and other details.
A building in decline
For years, Gimbels served the region as a major department store, along with Joseph Hornes Co. and Kaufmann's, before succumbing to economic times that were driven largely by suburban shopping malls. Gimbels closed in 1986 and remained vacant until 1992, when a New York-based real estate investor named Richard Penzer bought it and slowly began a transformation.
His efforts brought in anchor retailers Burlington Coat Factory and, later, Barnes and Noble Bookstores, along with a few others on the building's lower floors, bringing it up to roughly 30 percent occupancy.
But it wasn't until members of the Rudolph family, which used to own the Wendy's restaurant franchise in Pittsburgh, and members of the Perlow family (the late Ed Perlow helped start Interstate Hotels), created a partnership to purchase the building last year that its future began to take shape. The partnership bought the building for a reported $15.5 million.
Then, with help from tax increment financing approved by Allegheny County, the City of Pittsburgh and the Pittsburgh School District, the owners embarked on what ultimately would become a $50 million transformation process.
No ordinary renovation
It wasn't just your typical old-building conversion into trendy, if not quaint, new office space. The owners envisioned a Class-A office building which, while showcasing the historic façade, would offer state-of-the-art accommodations for 21st century businesses. Such state-of-the-art amenities would begin with a hard-to-find floor plate of 45,000 square feet per floor -- more than an acre of space on each floor.
"Tenants around the country are looking for large, efficient floor plates," says Jeremy Kronman, a real estate consultant and leasing agent for Oxford Realty Services, which manages the building and its leasing efforts. "But to get a location in the city, you need to go to either an old building, such as a department store or warehouse, or build a new one. Here, we have the best of both worlds, with the combination of an historic outside and a high-tech inside -- and right in the heart of downtown.
"That's what makes this project so exciting."
The owners launched their transformation effort by renaming the building Gimbels Landmark. Then they enlisted the services of Pittsburgh-based architectural firm Burt Hill Kosar & Rittelmann, Architects, which set out to design a floor plan that would meet Class-A standards while also adhering to strict building and renovation standards set by the Pennsylvania Historical Commission and the U.S. National Park Service. Those agencies are involved because of special financing incentives which are tied to historic preservation of the building's façade.
That posed a number of challenges, according to Gary MacDowell, an executive from John Deklewa & Sons, Contractor, who served as construction manager for the project. For instance, the building's windows, made by Traco, could be made of aluminum, but they had to be designed to replicate the style of the original windows.
But when they were installed, a Park Service inspector decided the aluminum was too noticeable on the lower levels. So the owners had to resort to new windows made of wood for those floors.
Moreover, more than 500 pieces of glazed terra cotta tile representing 12 designs had to be matched and replaced. Even the type of solution used to clean the building was determined by the Park Service (Ivory dishwashing detergent), along with the level of water pressure in the pressure washers.
But, as MacDowell says, "In general, everybody has to realize that the Gimbels building will be the nicest office building in town. It's a rock-solid building that offers the best of both worlds."
Inside, contractors have rebuilt the elevators, installing Otis Elevonics control equipment, which not only makes them faster but, as MacDowell says, automatically measures usage patterns and programs their positions throughout the day. Contractors also are installing a 12,000-volt electrical system that offers what MacDowell describes as triple redundancy aimed at protecting computers and other related equipment that prove sensitive to power surges and outages.
If one line shuts off, the additional lines will switch on in an instant, he says. Reaction time in switching lines on the current system is about an hour or so. Duquesne Light Co. is providing the fail-safe electrical system.
Then there's the heating and cooling system. MacDowell says it's the most flexible available, using an open-loop, closed-loop system that exchanges water that comes from cooling towers on the building's roof. The system will automatically adjust the temperature in any given area of the building, depending on worker preferences as well as variables such as where the sun is shining throughout the day.
The crowning feature
The signature feature in the building, though, is the seven-story atrium punched out of the center of the building and capped by a fancy glass-paneled dome That posed the most significant challenge of the project, since the building was already accommodating a few tenants on the bottom three floors.
All told, workers and bulldozers gathered up about 25,000 tons of concrete, brick, reinforcement rods and other debris, mostly after working hours, and funnel it all down a small chute on Strawberry Way, where tandem dump trucks lined up night after night.
"They hauled away thousands of truckloads," MacDowell says. "But the most difficult aspect was making sure there was safe construction."
In addition, the building features a top-floor outdoor garden courtyard, although MacDowell says it's not clear yet whether that courtyard will become a common for all tenants or accessible only to a tenant that occupies the top floor.
MacDowell expects the construction to be completed by the end of September. Meanwhile, Oxford Realty Services has been hard at work lining up tenants.
Kronman says the asking price is "in excess of $20" a square foot, which, he adds, is still about 10 percent lower in price than other Class-A offices in downtown Pittsburgh.
At the moment, United Healthcare occupies more than 60,000 square feet and the Port Authority of Allegheny County is moving its executive and other offices into more than 70,000 square feet. The Duquesne Club, which occupies an adjacent building on Sixth Avenue, has expanded its health club and other facilities into a larger space in the Gimbels building.
Kronman expects it to be at more than 65 percent occupancy when it is completed, with most tenants taking advantage of the large floor plate. However, the owners expect to offer smaller spaces as well -- as little as 2,000 square feet -- on some floors.
To market the building, Kronman says the owners and building managers have stuck with the 21st century theme, providing an extensive Web site (www.gimbelslandmark.com) instead of a hard-copy brochure. The site comes complete with artists' renderings, photos, news and information -- and an award-winning virtual tour of the building designed to collect information about the person doing the virtual walk-through.
"It's fun marketing a truly 21st century building, which this has become," Kronman says. "It's an exciting project. It's a world-class renovation, and there's nothing like this in Pittsburgh." How to reach: Oxford Realty Services, (412) 261-0200
Daniel Bates (email@example.com) is the editor of SBN magazine.
If you want to start a company that will attract venture capital funding, make it a dot-com.
Sage advice if you found yourself in 1999 carrying the proverbial pick and shovel into the whirlwind gold rush that was the Internet. But that was then.
At the time, you could dazzle the world with little more than unabashed gumption and a great idea to sell books or vitamins or health advice or even virtual women's communities to the world while almost thumbing your nose at conventional business.
But they seemed to forget a seemingly minor detail called revenue. And profitability.
Wall Street didn't, though, and many of those high-flying companies, whose valuations once transcended reason, have been taking it on the chin ever since. The whole Internet space, as the techies call it, has ventured at least part way back to Earth.
Now, an e-future seems to be emerging that is built not on New Economy vs. Old Economy, but rather on a reasonable partnership between the two that embraces new business paradigms while acknowledging the strength of good, old-fashioned relationships and other traditional business fundamentals. The driver behind much of this New Reality? The venture capital community itself.
"There's no use trying to be the 23rd pet food site," says David Whitmore, managing partner of Highgate Ventures (formerly i-Gate Ventures), a venture capital fund that spun out of i-Gate Capital (formerly Mastech). "The business-to-consumer market is not the place to be."
Gold rush temptations
Whitmore, who runs the $75 million venture fund from Westport, Conn., admits he was tempted -- if ever so briefly -- by the mad gold rush last year as he watched company valuations temporarily skyrocket.
"I was very envious," he says, laughing only because he didn't yield to such temptation. "It seemed that, with the right management team and story, you could go public and make a lot of money on paper."
The key phrase, of course is "on paper," because many of those high-net-worth entrepreneurs eventually watched as stock prices -- and their net worth -- dropped from, say, $40 a share to little more than $1, in some cases, virtually overnight.
Sean Sabastian, managing principal of Birchmere Investments and general partner of its Birchmere Ventures II venture capital fund, puts the valuation adjustment into perspective: "Until they're at break-even, they're not really a company. They're just spending other people's money."
Thanks, but no ...
That hasn't stopped start-ups from trying to raise huge amounts of capital, however. But when they approach Sabastian, he has a thing or two to say.
"Thanks, but no thanks," he says. "We've walked away from more opportunities on valuation. We try to maintain a rationality, and we try to stay away from the froth."
His advice to such firms in this New Reality environment: "Get real, pretty bluntly."
Sabastian is in a pretty good position to say that. His firm's first venture fund, funded by steel company magnate Richard Simmons, chose an early winner in FreeMarkets Inc., even with the company's dramatic drop in stock price after losing General Motors as a customer.
Recently, Birchmere teamed up with the principals of local venture capital veteran CEO Venture Fund to create the Birchmere Ventures II, a $75 million fund that plans to invest upwards of $5 million per investment -- and not all in Internet companies.
A marketing investment?
At the recently established Pittsburgh operation of Silicon Valley-based Redleaf Group, Doug Goodall, senior director of the Pittsburgh investment team, offers a similar observation, particularly when it comes to the business-to-consumer market.
"What we discovered was that, from a technological innovation standpoint, not much was going on" in many of last year's much-hyped B-to-C market, says Goodall, who recently joined Redleaf after spending the previous 18 months overseeing the establishment of the state-funded InnovationWorks, which funds high-tech start-ups. "It had to do with the percentage of dollars needed to invest in technology vs. TV ads and marketing.
"We started seeing companies spend 10 cents of every dollar on technology and 90 cents of every dollar on marketing. It was a pure marketing play."
Goodall adds that many of the start-ups played a rather dangerous game of "trying to steal consumers from one channel to another." But, he stresses, "the next thing they needed to do was keep them.
"We call it the 'dot-wall' category because these were the technologists who ignored business fundamentals," Goodall says. "If there's a digital highway, there's also digital roadkill."
So what do these Internet-oriented venture capitalists really want as the New Economy high-tech market goes back to bring the Old Economy into this hybrid New Reality?
"Core technologies," Goodall explains.
While there's no denying that Redleaf targets Internet-oriented companies, it's looking for early-stage technology applications in the business-to-business space that provide infrastructure support to a business -- support that doesn't necessarily discard traditional business practices but which enhance them or make them more efficient.
For example, Goodall says, Redleaf is interested in Auction engines targeting specific industries which enhance current supply-chain channels rather than replace them. Case in point is one of its recent investments, a company called FurndX in North Carolina.
It's a commerce exchange for the furniture industry that matches the supply side of the business to the raw component side, "making the existing channel more efficient. It's the second generation of e-commerce. It has to blend new technologies with other parts of the team, and it can't be that disruptive" to business relationships and other traditional fundamentals, Goodall says. "We like it the old-fashioned way."
In other words, "Our goal is speed to revenue, with profitability right behind. It used to be just speed to market."
Redleaf, which seems to approach the investment game differently than most venture firms, is seeking some of that infrastructure technology at the earliest of embryonic stages in some cases. In fact, Redleaf has just struck a partnership with the University of Pennsylvania's Wharton School of Business to serve almost as a technology transfer center whose aim is to quickly commercialize the most promising of technologies coming out of academia.
Asked about rumors that Redleaf may be working on a similar arrangement with Carnegie Mellon University, Goodall declines to comment.
So far, Goodall says, Redleaf has available an estimated $203 million for investment globally, although the firm plans to raise another $400 million in a second round in the near future. It typically will invest between $3 million and $5 million in start-up ventures.
And by the end of the year, the firm hopes to aggressively search for attractive deals via as many as 12 offices globally. It currently has nine offices from coast to coast.
Birchmere Ventures likewise is aiming its financial muscle at B-to-B technologies which are "highly differentiated" in their respective industries, Birchmere's Sabastian says.
"We want companies where the managers exhibit deep domain knowledge."
The firm also is looking for earlier stage companies with the potential to return at least 10 times the value of its initial investment. However, depending on the situation and risk factors, Sabastian says, Birchmere will consider those with the potential to earn the firm as little as two times to as much as 20 times its initial investment.
At Highgate Ventures, David Whitmore says the venture fund has always focused on Internet infrastructure development companies and services. He is most interested in start-ups "where the Internet is viewed as another channel, another business strategy."
He mentions wireless/mobile telecommunication investments, as well as companies developing Web-driven voice recognition systems in terms of infrastructure "plays," as he calls them. Whitmore is also interested in application service providers (ASPs) that develop open-source software platforms that allow businesses to use the Internet as simply another tool to do business more efficiently both internally and externally.
Quick to cash-flow positive
Whitmore expects his investments to break even on a cash flow basis within roughly 18 months of the investment.
"They need to become cash-flow positive relatively quickly," he says.
Since March of this year, the fund has invested roughly $14 million in six start-ups, with another 18 opportunities in the pipeline for capital. Meanwhile, Whitmore and his partners in Pittsburgh, San Francisco and Portland, Ore., have reviewed at least 500 plans. The firm is moving forward with plans to raise $150 million for yet another venture fund to tap into the opportunities available.
Says Whitmore, "We really have a lot of opportunities." How to reach: Birchmere Ventures, (412) 803-8000; Redleaf Group, (412) 201-5600; Highgate Ventures, (203) 221-7747
Daniel Bates (firstname.lastname@example.org) is editor of SBN.
Carving out a niche in your business is a good way to make it stand out from the crowd.Daniel Lawson, an attorney with Meyer Darragh Buckler Bebenek & Eck, seems to have cut to the heart of that principle. He chairs the outdoors pursuits practice group at the firm and has authored a brochure on laws regarding knives for the American Knife & Tool Institute, a national nonprofit organization representing citizens, artisans, distributors and manufacturers of knives.
The brochure, "A Guide to Understanding the Laws of America Regarding Knives," is available on the Internet at www.akti.org/guide.html. According to Meyer Darragh, the brochure helps readers sort through the increasingly complex legal implications of owning and using knives.
"Take a folded pocketknife in your handbag or pocket to a PTA meeting at a local school, and you many find yourself in violation of some well-meaning or badly written law aimed at high school thugs with ice picks," says Lawson. How to reach: Meyer Darragh, (412) 261-6600
If you live in one of seven communities in Allegheny County and operate a business or would like to, you might qualify for a $10,000 loan to boost your entrepreneurial aspirations.
Individuals who live in Braddock, Clairton, Duquesne, Homestead, McKees Rocks, Rankin or Wilkinsburg meet the first requirement for a loan through the Sanders Microenterprise Development Initiative, a division of the Minority Enterprise Corp. of Southwestern Pennsylvania. The loans may be used to acquire, expand or start a business. Applicants must also receive technical assistance through the program.
The Sanders initiative also offers free entrepreneurial and life skills training in Wilkinsburg, Duquesne and McKees Rocks, and applications are being accepted for those sessions.
The Minority Enterprise Corp. is developing business resource centers in community libraries in the seven communities, offering research materials and demographic information. The MEC plans to offer Internet access as well.
Entrepreneurs interested in applying can visit the loan assistance office at 1601 Penn Ave. in Wilkinsburg. How to reach: MEC, www.minorityenterprise.com or (412) 434-5881
John Rodella remembers vividly the day his father took him and his sister to an office products show at the former Civic Arena.
He was five then, and rather impressionable. He remembers what he describes as two giant televisions with small screens across the room from one another. On top of each stood a large commercial television camera that was wired to the opposite TV. In front were "big, black radial-dial" telephones.
He stood in front of one camera while his sister stood in front of the other. When they dialed each other on the phones, they could see each other on the TV screens as they talked. And laughed.
"And there was a sign that said these were going to be in every home in 10 years," Rodella says. "I thought it was really very cool."
That was in 1962. Nearly 40 years later, that lofty prognostication still hasn't transpired. But that hasn't stopped Rodella, with help from his brother, Joe, and another partner, from making it his crusading mission.
It's a mission which he says will finally position his company to capitalize on its years of effort as videoconferencing enters the Internet age.
From that moment at the Civic Arena, videoconferencing remained little more than a dream, encumbered by technological shortcomings.
"What happened at that point was that there wasn't enough technology in the telephone lines to bring video over the telephone," says Rodella, a 40-something successful entrepreneur with a youthful enthusiasm and a small ponytail to solidify that image.
When the technology finally arrived for the masses around 1980, the earliest versions of videoconferencing equipment were, as Rodella suggests, "Max Headroomish," with delayed, strobe-like movements transmitted on the screen. Still, he followed the technology with a distant fascination -- even after he and three partners started a company that provided cost-recovery software systems for law firms and other professional services firms.
In 1992, Rodella wrote white papers that examined the progress of videoconferencing, and he was hooked. Shortly thereafter, his company, RoData Inc., became an early distributor of videoconferencing equipment from PictureTel.
"I liked it," he says. "I thought it was cool. I felt it was within the way RoData selected products to sell."
So he spent $87,000 on a complete demonstration package, and within a day, a company called to rent it. RoData reportedly generated $508,000 in revenue that year.
Reluctantly long term
Little did Rodella know, however, that he would have to adopt a long-term, missionary mentality approach to his new venture.
"It was just hard to sell the stuff," he admits. "It was expensive. A room could cost $100,000, and yet the quality was poor. The network was so darned expensive. So in 1992, I became the Johnny Appleseed of videoconferencing."
Unwavering ambition aside, Rodella admits he miscalculated the fortune he expected to earn in short order by selling lots of equipment. His flaw: "I thought people would buy two the first year, and then sales would explode after that. But that didn't happen."
As a result of the miscalculation, he had hired extra people to handle all of those sales.
"We stepped on our tails and overbuilt because we thought the industry was moving ahead," Rodella says. "But the industry didn't live up to what it was supposed to do, and it damned near killed us.
Higher speed, lower cost
Fortunately for Rodella, the technology went the way of most in this age, continuing to improve and drop in price. At the same time, telephone lines were becoming more advanced, allowing for faster and cheaper transmission of voice, video and data. That led to major price reductions in the equipment.
"People are paying $5,000 today and getting quality that they once paid $100,000 for," he says.
In 1997, when Rodella came to the conclusion that PictureTel hadn't been improving its technology fast enough, he forced the issue by adding other videoconferencing brands, including Polycom and Vtel, to his stable of products -- to the serious dismay of PictureTel. But he quickly eased concerns because, with the ability to virtually corner the market in videoconferencing equipment, RoData doubled the sales of its PictureTel equipment.
In 1999, RoData generated $7.5 million in revenue on the equipment. But the real growth, Rodella expects, will come soon as higher-quality videoconferencing equipment finally converges with high enough quality Internet signal transmission that will allow for professional-looking meetings in real time over the Internet.
As the Internet-driven market expands, Rodella says he expects to hit $10 million in sales this year, with the greatest reward coming in five years. That's when he expects the company to grow to $50 million in annual sales.
"As of April, we are the largest videoconferencing dealer in the domestic United States," Rodella claims.
And the Internet can only make that better, he believes.
"The videoconferencing industry will enjoy a heyday like never before." How to reach: RoData, (412) 316-8888, www.RoData.com
Daniel Bates (email@example.com) is editor of SBN.
You have a large company with a commensurately large and complex problem to solve. It's obvious that technology is the solution, right?
Well, sure it is. But identifying just the right technology, how to acquire it and the best way to do it is the real trick to pulling it off.
Fisher Scientific has tackled such a problem with EinsteinsGarage, an online auction site that went live earlier this year with 12,000 items and $8 million in starting inventory. The solution seems simple enough, but the company's experience demonstrates that simple doesn't necessarily translate into easy.
Fisher Scientific, a $2.5 billion manufacturer and distributor of scientific instruments, equipment and related products to labs, schools and universities, was experiencing growing difficulty in dealing with the large quantities of surplus, returned and damaged products it had to liquidate.
Here's a glimpse at the scope of the problem: Fisher Scientific handles products manufactured in its own facilities as well as 3,200 independent suppliers and thousands of other producers. With warehouses spread out geographically, 260,000 products and a quarter of a million customers, the company had a logistical albatross on its hands.
Excess inventory, after all, ties up space, capital and human resources to hold, handle and liquidate it. In short, it's a pain and it can be expensive.
That problem became acutely apparent a few years ago when Fisher Scientific streamlined its distribution system and cut its warehousing facilities by a third, down to 20. It then squeezed its surplus inventory into fewer buildings, making the problem even more glaring.
Enter Rob Carskadden, now 33, and EinsteinsGarage's general manager. Carskadden had a penchant for being assigned to solve quirky and troublesome problems since joining the company in 1996. He had been looking at the issue of duplication throughout the company's operations, and was eventually handed the challenge of solving the surplus inventory problem.
Fisher Scientific had, in the past, tried to deal with the problem in the traditional way, with on-premises auctions at the warehouses. But the auctioneers knew little about the products, the company didn't get the attendance it had hoped and Fisher Scientific still had to handle fulfillment.
"It was an utter failure," says Carskadden.
Doing it in house
Carskadden concluded that no one knew Fisher Scientific's business better than the company itself, so why not handle it on its own? Most of the rest of the pieces were in place -- employees had the product knowledge and they knew how to purchase, market and distribute. Creating a marketplace for the products, it seemed, was the obvious choice.
Carskadden began by consolidating the surplus into a single location, the company's Raleigh, N.C., facility. Then he came up with a business plan for an e-commerce site, put on a 20-minute PowerPoint presentation to the company's top brass and got the OK to implement the concept.
"They said, 'Hey, run with it,'" Carskadden recalls.
He stumbled at first, however. Carskadden tried to use off-the-shelf auction software provided by a vendor, but found that he had to go to the added expense of paying software integrators to link it with Fisher Scientific's existing information technology. That led to the decision to use an applications service provider, or ASP, to set up, maintain and host the site.
Why an ASP?
As EinsteinsGarage discovered, using an ASP may be the wise route for any company considering an e-commerce solution, says Michelangelo Celli, director of marketing for CommerBuilder Inc., a Pittsburgh-based ASP.
While large companies may have the internal information technology resources to do the job in house, many, nonetheless, are choosing to use an ASP because of the shortage of information technology talent and the technological barriers. Mid-sized and small companies, says Celli, simply can't do it themselves.
But simply choosing an ASP is no guarantee of success, Celli warns. Unlike selecting an Internet service provider, the decision to use a particular ASP is not easily or inexpensively undone.
"When you choose an ASP, you need to understand that you're making a long-term investment," says Celli. "You're picking a partner. It's expensive to move after you've set up your business on their applications."
The EinsteinsGarage site is up and running, and while it did a modest $120,000 in sales in its first few weeks of operation, Carskadden has good reason to believe that revenue will grow substantially. The Winterberry Group, a market researcher that focuses on e-commerce, forecasts that the so-called "e-surplus" market will grow from $7.8 billion in 1999 to $93.3 billion in 2002.
Fisher Scientific has on its e-commerce site 90,000 registered users, a group that EinsteinsGarage plans to contact by permission-based e-mail. Additionally, Fisher Scientific in June acquired PSS World Medical, Inc., a leading specialty marketer and distributor of medical products and a potential source of additional surplus products.
The scope of EinsteinsGarage has expanded considerably since it was conceived. Other companies can put their own online sites within EinsteinsGarage and it has added calibration and repair services to its offerings, as well as product locating capabilities. It can help purchasers identify the best way to transport a purchase, and, in some instances, arrange to have some kinds of equipment donated to charity.
In the end, Fisher Scientific's executives asked themselves what they did well and what they wanted to accomplish, then identified someone to help them achieve their goal.
"No one knows our products and services better than we do," Carskadden says. "But I didn't want to have to manage the technology." How to reach: EinsteinsGarage, www.einsteinsgarage.com; Fisher Scientific, www.fishersci.com; CommerBuilder, www.commerbuilder.com; The Winterberry Group, www.winterberrygroup.com
Ray Marano (firstname.lastname@example.org) is associate editor of SBN magazine.
This month, I'm focusing on the nuts and bolts of Web design -- at least the graphic design portion.
Here's my Top 10 list of suggestions to make your Web site more attractive, more likely to achieve your objectives and easier to navigate and download.
1. Minimize graphics. Download speeds are crucial -- design for the least-common denominator for data transmission. typically, a 28.8 mb modem. That way, you assure that all users can load your site quickly. This is critical until the broad bandwidth infrastructure is in place for the Web and all users. All sites are quick and great-looking on a 21-inch monitor and DSL-line connection, but design for everyone who may visit your site.
2. Minimize clutter. Incorporate lots of graphic interfaces to help aid navigation. Simplify content by better organizing information into usable chunks. Take a "less is more" approach. Ask if the graphics add or distract from the overall usability of your site.
3. Avoid scrolling. The average user will scroll 2.5 times before losing track or tiring of the information. Streamline content to minimize the need for scrolling.
4. Avoid overusing bells and whistles. Don't be tempted to use all the latest technology if it serves no purpose. Ask whether it adds value to your site. And remember that users who have to go to another site to download a plug-in usually will not come back.
5. Write in inverted pyramid style. The Web is not the same medium as print. Studies show that readers on the Web scan text, much like newsprint. By writing in the inverted pyramid style, you give readers the most useful information up front, and they can find additional information through further reading if they choose to do so.
6. Ensure high visibility of your corporate identity. Your logo should be visible on every screen, ensuring that users who bookmark any page will easily see whose site they are viewing. The brand stays intact.
7. Don't use frames. Frames, though very useful for some design applications, sometimes will not print and are difficult to bookmark.
8. Keep content fresh. Instead of constantly changing the layout or navigation of a site, simply change the information to attract new users. Web surfers can be annoyed when they become comfortable with the navigation of a site, only to see it overhauled and changed.
9. Allow for useful feedback within your site. Provide users an incentive for completing a simple survey of five to 10 quick questions. If something on your site doesn't work, fix it -- but only after you have received a clear indication of a problem from end-users. Your site should offer users an experience -- a pleasant experience. Why do so many people return to Disneyland? The experience warrants a return trip. We live in an experience-driven economy.
10. Test. Evaluate. Test again. Before you officially open the site for public viewing, make sure you test and work out all the bugs.
Jeff Krakoff is president of Krakoff Communications Inc., a Pittsburgh-based marketing communications and public relations agency. Reach him at (412) 434-7718 or e-mail him at email@example.com.
Successful businesses examine possibilities, gather information, then make decisions, except, that is, when they become the plaintiffs or defendants in lawsuits. Then, it seems, everyday business acumen is lost in a maze of complaints, answers and cross-claims.
After businesses file legal pleadings, they typically seek the facts which are needed to determine a proper business strategy in a discovery process. But discovery is a misnomer if ever there was one.
There is an alternative to time-consuming and ineffective depositions, interrogatories and other often-unsuccessful methods of discovery: Conduct an independent investigation -- like federal prosecutors do -- before suits are filed, before answers are completed and while the lawsuit is pending. When deciding when to sue, when to settle and when to charge ahead, approach with good information.
Why did my colleagues in the Justice Department win nearly every case they tried? In fact, recent statistics show that assistant U.S. attorneys win almost 95 percent of their cases.
Many would argue it's because they have so many resources: subpoenas, grand juries, search warrants and hundreds of federal agents doing their bidding. Others say it's because the feds get to pick and choose what cases they bring. All are correct to an extent.
But the main reason is that many lawyers in the Justice Department seek the facts before making critical decisions. They conduct surveillance, review records and interview dozens of knowledgeable people before making decisions.
Business owners don't have a dozen FBI agents on the payroll, but they do have other investigative resources. Consider the following:
- Database firms sell valuable information about ownership of assets of potential defendants, as well as litigation histories, bankruptcies, SEC violations and corporation affiliations.
- Employees within your own business can possess valuable information about business dealings. But keep in mind that management teams often aren't as informed as those in the trenches.
- Former employees of other firms can supply a wealth of information.
- Public records are available from county courts, federal courts and myriad state and federal agencies. These can inform about property ownership, fraudulent activity, bad business dealings, environmental violations, etc.
- Media reports can provide substantive and impeaching evidence. Much like political candidates defeated by their prior positions, opponents in lawsuits can be held accountable for prior statements.
Whatever you do, don't rely on the discovery system to produce the information needed to decide whether to settle or propel ahead to trial. In many cases, discovery simply doesn't work.
One flaw is that traditional discovery relies to a great extent on the voluntary conduct of your opponents and others. (Unless challenged, deponents can and do lie, withhold documents and otherwise act to circumvent the rules.)
Conducting an investigation, independent of legal discovery, is an effective way of following a business model for conducting litigation. Consider, for example, how firms rent office space. They first get the facts -- a firm representative sees the space, considers its price, layout and lease terms, then determines whether it's the right opportunity.
It would be foolhardy in all but the most extreme cases for a business to rent 100,000 square feet of office space for $30 a square foot without first seeing the space, reviewing the proposed terms of the lease, then beginning a negotiation process. It should be equally unreasonable to file lawsuits, or respond to suits, without first educating yourself about the facts.
With a better understanding of the facts, you'll create a better -- and more productive -- working relationship with your law firm. You'll also make better decisions. And strategies will change.
In the end, if the facts and the law are with you, charge ahead. Otherwise, think twice. Jeff Klink is CEO of KlinkFarley, a Pittsburgh-based business investigation and intelligence firm serving corporations, technology companies and their counsel. Reach him at (412) 201-9123 or via e-mail at Pittsburgh@klinkfarley.com.