Crain's Cleveland Business by Crain's Cleveland Business

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$2.00/JANUARY 14 - 20, 2013

Vol. 34, No. 2

Flurry of dealmaking wraps up busy year Fourth quarter was huge; expectations remain high for ‘13 By MICHELLE PARK mpark@crain.com

Hastened by the expectation that capital gains taxes would increase in 2013, buyers and sellers of companies raced to get deals done before year-end, and the advisers who

helped them beat the clock set records doing it. And, though the flurry of activity has waned for now, many of those advisers expect 2013 to be another busy year. The fourth quarter was a record quarter — and in many cases, 2012,

a record year — for deal volume and revenues for a number of investment banking, private equity and law firms in Northeast Ohio. “We were sprinting all out for three straight months,” said Brian Powers, managing director of investment banking firm League Park Advisors.

League Park, which recently moved to downtown Cleveland from Beachwood and is entering its fourth year in business, closed a record four deals in the final quarter of last year and a record eight deals for the year. Cleveland-based Western Reserve Partners LLC also enjoyed a record year and a record fourth quarter, closing eight transactions in the final

months of 2012, including four on the very last day of the year, Dec. 31. Deals data underscore the appetite for M&A advisory services. Quarterly U.S. and Ohio deal volume reached its highest point in the fourth quarter of 2012 since at least the first quarter of 2008, according to figures from Thomson Reuters. See BANKERS Page 21

Westin behind schedule Legal problems of financier Zai impact Crowne Plaza redo By STAN BULLARD sbullard@crain.com

The $70 million conversion of the former Crowne Plaza hotel in downtown Cleveland to a INSIDE: Westin is behind its A portrait of original schedule, the projected in part because of renovation. the legal entanglePage 20 ments of A. Eddy Zai, disgraced founder of the Cleveland International Fund. Construction workers recently started slicing brick walls from parts of the hotel, but its opening as a Westin has been delayed to early 2014. See WESTIN Page 20 MCKINLEY WILEY

MesoCoat Inc. CEO Andrew Sherman stands in the 11,000-square-foot Euclid plant that is expected to be running by mid-February. By CHUCK SODER csoder@crain.com

The many challenges of small business

ndrew Sherman’s pipe dream is one step closer to becoming a reality. MesoCoat Inc. is almost finished setting up a $6.3 million plant intended to show the oil and gas industry there’s a faster, cheaper way to protect pipes from corrosion. The 11,000-square-foot Euclid plant should be up and running by mid-February, which will allow MesoCoat to start testing its metal cladding process on 40-foot-long pieces of pipe, said Mr. Sherman, MesoCoat’s CEO. So far, the company has tested the process only on 6-foot pieces at its research center in Eastlake.

Finding a work-and-life balance can be difficult for many small business owners, such as Nicki Artese, right, of Artese Communications. PAGES 13-17

CLAD TO MEET YOU A

See MESOCOAT Page 9

MesoCoat’s metal cladding plant in Euclid is first step in growth plan

INSIDE

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CRAIN’S CLEVELAND BUSINESS

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LOOKING ON THE BRIGHT SIDE

CRAIN’S ON THE WEB Daily reports delivered by our business experts ■ Get a Crain’s business newsletter delivered to your inbox every day. On Mondays, we will have the Real Estate Report, followed by the Work Force Report on Tuesdays, the Dealmaker Alert on Wednesdays, the Small Business Report on Thursdays and the Ohio Energy Report on Fridays. Sign up at: CrainsCleveland.com. Click on services, then e-mail signup.

REGULAR FEATURES Big Issue .......................8 Classified ....................21 Editorial ........................8

JANUARY 14 - 20, 2013

Going Places ...............10 Reporters Notebook ....22 Milestone ....................22

U.S. small businesses are feeling significantly more optimistic now than they did in 2010, according to PricewaterhouseCoopers’ third annual Family Business Survey. For instance, 76% of family business owners say they plan to hand the reins of their company to the next generation — up from 55% who said that in 2010. Also, near-term concerns about market conditions have dropped considerably since 2010. Here’s what the nearly 2,000 respondents identified as their top external challenges for the year. (Percentages reflect the number of businesses citing these as among their top three challenges.):

Challenge

2012

2010

Market conditions

68%

88%

Government policy/regulation

34%

31%

Competition

21%

Price of raw materials

11%

Source: www.pwc.com; full survey results at tinyurl.com/acvxe88

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editor: Kevin Kleps (kkleps@crain.com) Sports Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Energy, steel and automotive Tim Magaw (tmagaw@crain.com) Health care and education Michelle Park (mpark@crain.com) Finance Ginger Christ (gchrist@crain.com) Manufacturing, marketing and retailing Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing director: Lori Yannucci Grim (lgrim@crain.com) Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Assistant Events Manager: Jessica Snyder (jdsnyder@crain.com) Advertising sales manager: Nicole Mastrangelo (nmastrangelo@crain.com) Senior account executive: Adam Mandell (amandell@crain.com) Account executives: Dawn Donegan (ddonegan@crain.com) Andy Hollander (ahollander@crain.com) Lindsie Bowman (lbowman@crain.com) John Banks (jbanks@crain.com) Sales and marketing assistant: Michelle Sustar (msustar@crain.com) Office coordinator: Denise Donaldson (ddonaldson@crain.com) Digital strategy and development manager: Stephen Herron (sherron@crain.com) Web/Print production director: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Lauren M. Rafferty (lrafferty@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com)

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Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Brian D. Tucker: Vice president Robert C. Adams: Group vice president technology, circulation, manufacturing Paul Dalpiaz: Chief Information Officer Dave Kamis: Vice president/production & manufacturing Mary Kramer: Group publisher G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $2.00. Allow 4 weeks for change of address. For subscription information and delivery concerns send correspondence to Audience Development Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan, 48207-2912, or email to customerservice@crainscleveland.com, or call 877-812-1588 (in the U.S. and Canada) or (313) 446-0450 (all other locations), or fax 313-446-6777. Reprints: Call 1-800-290-5460 Ext. 125 Audit Bureau of Circulation

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JANUARY 14 - 20, 2013

CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

Courses are open sources of discussion

INSIGHT

Massive, free online classes have area colleges determining best way to proceed By TIMOTHY MAGAW tmagaw@crain.com

THUNDER TECH ILLUSTRATION

Missed connections Study shows few of the top companies in region have websites that are ideal for mobile devices By CHUCK SODER csoder@crain.com

They thought the numbers would be low — just not this low. Just a fraction of the biggest companies in Northeast Ohio have websites designed to work well on smart phones and tablet computers. Ten of the top 50 public companies in the

region, or 20%, have websites optimized for mobile devices, according to a study conducted by interactive marketing firm Thunder Tech Inc. of Cleveland. That number falls to eight, or 16%, for the top 50 private companies in the area, according to the study, which determined the region’s 50 largest public and private companies using lists published annually by Crain’s

Cleveland Business. The largest companies in the United States fared better, but not nearly as well as officials at Thunder Tech thought they would: Of the top 50 companies in the Fortune 500, 23 had mobile-friendly websites. Thunder Tech officials said they knew a lot of big companies — especially those that sell products to other businesses — didn’t have mobile-friendly websites. See CONNECTIONS Page 6

Cuyahoga County is banking on SparkBase Young technologoy company expected to be first to receive Next Stage Fund loan By JAY MILLER jmiller@crain.com

Cuyahoga County is preparing to make a second bet on SparkBase Inc. And SparkBase is doubling down on Cleveland.

The young company, which provides technology and marketing services for merchant gift and loyalty programs, is expected to be the first recipient of a Next Stage Fund loan, a category of county development financing designed for star-

tups that appear ready to reach commercial scale. SparkBase would use the $700,000 loan to build its proprietary Paycloud app for smart phones. Paycloud allows shoppers to qualify for and redeem coupons or other rewards with their iPhones and Android phones. Legislation approving the loan is before Cuyahoga County Council. Although SparkBase mainly has

been nurtured since its startup in 2004 by private angel financiers, this loan would be the company’s second from the county. In January 2009, the company got a $90,000 North Coast Opportunities Technology Fund loan — a similar, though smaller, loan program for young companies created by the previous county administration. See SPARKBASE Page 12

THE WEEK IN QUOTES “There are 10 forms of energy — we need them all.” — John Hofmeister, former Shell Oil Co. CEO and now head of the nonprofit Citizens for Affordable Energy. Page 6

“It’s just not easy to get in (Russia). You have to invest a lot of time, energy and money to break into that market. Hopefully, normalization of trade will raise their status.”

“It’s good that business owners are adding that personality and blending it with the businesses. They’re the face of the business; they’re the main person.”

— Nate Ward, director of the International Trade Assistance Center at Cleveland State University’s Monte Ahuja College of Business. Page 11

— Kurt Krejny, director of online marketing with Fathom, a digital marketing and analytics agency in Valley View. Page 13

“All work and no play makes everyone dull; plus it’s horrible for death bed regrets.” — Ingeborg Hrabowy, clinical psychologist, business consultant and author. Page 13

A phenomenon that could disrupt dramatically the nature of higher education has reared its head, and Northeast Ohio’s colleges and universities are grappling with how much skin to put in the game. The recent surge of massive open online courses, or MOOCs, has ignited discussion in higher education circles across the country. In recent years, venture investors have pumped millions of dollars into socalled MOOC companies such as Udacity, edX and Coursera, which partner with elite institutions such as Harvard and Princeton to offer online courses to hundreds of thousands of students around the globe for free. The industry’s business model is still in flux, but Coursera last week announced plans to issue certificates of completion, which will carry the brand of their university partners, for a modest fee to students who complete courses and want something to show for their work. Last September, Ohio State University — the largest higher education institution in the state — signed on with Coursera to offer a slate of courses, including one in calculus and an introduction to pharmacy. Local institutions, such as the University of Akron, Cleveland State University and Case Western Reserve University, now are weighing to what extent to take the plunge. “Some of the faculty is beginning to see that this is an exciting possibility,” said University of Akron president Luis Proenza, who highlighted MOOCs in his State of the University address last November. “I think there’s going to be a lot of experimentation and a lot of ideas tossed around. We need to be open to see how it works and, more importantly, be willing to look at the multiplicity of models.” In the most dramatic sense, some higher education leaders fear the proliferation of MOOCs could nibble away at college enrollments, as students could flock to free sources of knowledge rather than fork over thousands of dollars for a college degree that — especially in this economy — doesn’t guarantee a job. Also, an empty bank account and dismal high school grades are no longer barriers to getting a Harvard education, or at least a taste of one. “We have built in this notion of the importance of face-to-face contact,” said John Green, a political science professor and director of the Ray C. Bliss Institute of Applied Politics at the University of Akron. See COURSES Page 19

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CRAIN’S CLEVELAND BUSINESS

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Hyland Software CEO steps down after successful run

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A.J. Hyland is stepping down as president and CEO of Hyland Software Inc., which during his tenure added more than 900 employees in Northeast Ohio, making it easily the largest software company in the region. The dual role will be filled by chief operating officer Bill Priemer, who joined the Westlake content management software company in 1997 and has been friends with Mr. Hyland and his brothers since childhood. Mr. Hyland will remain on the company’s board of directors, according to an email he sent to employees last Friday, Jan. 11. He’ll remain with the company until Feb. 25 to help Mr. Priemer adapt to the new role, which he is scheduled to take over today, Jan. 14. In the email, Mr. Hyland emphasized that no one asked him to leave and that “there are no ‘back stories’ in this situation.” He made the decision — which has been in the works for six months — because he wants to “get more involved in philanthropic causes, spend time with my family and spend time teaching/coaching,” according to

the email. Mr. Hyland, who has five young children, added that it also was time for someone else to lead the company, which he said “will continue to grow, be profitable, and dominate” the enterprise content management market. The change shouldn’t upend the company’s direction, Messrs. Hyland and Priemer said during a phone conversation with Crain’s Cleveland Business. The two men said they work in adjacent offices and share many of the same philosophies regarding the business. Mr. Priemer said he knows Mr. Hyland so well that, should he find himself asking, “What would A.J. do?,” he’ll probably already know the answer. He noted that Hyland Software will continue ahead with existing plans to buy other content management software companies and to expand sales in other countries. About 12% of the Hyland Software’s revenue comes from other countries, but the company wants to see that number rise to 30% within three years, Mr. Priemer said. “At least half of the available market is outside the United States,” he said. Mr. Hyland described Mr. Priemer as “a phenomenal communicator, a brilliant strategist and a galvanizer of people to get things done.” Mr. Hyland’s brother, Packy Hyland Jr., founded the company in 1991 and convinced his younger brother to join the company’s quality assurance team in 1993. Two years later, the younger Mr. Hyland joined

the company’s sales department, and two years after that, he was named president. Packy Hyland Jr. turned the CEO role over to his brother in 2001. Since then, the company has experienced massive growth. The company employed about 1,000 people in Northeast Ohio on Jan. 1, 2012, up from 134 at the start of 2001, according to the Crain’s Cleveland Business annual list of the region’s largest software developers. The company has continued to hire over the last year and employs nearly 1,500 people worldwide, according to a company spokesperson, who did not immediately have updated local employment numbers. Hyland Software had sales of about $234 million in the 12 months ended June 30, according to a credit rating report issued by Standard & Poor’s in October. As executive vice president and chief operating officer at Hyland Software, Mr. Priemer oversees several customer-facing functions, such as sales and marketing, customer support and technical training. Prior to joining the company, he was manager of new service development at Federal Express. Mr. Priemer also previously had been manager of business development at AST Research, a Californiabased maker of personal computers. He holds a bachelor’s in political science and English from Boston College and a master’s in marketing from Northwestern University. ■

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Volume 34, Number 2 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of December and fifth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2013 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136

Ohio companies apply for every dollar available

of training, up to $4,000 per employee.

By JAY MILLER jmiller@crain.com

Applications began to be accepted last Monday, Jan. 7. Agency officials said late last week that they already have received applications with requests exceeding the $20 million allotted for fiscal 2013, which ends June 30. However, they want employers to continue to apply, because it’s likely that not all applications will meet the program’s requirements. Funds will be approved on a first-come, first-served basis. A second round of applications, for fiscal 2014, will be accepted after June 30 for an additional $30 million. The money for the program is from the state’s cut of casino taxes. Applications are accepted online at www.OhioMeansJobs.com. The program is limited to 10 categories — advanced manufacturing, aerospace and aviation, automotive, bio health, corporate headquarters, energy, financial services, food processing, information technology, and polymers and chemicals. Workers must be in one of five business functions: back office operations, information technology, logistics, production, or research and development. Sales and marketing training is not reimbursable, nor is continuing education for professional certification or general equivalency diploma courses. The money cannot be used for wages of trainees while they are in training. To be eligible, a company must have been operating in Ohio for 12 months prior to submitting an application. ■

Employers throughout the state are responding robustly to a new Kasich administration program to improve the skills of current workers, with applications in less than a week exceeding the $20 million earmarked for the program’s first year. The Ohio Incumbent Workforce Voucher Training program is meant to defray some of the cost of worker training programs. It helps employers create training programs that suit their needs for upgrading the skills of current employees. It represents an acknowledgement that government worker training programs needed to better match the needs of employers. Most state programs are aimed at unemployed workers and offer the unemployed a menu of classes they could chose to take, regardless of whether employers were looking for workers with those skills. The new program is seen as an incentive that will make it more attractive for employers to maintain and grow their operations in Ohio. Employers in 10 targeted industries can apply for a 50% reimbursement of certain training costs. The employer decides what training their workers need, then finds the appropriate training program or hires trainers to conduct the classes. The state’s help is a reimbursement to the company for part of the cost it incurred. “The training is up to the compa-

ny,” said Stephanie Gostomski, a spokeswoman for the state’s Development Services Agency, which administers the program. “It’s really what the company needs” and how that training fits into the company’s workflow, Ms. Gostomski said. “It could take place at the (company’s) facility, at a private training vendor, a public educational institution; it could even take place online,” she said. For instance, Southwest General Hospital in Middleburg Heights is seeking state help in training its staff in new diagnosis coding requirements that federal health care programs and insurance companies will be using in 2014. “This fits very well with our training schedule,” said Jill Barber, the hospital’s director of revenue integrity and managed care. “It certainly alleviates (for the hospital) some of the cost of some very expensive training.” Ms. Barber said the hospital aims to train about 100 workers, from billing coders to doctors and nurses. Some will be trained online. Others will attend classes at the hospital taught by national leaders in hospital coding. Doctors will be trained by other doctors. Ms. Barber said the hospital’s application pegs the cost of the program at $432,000. Guidelines issued by the Development Services Agency indicate the state will reimburse for up to 50% of the total cost

Second round to come

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Cochran

Ohio’s burgeoning shale gas and oil industry has gotten a former major oil company CEO and a prominent Northeast Ohio land conservationist on the same page — or at least heading to the same podium. Former Shell Oil Co. CEO John Hofmeister and Western Reserve Land Conservancy CEO Rich Cochran will be speaking Feb. 5 at Crain’s 2013 Shale Summit: Getting it Right. Rather than shouting over each other about whether shale gas drilling and hydraulic fracturing are manna from heaven or the devil’s droppings, both will discuss the impact of shale gas and the need to manage its extraction. Mr. Hofmeister, now head of the nonprofit Citizens for Affordable Energy — which he founded shortly after retiring in 2008 and runs with no paid staff from his home in Houston — does not always sound like your stereotypical oil company executive. For example, Mr. Hofmeister

cheers for the demise of the internal combustion engine, especially in a form powered by gasoline, because he deems it to be an inefficient use of hydrocarbons that relies on what should be outdated technology. He also thinks energy companies such as BP should be denied future drilling permits if they are found to have taken risks or caused environmental disasters by not following the proper standards and procedures. He’s a supporter of fossil fuel development, but also of wind, solar, nuclear and other forms of energy, he says. “There are 10 forms of energy — we need them all,” Mr. Hofmeister says. The man who once ran the U.S. subsidiary of Royal Dutch Shell is not a climate-change denier, but someone who says he has “tremendous concerns about the Earth’s biosphere.” Still, he maintains that humans need energy, even from fossil fuels, and that technology can be employed to mitigate or sequester

Hofmeister

carbon emissions. Mr. Cochran, on the other hand, doesn’t always sound like the stereotypical conservationist. With more than 35,000 acres under his organization’s protection, from Sandusky to Northwest Pennsylvania, Mr. Cochran doesn’t seek to stop drilling, but to manage it in a way that preserves the value and traditional uses of the land above the shale plays. He worries about surface water management — something experts inside and outside of the drilling industry cite as a key safety issue — but says that’s only one of the concerns and management issues he confronts. “We have very few concerns, at the moment, about the wellhead impacts and the sub-surface impacts,” Mr. Cochran said. “What we worry about is how does all of the collateral activity that happens with oil and gas field development affect the healthiness of the overall landscape. “We’re going to share everything we’ve learned about how exciting the Utica-Point Pleasant (shale play) is as far as the economic opportunities and other opportunities,” Mr. Cochran said of his coming presentation. “We’re also going to share how and why we think the impacts can be done in such a way that’s consistent with a healthy environment.” ■

Connections: Mobile is big source of traffic continued from PAGE 3

WHAT IGNITES YOU? I G N I T I N G A PA S S I O N F O R I D E A S S I N C E 1 9 7 3

n e o m e d . e d u

They just didn’t think there would be so many. “We did expect to see some better numbers than this,” said Jason Therrien, president of Thunder Tech. “Mobile has been around for a while. That’s the sad thing. This wasn’t just invented.” The biggest companies were more likely to have mobile-friendly websites. For instance, of the top 50 companies on the Inc. 500 — which is a list of the fastest-growing privately held companies in the United States and tends to include many smaller companies — just six were optimized for mobile devices. One site did not load. Consumer-facing sites also were more likely to be mobile-friendly. For instance, paint and coatings giant Sherwin-Williams Co. of Cleveland has a mobile-optimized website, as does fabric and crafts retailer Jo-Ann Stores Inc. of Hudson. Aleris International Inc., which makes aluminum products for other businesses, doesn’t have a mobile-friendly site, but the Beachwood company aims to change that, according to a statement from Aleris spokesman Jason Saragian, who described the site as “a work in progress.” Parker Hannifin Corp.’s home page isn’t mobile-optimized, either, though the Mayfield Heights-based maker of motion and control products does have some online tools — such as parts finders and reference applications — that are designed to work well on mobile devices. The company’s online tools, including its website, serve different customers, according to an email statement from Parker. Though some of those customers are mobile, others, such as design engi-

neers, tend to use desktops and laptops and wouldn’t need mobile-optimized tools, according to the statement. However, Mr. Therrien and a few other people in the information technology field said almost all businesses should have a mobilefriendly website.

Riding the rocket ship Even Thunder Tech’s industrial customers get 5% to more than 20% of their web traffic from mobile devices, Mr. Therrien said. Those mobile visitors are more likely to leave a site quickly if it doesn’t work well on their smaller screens, he said. Some companies argue that consumers rarely use smart phones and tablet computers to make purchases or conduct research on products, said Justin Smith, an interactive developer at Thunder Tech. He disagrees, noting that eBay regularly sells Ferraris to users accessing the site through smart phones and tablet computers. “That (attitude) is definitely going away,” Mr. Smith said. About 20% of Active Living Now’s revenue comes from health care products sold via the Westlake company’s mobile website, according to partner Justin Wolford. That’s up from roughly 3% two years ago, when the company launched the mobile version of its site, he said. Even companies that sell to other businesses should have mobilefriendly websites, given that mobile web traffic is “on a rocket ship upward,” said Mr. Wolford, who also is an information technology consultant and served as president of the Web Association from 2009 to 2012. Various sources say smart phones and tablet computers now account for 13% to 23% of all web traffic.

“I don’t think anybody has an excuse for not having a mobile website at this point,” Mr. Wolford said.

The right response Thunder Tech’s study suggests that just seven of the 200 companies it evaluated, and only three in Northeast Ohio, have next-generation mobile websites that automatically adjust to all sorts of screen sizes. Soon, however, these “responsive” websites — which even can change their layouts when desktop computer users shrink the size of the browser window — will become the norm, Mr. Therrien said, noting that 80% to 90% of his company’s customers choose to build responsive sites once told about them. Responsive sites, which are created using what are often referred to as “HTML5” techniques, cost more to build than traditional websites, but not much more, Mr. Therrien said. Plus, building one responsive site is cheaper than building a traditional site and a mobile site that ties into the same databases and content, he said. That’s true, according to Dan Young, founder of DXY Solutions LLC, a Cleveland-based mobile software developer. He, too, said almost all businesses should have mobile-friendly websites, even though building a mobile site on top of an existing site in some cases can mean spending “a huge chunk of change.” However, responsive sites are making it easier and cheaper for companies to reach people no matter what mobile device they use, even if it’s the screen on a dashboard in a car, Mr. Young said. “That’s the way you’d want to build a new site today,” he said. ■

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CRAIN’S CLEVELAND BUSINESS

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JANUARY 14 - 20, 2013

PUBLISHER/EDITORIAL DIRECTOR:

Brian D. Tucker (btucker@crain.com) EDITOR:

Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:

Scott Suttell (ssuttell@crain.com)

OPINION

The game

he retirement saga of Ken Johnson says a lot about the Cleveland city councilman. However, it says even more about the mentality of too many public employees and the difficulty of bringing about meaningful reform of the public employee retirement system. By now, many readers have read or heard about Mr. Johnson. He’s the councilman who “retired” last month during his unfinished term so that he could lock in his pension benefits before a pending change that would eliminate a cost-of-living escalator, only to turn around and ask his colleagues to appoint him to his “vacant” council seat. And, sadly, most of them obliged, even though Mr. Johnson’s career in City Council has been unexceptional — until now, when he has become the latest poster child for the practice known as double dipping. Double dipping occurs when a politician, government worker or school employee retires to gain access to his or her pension benefits, then is appointed to the same job or hired for another one in the public sector. It’s legal, and it’s fairly common, especially among higher-paid employees with connections. The rationale often voiced in favor of this setup is that it saves taxpayers money by allowing, say, a school district to hire a superintendent who already is drawing a pension at a lower salary than the district would pay someone who doesn’t have that supplement retirement income. But it’s a bogus argument. Yes, public employees pay into the state retirement funds set up for them. But so do their employers. And who pays the hidden cost of the employers’ share of the generous retirement benefits many of these workers — including the double dippers — enjoy? Taxpayers. Members of the Ohio Legislature are the ultimate guardians of the state’s five public employee retirement funds, and they’ve been slow to vote for change in the pension plans because they, too, benefit from the current structure, double dipping and all. The five funds are badly underfunded for future retireees, and have been for years. Yet it wasn’t until last May that the state Senate finally approved pension reforms long sought by their oversight boards to strengthen the funds’ long-term condition. Even then, the Ohio House dragged its feet and didn’t vote to enact the needed changes until September — a move that cost the funds hundreds of millions of dollars in total. The ultimate solution for the public employee retirement dilemma is to follow the path taken by many private-sector employers. They have ended their pension plans by freezing their benefits in place and have replaced them with defined contribution plans that are under the control of their employees. We fear we’ll only see such public pension changes in our dreams, though, as long as the people who benefit from the current system also control how the game is played.

FROM THE PUBLISHER

Casting an envious eye at Toledo planned addition of Cleveland’s accomow about that little bridge panying eastbound span might be project over the Cuyahoga: delayed several years from its Were any of you original timeline. wowed by the design BRIAN But then we don’t know how touches ODOT has included? TUCKER much of that was ammo for his It’s not that I don’t like the consideration — since abannod to the Rock Hall — repredoned — of leasing the turnpike sented by planned silhouettes because the state so desperately of concert-goers painted or needed the money for transetched on the sides of the landportation projects. Since then, based supporting walls. the eastbound bridge is back on And I don’t mean to minimize the timeline for a 2016 opening. the value of the green space arI have no doubt Ohio’s reeas planned around the Tremont side of the new bridge. Our big cent transportation departments — irreconstruction projects of the recent past spective of governors or parties — had rarely considered green space creation, long been promising things they couldand I welcome it both with the new Inner n’t afford. And all Northeast Ohioans will Belt westbound bridge and around our breathe easier as we drive over the new new downtown convention center. spans, given the similarity of the existing But does that compare to the dramatone to the Minneapolis bridge that colic design of Toledo’s fairly new bridge lapsed. over the Maumee River? That’s an iconIt’s just that my wife’s family and our ic addition to the city’s skyline that will company headquarters are both in Detroit, be a beacon for generations. and I need to travel there regularly. And I know money is tight. I get that. We all that means driving over Toledo’s beautiful do, especially if we recall how the Kasich bridge. I suppose that beauty had a big price tag, and maybe that’s what we can no team had originally announced that the

longer afford. But it will still bug me. ***** NO SUCH THING AS A FREE LUNCH? Nonsense. We rolled out a great news product last week that’s both valuable and free: “Crain’s Dealmaker Alert,” a digital newsletter for and about the deals, and the people who make them work, in our region and across Ohio. Compiled by our finance and law reporter Michelle Park, this weekly e-newsletter will be sent each Wednesday to those who register. Like our other popular digital newsletters on energy, small business, and work force, it will be a mix of Crain’s stories, locally written blogs and stories from other media. Last week, our bloggers opined on whether the roaring 2012 M&A market will continue into this year, and how to tell if it’s time to sell your business — and the risks involved. Today we’ll add real estate to our offerings of weekly, specialized news reports. Sign up for these and our other digital products at www.crainscleveland.com. And give us your feedback so that we can make it a “must-have” in your e-mail box each and every week.

THE BIG ISSUE President Barack Obama has been criticized by some for not including enough women on his team. Do you think it’s important for the inner circle of a political or business leader to be made up of people with diverse backgrounds?

SARAH MANCUSO Parma Heights Yes, of course. Diversity is very important in America. It’s 2013 and I’ve seen leaders with diverse backgrounds in corporations and government.

MIKE STEELE

CARMEN CAMINO

ANNA HLAVACS

Cleveland

Highland Heights

Seven Hills

Oh yes, probably. At the company I work for we strive to have a balance. You’ve got to reflect what society looks like.

I think diversity is important. But is it the primary reason for hiring someone? No. It should be the best candidate for the job, regardless of sex, gender, race or age.

No. I think the priority should be hiring the most qualified candidate. The priority should be on qualifications, not diversity.

➤➤ Let us know what you think. Vote in our online poll at www.CrainsCleveland.com

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MesoCoat: Company expanding internationally continued from PAGE 1

By midyear, MesoCoat plans to start selling that pipe. The company then wants to start building larger plants in other countries, Mr. Sherman said. Mr. Sherman, who also is CEO of MesoCoat’s sister company, specialty materials developer Powdermet Inc., admitted he isn’t used to pursuing such aggressive growth plans. He typically follows the philosophy that a company shouldn’t hire more people until it has more customers. But the need for MesoCoat’s technology is too big to take it slow, he said. The company says its CermaClad process, which uses a plasma arc lamp to bond protective metal coatings onto pipes, is 40 times faster and 20% cheaper than other methods of cladding metal. The speed of the process could prove to be a big selling point: Today, oil and gas companies ordering cladded pipe often must do so six years in advance, Mr. Sherman said, adding MesoCoat aims to reduce that wait time to “a matter of months.” “The opportunity is just incredible right now,” he said.

Global ambitions One massive oil and gas company has shown interest in the project: Petroleo Brasileiro S.A. of Rio de Janiero, which goes by Petrobras, in January 2011 struck a deal to help MesoCoat verify the effectiveness of the CermaClad process and finance the demonstration plant in Euclid. The companies could work together to design and build a coating plant in Brazil, assuming MesoCoat can produce pipe meeting Petrobras’ standards, according to a 10Q document that MesoCoat’s publicly traded parent company, Abakan Inc., filed with the Securities and Exchange Commission last Oct. 15. The Miami-based holding company owns 71% of MesoCoat and 41% of Powdermet, which also holds shares in MesoCoat. A representative from Petrobras requested questions via email but did not respond to them by Crain’s deadline last week. The Euclid plant is built to produce $60 million to $80 million of cladded pipe per year, most of which will used for quality testing

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and to fill small orders. The plant would be significantly smaller than the plants the company plans to build in other countries. Those plants each would have four production lines, whereas the Euclid plant will house only one. MesoCoat has begun advanced site work to establish plants in Brazil, Indonesia, western Canada and the Middle East. MesoCoat has received assistance from three economic development programs financed by the state of Ohio and hasn’t ruled out expanding here. Its headquarters will remain in Euclid, where it has the equivalent of 31 full-time employees. MesoCoat eventually could add another 10,000 square feet onto its new plant. The company aims to build its biggest plants elsewhere to be closer to customers and in some cases to tap government incentives, Mr. Sherman said, noting that authorities from Alberta, Canada, have offered to cover half the cost of a $20 million plant built in the province. “Their packages are pretty attractive compared to Ohio,” he said.

Ohio provides a boost Mr. Sherman added, however, that he believes Ohio already is benefiting from the assistance it has provided to MesoCoat. Just after spinning off from Powdermet in 2008, MesoCoat received a $220,000 investment from JumpStart Inc., a Cleveland nonprofit economic development group that receives a big chunk of its financing from the state. MesoCoat paid JumpStart $400,000 after receiving additional financing. The Ohio Third Frontier economic development program two years ago gave a $2 million grant to MesoCoat and the University of Akron to help finance research related to claddings and powder coatings at the university as well as construction of the new plant. Then, last October, MesoCoat received a $1 million loan from the Innovation Ohio Loan Fund, which the company used to finish equipping the plant. The state money is helping MesoCoat get to the point where it will be able to start attracting more money from private investors, bringing in more revenue and cre-

ating more jobs, Mr. Sherman said. Without state support, it would have been “nearly impossible to get to where MesoCoat is today,” Mr. Sherman said. “This could not have happened without the state coming in,” he said. MesoCoat’s technologies have potential, according to Ross Kozarsky, senior analyst at Lux Research Inc. of Boston. In a December 2011 report that ranked several protective coatings companies, Mr. Kozarsky ranked MesoCoat as a “dominant” player in the industry, the highest of four rankings. He gave the company particularly high marks for its technologies — both CermaClad and its PcomP line of coatings, which are metallic substances that contain tiny ceramic particles designed to make the coatings stronger. Mr. Kozarsky also praised the company’s ability to execute its business plan. If the report was updated, Mr. Kozarsky said, he believes MesoCoat would receive a higher execution score because the company appears to be meeting milestones and building momentum. “They know what they’re doing, and they’re making good on some of their claims,” he said. ■

LETTERS

Ohio businesses being overcharged ■ The Jan. 7 edition of Crain’s Cleveland Business featured an op-ed piece written by Steve Buehrer, director of the Ohio Bureau of Workers’ Compensation, in which he says the goal of the bureau under his leadership is to make it easier for Ohio businesses to “invest more in growth.” As one of 270,000 Ohio small business owners that were overcharged nearly $1 billion in premiums by the bureau, I hope this means that the director will immediately order the bureau to refund the overcharges in accordance with the recent decision of Cuyahoga County Common Pleas Judge Richard McMonagle finding that the bureau overcharged me and the other companies and owes us our money back. I can’t think of a better way for the director to truly demonstrate the bureau’s commitment to Ohio businesses than to acknowledge its mistake and comply with the court

WRITE TO US Send your letters to: Mark Dodosh, editor, Crain’s Cleveland Business e-mail: editor@crainscleveland.com

finding. Director Buehrer needs to take his lead from Gov. John Kasich, who recently in response to overpayments of the commercial activity tax by a large number of Ohio businesses, ordered an immediate refund. Repayment of these overcharges to Ohio businesses is long overdue. The immediate infusion of a billion dollars into Ohio businesses which this repayment would cause will go a long way in demonstrating that Director Buehrer means what he says about looking out for the interests of Ohio businesses and employees. Earl Stein Co-owner Corky & Lenny’s Woodmere Village

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CRAIN’S CLEVELAND BUSINESS

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ARCHITECTURE HWH ARCHITECTS ENGINEERS PLANNERS INC.: Sonia Jakse to staff landscape architect.

EDUCATION

Pavarini Jr.

Cox

Stone

Souza

Simpson

Wright

Stohla

Cohen

NEW HORIZONS COMPUTER LEARNING CENTERS: Jenai Makulinski to strategic account manager; Craig Purnell to technical instructor.

FINANCIAL SERVICE COHEN & CO.: Dave Sobochan to partner; Melissa Reed to principal; Missi Book, Tina Dzik, Brian Fiedler, Dave Talenda, Donna Weaver and Laura White to senior managers; Greg Speece, Teri Grumski, Karen Raghanti, Robert Venables, Matt Lewis and Brandon Coates to managers; Kevin Carney, Joe DiFranco and Jenna Santisi to senior staff accountants. MCDONALD PARTNERS LLC: John V. Goodman to senior managing partner and senior managing director of investments; Michael Powers to managing director of investments; Aaron Kamat to vice

president of investments; Scott Dubin to financial adviser; Helene Shafiyan to senior registered client associate. SS&G: Olivia Cunningham to field exam manager.

INSURANCE UNIVERSAL INSURANCE CO.: Phil E. Pavarini Jr. to executive insurance agent.

LEGAL PLEVIN & GALLUCCI CO. LPA: John C. Calabrese to associate. SINGERMAN, MILLS, DESBERG & KAUNTZ CO. LPA: Frank C. Santoiemmo to associate. TUCKER ELLIS LLP: Brandon Cox and Bryan Stone to associates. WELTMAN, WEINBERG & REIS CO. LPA: Timothy K. Spencer to compliance attorney.

MANUFACTURING CARDPAK: John Souza to vice president, strategic development. TESLA NANOCOATINGS: Charles Simpson to chief technical director; Michael Wright to director, business development and government sales; Stephen Stohla to military sales specialist.

REAL ESTATE CBRE: Chris McFarland to senior associate.

RETAIL RUBBER CITY HARLEY-DAVIDSON: Jeff McInturff to general manager.

STAFFING DIRECT RECRUITERS INC.: Matthew Cohen to energy practice leader. PATINA SOLUTIONS: Sherry Borchelt to managing partner, Ohio market.

TECHNOLOGY EXPEDIENT: Michael DeAloia to regional vice president. FINDAWAY WORLD: Don Hayes to vice president, Playaway Products

GET DAILY NEWS ALERTS FROM CRAIN’S ! Register for free e-mail alerts and receive: ■ The Morning Roundup: A collection of the day’s business news from Ohio’s daily papers

Group; Ralph Lazaro to vice president, Digital Products Group. PARAGON CONSULTING: John Ours and Frank McGee to principals.

BOARDS JEWISH FAMILY SERVICE ASSOCIATION OF CLEVELAND: Philip Cohen to chair; Cynthia Bruml and Suellen Kadis to vice chairs; Ethan Cohen to treasurer; Michael Weiner to assistant treasurer; Bruce Goodman to secretary. NATIONAL ASSOCIATION FOR NDUSTRIAL AND OFFICE PARKS NORTHERN OHIO CHAPTER: Amy Whitacre (First American) to president; Scott McCready to immediate past president; Mark Panzica to president-elect; Dorinna Unger to treasurer; Jeff Wherry to secretary. NORTHERN OHIO REGIONAL MULTIPLE LISTING SERVICE: John Ludwick (Keller Williams Realty Greater Cleveland) to chairman; Jeff Russell to vice chairman; John Lynch to treasurer.

AWARDS BEACHWOOD CHAMBER OF COMMERCE: Debra Rapoport (Beachwood Buzz) received the 2012 Citizen of the Year Award. MIDWEST CARE ALLIANCE: Dave Smartt (Visiting Nurse Service) received the Heart of Home Care Award. RECOVERY RESOURCES: Robert J. Ronis, M.D., (University Hospitals Health System and Case Western Reserve University School of Medicine) received the 2012 Bronze Key Gala Award. UNITED STATES INSTITUTE OF THEATRE TECHNOLOGY OHIO VALLEY SECTION: Raymond A. Kent (Westlake Reed Leskosky) received the Peggy Ezekiel Award of Outstanding Achievement for Audio Visual Design and the Peggy Ezekiel Awards of Outstanding Achievement for Lighting Design and Audio Visual Design.

Send information for Going Places to dhillyer@crain.com.

■ Daily headlines: A collection of Crain’s-produced news and blog items from the day ■ Small Business Report: A weekly guide to small business news

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CRAIN’S CLEVELAND BUSINESS

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Trade opportunities rise in Russia New legislation should help Eaton, other Ohio firms grow there; Putin voices opposition to deal Nate Ward, director of the International Trade Assistance Center at Cleveland State University’s Monte Ahuja College of Business.

By GINGER CHRIST gchrist@crain.com

U.S. companies face fewer roadblocks when it comes to trading with Russia, and Northeast Ohio companies are poised to benefit. Thanks to the passage last month of legislation to normalize U.S. trade with Russia, U.S. companies now are on the same playing field as other members of the World Trade Organization, which in August admitted Russia as a member. “We’re optimistic that Russia’s going to be a good market for a lot of American companies, not just Eaton,” said Barry Doggett, senior vice president of public and community affairs for Cleveland-based Eaton Corp. The diversified manufacturer already is “quite active” in Russia, Mr. Doggett said. Eaton recently opened a sales office in Moscow and operates a small manufacturing plant outside Moscow that makes electrical components. Eaton’s Brooklyn plant also exports industrial clutches to customers in Russia. “I think this will help,” Mr. Doggett said. “In general, just opening up the opportunity to trade and reducing trade barriers is a good thing.” In passing the Russia and Moldova JacksonVanik Repeal Act of 2012, lawmakers eliminated Cold War-era sanctions tied to emigration rights that restricted trade with Russia. It should make it easier for U.S. companies to invest in Russian businesses and to enter into joint ventures with Russian companies, and it will lower tariffs on U.S. goods imported in Russia, said

Buckeye bonanza Jooyoun Park, an assistant professor in Kent State University’s department of economics, said Northeast Ohio is well-positioned to take advantage of greater trade with Russia, given the area’s strength in the automotive and rubber industries, which are among the top imports in Russia. “Out of all of the states, Ohio will matter,” she said. “If there’s any big change in the export figure, it will be beneficial to Ohio.” While U.S. exports to Russia only represented 0.7% of the country’s total exports through the third quarter of 2012, exports are on the rise, including from Ohio, federal data show. Ohio’s exports to Russia through the third quarter of 2012 grew by 32% compared to the like period in 2011, while its exports to the rest of the world only increased by 7%, according to the U.S. Department of Commerce. Cleveland State’s Mr. Ward, who is a business consultant with the Small Business Development Center, sees opportunities for Ohio companies in exporting automotive parts as well as aircraft and electrical machinery to Russia, which has the world’s sixth-largest economy in terms of purchasing power. Because Russia is looking to replace its outdated agricultural equipment and needs to support its rapidly growing demand for passenger air travel, Ohio can stand to provide

products to meet those needs. But it won’t be easy.

McGillicuddy named senior VP and GM of Fox Sports Ohio

Challenges await Mr. Ward said he usually eases companies unfamiliar with exporting to countries such as Russia into places such as Poland as a first step. Poland has taken steps to improve doing business with that nation, such as making it easier to register property, pay taxes and enforce contracts. “It’s just not easy to get in there. You have to invest a lot of time, energy and money to break into that market,” Mr. Ward said of Russia. “Hopefully, normalization of trade will raise their status.” Mr. Ward said U.S. companies have had goods lost in transit to Russia or held indefinitely in customs. He said some companies have developed alternate routes into the country, such as rerouting goods through Finland or Eastern Europe, because trucks entering Russia are less likely to be held up at customs than shipments arriving at ports. “Hopefully, all of those things go by the wayside,” Mr. Ward said. U.S. companies also could be at a disadvantage because the legislation approving permanent normalized trade relations with Russia contains a provision that allows the United States to withhold visas of Russian human rights violators and freeze their financial assets in U.S. banks. After the law was passed, Russian President Vladimir Putin said the move “poisons” the relationship between the two countries. Russia also passed legislation prohibiting U.S. citizens from adopting Russian children and prevents Americans accused of abusing the rights of Russians from entering the country. ■

Francois McGillicuddy, an executive with extensive experience in television and sports media, has been named ON THE WEB Story from senior vice president and www.crainscleveland.com general manager of Fox Sports Ohio. Fox Sports Networks said Mr. McGillicuddy will oversee all aspects of Fox Sports Ohio’s business, including production, programming, advertising sales, marketing and team relations, while also working in conjunction with Fox’s affiliate sales and marketing group on distribution issues. Mr. McGillicuddy also will manage the transition of recently acquired SportsTime Ohio into the Fox Sports portfolio of regional sports networks. Mr. McGillicuddy joins Fox Sports Ohio from Fox’s national cable channel Speed, where he has served as vice president, finance and business operations since 2006. “We’re pleased to have Francois continue his Fox career at Fox Sports Ohio,” said Jeff Krolik, executive vice president of Fox Sports Networks, in a statement. “His wealth of experience working with team partners, as well as his business acumen and proven leadership, will be a terrific asset to our business.” ■ Crain’s on Twitter: @CrainsCleveland

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JANUARY 14 - 20, 2013

MediQuant expanding SparkBase: Fund targets high growth amid health IT boom continued from PAGE 3

By TIMOTHY MAGAW tmagaw@crain.com

The large investments health systems have made in recent years in their information technology infrastructures have led to consistent revenue growth for MediQuant Inc., which recently more than doubled the size of its digs with a move from Richfield to a 7,500-square-foot space in Brecksville. The company, which specializes in what it calls â&#x20AC;&#x153;active archivingâ&#x20AC;? and now is located on South Edgerton Road off Miller Road near Interstate 77, has experienced average annual revenue growth of 45% over the last five years, according to MediQuant president Tony Paparella. â&#x20AC;&#x153;There are tremendous pressures on health care institutions to lower costs,â&#x20AC;? said Mr. Paparella, who did not disclose revenue figures. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s what we do. We show significant cost savings.â&#x20AC;? MediQuant employs about 40. It specializes in software that allows health care organizations to store data that canâ&#x20AC;&#x2122;t easily, or cheaply, be

transferred into new IT systems from health care software companies such as Epic, one of the largest suppliers of electronic medical record systems. Mr. Paparella said MediQuant has clients in every state, including the California-based Dignity Health, one of the largest health systems in the country. He said MediQuant also recently secured the Cleveland Clinic as a client. MediQuant plans to hire as many as 10 additional employees over the next year, and itâ&#x20AC;&#x2122;s hunting for project managers, health care software developers and marketing professionals. Mr. Paparella said MediQuant is well-established in the health care space but may expand its services to other business sectors in the coming years. â&#x20AC;&#x153;We definitely think there are opportunities in other markets,â&#x20AC;? Mr. Paparella said, though he wouldnâ&#x20AC;&#x2122;t identify specific ones. â&#x20AC;&#x153;Over the next year or two, weâ&#x20AC;&#x2122;ll be investigating those.â&#x20AC;? â&#x2013;

The company has been paying off that loan ahead of schedule, according to Nathan Kelly, deputy chief of staff for economic development to County Executive Ed FitzGerald. Ted Frank, SparkBaseâ&#x20AC;&#x2122;s chief operating officer, said the new county loan is a way to secure the firmâ&#x20AC;&#x2122;s base in Northeast Ohio. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re always FitzGerald thinking about the best place to build our business,â&#x20AC;? Mr. Frank said. â&#x20AC;&#x153;We love Cleveland, all of our employees are here; we donâ&#x20AC;&#x2122;t have offshore (software) developers. If we can raise money locally, the less pressure there is for us to set up operations in other cities.â&#x20AC;? Venture capitalists often like their portfolio companies to locate close to their home base, and SparkBase likely will consider venture financing as it grows. â&#x20AC;&#x153;We have lots of people â&#x20AC;&#x201D; venture funds â&#x20AC;&#x201D; that are interested in investing in the company,â&#x20AC;? Mr. Frank said. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s fine, weâ&#x20AC;&#x2122;ll take their money, but there is always

that tug to set up in other places. This gives us an opportunity to get than much further before we consider the venture round.â&#x20AC;? That attitude made SparkBase an ideal candidate for this loan, Mr. Kelly said. â&#x20AC;&#x153;The Next Stage Fund is dedicated to high-growth companies in the technology space that have demonstrated consistent revenue growth,â&#x20AC;? he said. â&#x20AC;&#x153;They have to be in the county and within 12 months of positive cash flow.â&#x20AC;?

Time for a boost Next Stage was created as a part of the Western Reserve Fund, Mr. FitzGeraldâ&#x20AC;&#x2122;s $100 million investment pool for economic development. The Next Stage program is one of 11 funds that make up the administrationâ&#x20AC;&#x2122;s economic development strategy. Four of the programs are designed to help established businesses in targeted sectors grow here or to attract new operations, and another three help revitalize commercial property. Next Stage is one of four programs focused on nurturing young businesses. Mr. Kelly said as FitzGerald administration officials analyzed the financing landscape, they believed they found a gap the county could fill. That gap, he said, was for companies that could continue to grow because of their strong technology base but needed a boost to expand into bigger markets. Thatâ&#x20AC;&#x2122;s exactly where SparkBase stands today. SparkBase employs 40 people at its Tyler Village headquarters on Superior Avenue in Clevelandâ&#x20AC;&#x2122;s St. Clair-Superior neighborhood, up from 10 two years ago, Mr. Frank said. The company began as a processor of gift and loyalty card transactions. Loyalty cards let a storeâ&#x20AC;&#x2122;s regular shoppers take advantage of discounts or other special deals. Mr. Frank said the company, which has been working through payment processing firms to sell its programs to merchants, early last year began to develop the Paycloud mobile wallet that it will sell through those processors, and more directly to retailers. With Paycloud, consumers will be able to wave their smart phones at partici-

pating merchantsâ&#x20AC;&#x2122; point-of-sale machines and log in as regular customers or redeem rewards or coupons. Mr. Frank said the company has significant patents and other intellectual property built into its systems. At the same time, Mr. Frank said, SparkBase was approached by a number of big companies in the point-of-sale business that wanted to incorporate its gift and loyalty card programs into their systems. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s like Ford saying â&#x20AC;&#x2DC;We want your steering column for our cars,â&#x20AC;&#x2122;â&#x20AC;? Mr. Frank said. â&#x20AC;&#x153;â&#x20AC;&#x2DC;Weâ&#x20AC;&#x2122;re going to worry about the marketing and sales and weâ&#x20AC;&#x2122;ve got the big engine and the big car, but we think your steering column is the best.â&#x20AC;&#x2122; So weâ&#x20AC;&#x2122;re providing that to a number of companies.â&#x20AC;?

Everyone wants in Gearing up for this expansion of business has prompted SparkBase to seek county money. Mr. Frank said confidentiality agreements donâ&#x20AC;&#x2122;t allow him to identify companies with which SparkBase is partnering. Eric Grover, prinicipal of Intrepid Ventures, a former Visa International executive who consults on electronic payment systems, said the market for digital, consumer financial transactions is hot, but competitive. Mr. Grover was not familiar with SparkBase, but his Minden, Nev., consultancy works extensively in the field of financial services payment processing and technology. Mr. Grover said of the 8 million to 9 million merchants in the United States that accept payment cards, few can use the transfer technology he called â&#x20AC;&#x153;proximity paymentsâ&#x20AC;? built into the newest smart phones. â&#x20AC;&#x153;There is a lot of excitement,â&#x20AC;? Mr. Grover said, though he cautioned that the actual loyalty and rewards sales program are not unique. â&#x20AC;&#x153;The play is delivering additional value,â&#x20AC;? he said. And that is what SparkBase is trying to do, Mr. Frank said. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re a technology company, but we are loyalty marketing experts,â&#x20AC;? he said. â&#x20AC;&#x153;We understand how (retailers can) leverage loyalty in building relationships with customers.â&#x20AC;? â&#x2013;

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INSIDE

17 TAX TIPS: TAX RELIEF ACT CAN HAVE ITS BENEFITS.

SMALL BUSINESS

“In essence, they are married to their business, and often their first allegiance is business success.” – Ingeborg Hrabowy, clinical psychologist, business consultant and author

Social business is good business Owners use own Facebook pages to help in promotion, add personal touch By SHARON SCHNALL clbfreelancer@crain.com

owners who seek coaching from Ingeborg Hrabowy have experienced marital problems because they spend so much time working. “In essence, they are married to their business, and often their first allegiance is business success,” said Dr. Hrabowy, who is a clinical psychologist, a business consultant and an author. She’s working with one business owner who recently wound up in tears because his marriage is falling apart, but Dr. Hrabowy said he never saw the signs because “work was his mistress.” Another client said he hasn’t been happy for the last 20 years because he was always making sacrifices for his business. Another hasn’t taken a vacation in 10 years for fear of missing out on opportunities. Small business owners are particularly susceptible to what she describes as “a deadly disease” because they tend to take on lots of duties and don’t have the resources of a larger company. Plus, they often feel like the success of the entire business rests on their shoulders.

Matthew Anderson ran in a community race with his two daughters. The proud father posted photos on his Facebook page. Mr. Anderson, a longtime INSIDE: marathon runner, Experts give was fitted with tips on mixing new running business with shoes — a picture personal of those shoes is posts on posted as well. social media. Interesting for Page 14 friends and family, but this personal Facebook page also is seen by his customers — roughly 200 of his 320 and rising Facebook followers are business connections, he said. Mr. Anderson, 41, is the owner and executive chef of Umami Asian Kitchen in Chagrin Falls. The 38seat upscale restaurant was founded in 2009, and it has 12 full- and part-time employees. “In this business, right or wrong, the Food Network has changed us and what we do. People want to know us, about us, and how we do it,” he said. “The idea of my personal Facebook page was to let some of the personal out, but I have control of that.” Certainly, owners want to engage potential customers through their business’ social media presence. But they also can leverage friends and family, promoting business activities via personal Facebook pages, as well as through Twitter, YouTube and Instagram. Welcoming business clientele as personal followers offers a window into the owner’s after-work life. Postings on Mr. Anderson’s personal page intermittently focus on the business: menu items; charity events in which he’s participating; Twitter feeds about operating hours; an upcoming wine and meal off-site event; Instagram portraits of entrées; and yet more images of Chagrin Falls scenery adjacent to his restaurant. However, marathon updates, acquisition of a coveted running gadget, reactions to current events and favorite cartoons also are threaded through the many posts on his personal page.

See WORK Page 16

See SOCIAL Page 14

JANET CENTURY

Nicki Artese, the owner of Artese Communications, says she “was going to break” prior to accepting some help at home and with her business.

FOR MANY, IT IS ALL WORK, ALL TOO OFTEN Many entrepreneurs struggle to find proper balance, time away from work By CHUCK SODER csoder@crain.com

Something had to give. Three years ago, both of Nicki Artese’s parents were diagnosed with cancer. At the time, she was working about 70 hours a week running her marketing and communications firm out of her home in University Heights. Ms. Artese knew she had to help her brother care for her parents and spend some quality time with them, especially her mother, whose diagnosis was terminal. So that’s what she did. But like many busy small business owners facing a crisis, she ignored her needs. She stopped exercising and took on bad eating habits. She worked from home, but her house was a wreck. “I might as well have been working in Siberia,” she said with a laugh. People suggested she hire someone to help her run Artese Commu-

nications, but there wasn’t much administrative work to do. And she didn’t want to hire more marketing talent because she had no interest in turning her one-woman shop into a full-blown agency. Fortunately for her sanity, when an out-of-work friend offered to help out with some of her domestic duties, Ms. Artese accepted. She also had a chance meeting with a life coach, who has helped her become healthier and happier. “I was going to break if I didn’t accept the help that was handed to me,” she said. She’s one of many local small business owners who have suffered personally because of their dedication to work.

Not happily ever after For some of them, a dirty house or a few extra pounds around the waist are the least of their problems. Most of the small business

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SMALL BUSINESS USING THE PERSONAL TO PROMOTE THE BUSINESS

SUBMITTED PHOTOS

Matthew Anderson, right, owner of Umami Asian Kitchen, helps judge the Cleveland Garlic Festival. This photo appeared on his personal Facebook page.

Social: Sites give access to owners Continued from PAGE 13

So, what does Mr. Anderson’s love of running, a dash of irreverent humor and other personal posts have to do with Umami Asian Kitchen? Everything. “It’s good that business owners are adding that personality and blending it with the businesses. They’re the face of the business; they’re the main person,” said Kurt Krejny, director of online

marketing with Fathom, a digital marketing and analytics agency in Valley View. “The business owners connect better with the customers; the customers like to learn about the owners’ drives and passions.” Jason Zakrajsek, 38, is the owner of Kuk Sul Do Academy, a Korean martial arts school in South Russell Village, founded in 1997. The 6,000-square-foot facility serves more than 300 students from ages 4 to 60.

Mr. Zakrajsek, too, shares his life with a wide audience via Facebook. His personal page alternates information on the academy’s belt testing schedule, class offerings and YouTube martial arts demonstrations with Mr. Zakrajsek’s latest restaurant discovery, a high school reunion and his family’s trip to a museum. (The academy, like Umami Asian Kitchen, also has a separate Facebook presence.) At last count, he had more than 800 friends on his personal Facebook. He said about 200 of those followers are friends, family and people he has met socially — the rest are customers and potential customers. “If you’re offering a service to the public and you’re going to be a personality-driven business, it (sharing on a personal Facebook page) goes with the territory,” Mr. Zakrajsek said. “People want to know the person behind the craft, behind the skill, behind the business,” he added.

A business owner’s personal Facebook page offers additional communication opportunities between the owner and friends, family, current clientele, future customers and the just-plain curious. Here are some recommendations from the experts and business owners: ■ Go ahead, get personal, but only if you feel comfortable sharing your personal life with customers, and can do so in a genuine fashion. ■ Consider your message: What are you trying to convey? Do your posts line up with that intent? ■ Post what enriches followers’ experience. Provide a behind-thescene look at what you do and how you live. ■ Maintain control of all personal social media. Do not allow access to family or employees. ■ Before posting, be mindful of who reads the content. Ask yourself, “If I was the Facebook follower would I want to see this about someone whom I am following? Would it be of interest to me? Would it make me uncomfortable?” Do not post personal information if Increasingly, consumers want to support local businesses. In doing so, they also want to be more careful and conscious about where and how they spend their money, said Amber Gallihar, a senior account executive with LiefKarson Public Relations of Beachwood. The firm specializes in food, hospitality and consumer industries. “You want to support your community, people you know, people who have put their heart and soul into their businesses,” Ms. Gallihar said.

In the spotlight Mr. Anderson and Mr. Zakrajsek said they intentionally opened up their personal Facebook pages to a wider customer-based audience. By contrast, Valerie Mayen, 31, owner of YellowcakeShop, a fashion house in Ohio City founded in 2008, said who she accepted as personal Facebook friends was influenced by her national visibility.

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the reaction is that your customers might feel negatively about your operation. ■ Maintain an artful balance: Do not overload the personal site with business information; over-promotion turns off followers. Likewise, avoid constant personal updates. ■ No ranting or raving, please. ■ People want to know about the owner, but not too much. Pass on using images of you smoking or drinking alcohol, pictures taken out of context or ones that could be misconstrued as crude. ■ Political and religious posts are sensitive and risky, even with best intentions. ■ Remember the business. Connect followers to the business’s Facebook page, Twitter feeds, website and elsewhere for strictly professional messages. Remind your personal-only followers to visit your website; ask them to “like” your business Facebook page. ■ Have fun with your personal social media. Show people a lighter side of the business owner, just do so in a smart and constructive fashion. — Sharon Schnall

www.talentalley.com

This photo of Jason Zakrajsek, owner of Kuk Sul Do Academy, appeared on his personal Facebook page. In 2010, Ms. Mayen was a featured designer on the Lifetime television reality fashion series “Project Runway.” Followers sought to friend her on her personal Facebook page. Feedback was negative when she tried to steer them toward her business Facebook page. As a result, she has more than 4,600 followers on her personal page; an estimated 120 of them are friends and family, while the rest are fans and clients, she said. YellowcakeShop is expanding from an 800-square-foot space to 1,600 square feet; previously it existed in seven Cleveland pop-up locations over a two-year period. Ms. Mayen is not uncomfortable with the expanded access to her life. “I love my personal life,” Ms. Mayen said. “I think it’s interesting and exciting and I don’t mind sharing it with other people.” She posts about her business, especially her latest designs. She also posts about her life: contemplating home ownership; voting; tweets about after-hours activities; and even YouTube videos of her singing and playing the ukulele. “It’s OK for my clients to know where I stand; it’s common ground,” she said. ■

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SMALL BUSINESS

Compounding pharmacies facing a dose of scrutiny By TIMOTHY MAGAW tmagaw@crain.com

A meningitis outbreak that left roughly 40 people dead has shed light on a little-known segment of the pharmaceutical industry — one whose advocates in Northeast Ohio say fills a niche that can’t be met by retail pharmacies. The outbreak was linked to the New England Compounding Center in Framingham, Mass., but the scandal’s impact has been felt here in Ohio. Local compounding pharmacies, of which there’s only a handful, say they’ve fielded questions from patients, doctors and regulators about what they do, how they do it and whether it’s safe. Only about 7,500 pharmacies in the United States specialize in compounding — the customized preparation of medication not otherwise commercially available. For instance, compounding pharmacists can add flavoring to a medication and, in some cases, even prepare special medications for animals. “We make things up from scratch,” said Michael Connell, a pharmacist and owner of Nature’s Pharmacy and Compounding Center in Fairview Park. “The types of people we service are those who have allergies to a dye, people who can’t swallow meds

for one reason or another or children who need very small doses, those sorts of things.” At one time, all pharmacists compounded medications, but the rise of the pharmaceutical industry over the last few decades siphoned much of that activity. Still, small compounding shops still exist to fill gaps left by the drug manufacturing giants. “When you look at what our society has trended toward and the advent of pharmaceutical manufacturers and drug discovery, we’ve moved away from that traditional role of compounding medications,” said Dr. Dale E. English II, an associate professor of pharmacy practice and pharmaceutical sciences in the College of Pharmacy at Northeast Ohio Medical University in Rootstown.

Hard pill to swallow The compounding business, according to those involved, isn’t an easy one in which to be entrenched. While some critics have argued the small cadre of compounding pharmacies could use more government oversight, those involved say opening a compounding pharmacy is a costly enterprise to operate already awash in regulations, particularly for those pharmacies involved in sterile compounding. Some compounding operations

also don’t have contracts with the major insurance companies, forcing patients to pay out-of-pocket for some medications or file their own reimbursement claims. Sterile compounding — the process in which the now-shuttered Massachusetts facility was involved — is the preparation of injectable drugs or others that go into a body cavity or sterile area, such as eye drops or ear drops. The meningitis outbreak, for instance, started after contaminated vials of steroids were distributed for injections to treat severe pain. Mr. Connell had owned and operated a traditional pharmacy — Parma Drug Co. — until 1998, when he pursued his dream of opening a compounding pharmacy. At that time, he opted to forego the sterile compounding business due to the cost and liability issues associated with running such an operation. “Unless you’re doing enough of a volume, you have to pass those costs along,” Mr. Connell said. “We just elected not to go that route at that time and probably not ever. Heaven forbid if you make a miscalculation and introduce bacteria into the preparation.” Part of the challenge of keeping a compounding pharmacy in business is letting patients and, perhaps more importantly, the doc-

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tors who prescribe the medications aware of their services. Many physicians, for instance, are now affiliated with major health systems that have in-house compounding operations at their hospitals. Buderer Drug Co., which operates sterile compounding pharmacies in Perrysburg and Sandusky, ventured toward the Cleveland market in summer 2011 when it opened an Avon location. It was the compounding pharmacy’s first new location in more than a decade. Between its three locations, Buderer fills more than 300 prescriptions a day. Nick Swinford, Buderer’s communications manager who has been tasked with cultivating relationships with doctors, said the task can be difficult. There’s a general unawareness by many in the medical field about personalized services offered by local compounding shops. For one, many physicians, he said, simply aren’t exposed to compounding pharmacies in medical school.

A watchful eye Local compounders say they’ve already felt increased scrutiny from the Ohio State Board of Pharmacy. In October, the oversight authority suspended the license of JAH Pharmacies in Piqua for falling short of

sterility standards and for having an outdated stock of drugs. “The State Board of Pharmacy already informed us all there will be much more scrutiny on us,” said Mr. Connell of Nature’s Pharmacy and Compounding Center. “We’re all being re-inspected, and they’re shortening the time period between inspections and what seems to be much more.” To reassure its customers of the quality of its operation, Buderer Drug Co.’s Perrysburg location was recently accredited by the Pharmacy Compounding Accreditation Board — a distinction reserved for fewer than 5% of the compounding pharmacies nationwide. The company is looking to do the same with its other two locations in the coming years. “Everyone has to be held accountable,” Mr. Swinford said. “We’re staying ahead of the curve.” Meanwhile, officials in Massachusetts — the apparent home of the outbreak — this month unveiled a sweeping set of recommendations to ensure a similar tragedy doesn’t again unfold within the state’s borders. The proposals, if enacted, would be among the most stringent in the country. They include establishing strict licensing requirements and protecting whistle-blowers who work at such pharmacies. ■

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SMALL BUSINESS

Work: Experts say to delegate continued from PAGE 13

Dr. Hrabowy encourages clients to delegate work to other people and to meet regularly with a peer or adviser who can provide a “reality check” to help them make sure their priorities are in order. She also says they occasionally should say “no” to new business that might be more trouble than it’s worth. “All work and no play makes everyone dull; plus it’s horrible for death bed regrets,” she said. Working long hours took a toll on John Covander’s marriage and subsequent relationships. Mr. Covander owns Complete Onsite Restoration Experts, a fire and water damage restoration business in West Salem near Lodi. He hired a salesman a few years ago, which allowed him to stop taking calls after 5:30 p.m. Since then, he has started KnowYourCustomers.com, a website designed to help businesses figure out whether a potential customer is going to pay their bills, so he has been spending less time focused on the restoration business. Though it’s important to make time for family, working long

hours sometimes is unavoidable for business owners, Mr. Covander said. They would be wise to date other professionals who understand that concept, he said. And if you have no time for a relationship, don’t start one, he added. “If you’re with somebody and they’re never there with you, what’s the purpose of being together?” he said.

Make time for what matters Jason Therrien had to dial back the time he spent at the office after his son was born two years ago. Now the president of interactive marketing firm Thunder Tech Inc. aims to make it home each night well before his son’s bedtime. He also doesn’t take business calls during meals and family activities, and he tries to take more vacations. Of course, sometimes he’ll do more work from home after his son is asleep, and he remains connected via the Internet during time off. Even so, he’s spending more quality time with his family, even if it’s not a giant quantity of time. Mr. Therrien said he doesn’t want

to be one of those business owners who wears “an unhealthy badge of honor on how little time they spend with their family.” But he noted that the business needs a lot of attention. After all, it’s how he supports his family. “I think that whatever it is, it has to be healthy for both sides — enough to keep the business successful and your personal life fulfilling and healthy,” he said. While some suggest that owners fully separate some parts of their personal and professional lives, Lori Long said it’s sometimes good to weave them together. Dr. Long — an associate professor of management at Baldwin Wallace University who also consults with entrepreneurs through the school’s Center for Innovation and Growth — suggests business owners do paperwork at the kitchen table while kids do their homework, or have them pitch in on a project. “The bottom line is neglecting your family and personal life will bring on much more stress in the long run than getting a little behind here and there,” she said. ■

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GRANDOPENINGS KRYSIA ENERGY YOGA STUDIO 24350 Center Ridge Road Westlake 44145 www.krysiaenergy.com Owned by Krysia Maciuszko, Krysia Energy Yoga offers a variety of yoga at all levels, as well as Zumba classes. Additionally, there are educational workshops, yoga teacher training and massage therapy available at the Westlake studio. The aim of Krysia Energy Yoga instructors is to teach the art and science of yoga to produce health in the body, peace in the mind and calm in the spirit. Owner Ms. Maciuszko also has worked as a registered nurse in a coronary intensive care unit and had been attending Case Western Reserve University working toward her doctorate in nursing.

MILLER SCHNEIDER GALLERY

since 1996. The Miller Schneider Gallery has a diverse roster of talent from tattoo artist Meghan Dietz to folk artist Levent Isik. It also will mentor arts students in the professional practices arena.“As artists ourselves we have a keen awareness on what kind of working relationship we wish to foster with the artists we exhibit in our gallery,” the founders said. “With our combined professional experience, we also felt a responsibility to cultivate and counsel art students as well as emerging artists with the professional side of their careers.” The Miller Schneider Gallery is available for event rental, including a spacious garden area with the only legal fire pit in Collinwood.

16008 Waterloo Road Cleveland 44110-1664

216-288-1307 millerschneidergallery@gmail.com

Miller Schneider Gallery — slated to open this Saturday, Jan. 19, with an evening opening reception from 7 to 10 — is the 952-square-foot brainchild of Cleveland-based artists Bryon Miller and Dott Schneider. Mr. Miller has been a commercial photographer for more than 15 years and his work has been featured in local as well as national publications. Mixed-media artist, Dott Schneider, has been slinging common materials in order to “develop new visual topographies”

To submit information about a new business, opened within the past six months, send the following information for publication to Crain’s Cleveland Business sections editor Amy Ann Stoessel at astoessel @crain.com: business name; address; city and ZIP; website address; brief description of the business; business phone number; business fax number; and business e-mail.

440-471-4749 krysiaenergy@gmail.com

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Owners can take steps to decrease blow of increased rates for top earners

PETEDEMARCO

TAX TIPS

or most small business owners, perhaps the most significant impact of the “fiscal cliff” patch enacted by Congress will be felt in their personal tax returns, but there are plenty of business implications to explore and consider. The American Taxpayer Relief Act is the 11th-hour New Year’s legislation enacted by Congress to avoid plunging the U.S. economy into a likely recession if a series of tax increases and spending cuts had been allowed to take effect as scheduled with the end of 2012. The new top tax rate for the highest wage earners is likely to be the most important aspect of the legislation for most small business owners, especially for those who operate flow-through entities such as S corporations, limited liability corporations or other partnership arrangements. The legislation raised the top income tax rate from 35% to 39.6% on single filers with taxable income over $400,000, head-ofhousehold filers over $425,000, and married taxpayers filing jointly over $450,000 (or $225,000 for each married spouse filing separately). For business owners who operate their company as a flowthrough entity — meaning their business income flows through to their personal tax return — that most likely means higher taxes. There may be steps any individual business owner could take to soften the blow, but that will be highly dependent on each individual taxpayer’s facts and circumstances. There is a silver lining, however, for small business owners. There are a number of provisions in the act that will provide some meaningful relief to many businesses. The legislation extends a number of business-related tax provisions, some retroactively for the 2012 tax year, some into the 2013 tax year, and some covering both tax years. For example, the legislation extends through 2013 a credit for companies that increase their research and development activities. The credit originally expired in 2011, so companies now will be able to apply it to their 2012 tax returns. Congress established the credit in 1981 and has extended it numerous times as a way to encourage innovation to drive business development and job growth. Historically, the credit has been helpful to smaller companies so it

should come as welcome relief to small business owners. The new legislation also extends 2012 bonus depreciation allowances and the Section 179 provisions of the Internal Revenue Code into 2013. Without the extensions, allowances were set to roll back to far less business-friendly levels. Under the Section 179 provisions, companies will be able to write off $500,000 in capital expenditures before they will be required to depreciate anything, which accelerates expenses and therefore reduces taxable income. Previously, companies would have been allowed a write-off of only $125,000 for 2012 and $25,000 for 2013. The 50% bonus depreciation rules allow a business to write off half the cost of capital expenditures that qualify as “new” property. Also friendly to small business is the extension of the work opportunity tax credit that gives business owners a tax break for hiring workers who represent specific disadvantaged groups. Another important provision includes some relief for retail businesses that make certain leasehold improvements, improving their cost recovery in a way that reduces their taxable income. All in all, business owners that followed a non-traditional yearend strategy of accelerating income before the 2012 year closed and deferring deductions into the next year likely will still benefit from that strategy. It was difficult to know how to plan for the end of the year given the uncertainty of how Congress would resolve the fiscal cliff problem, but ultimately that non-traditional approach probably will benefit business owners who followed it. For business owners in a flowthrough entity that is making money, the increased tax rates for the highest wage earners will probably mean more taxes. Those that deferred deductions into 2013 may have helped to reduce that burden in 2013. ■ Mr. DeMarco is vice president and director of the tax services group at the regional accounting and business consulting firm of Meaden & Moore, headquartered in Cleveland.

Right-to-work legislation could be hot-button issue soon in Ohio

ichigan recently passed right-to-work legislation affecting both private and public sector employees despite strong union opposition. Earlier in 2012, Indiana also had passed a right-to-work law. As those traditionally union-friendly states pass right-to-work laws, there is likely to be increased pressure for Ohio and other Midwestern states to also consider passing such laws. But what is right-to-work, and how could it potentially impact employers and employees here in the Buckeye State?

What is a right-to-work law? Under federal labor law, and many state laws, an employer and a union can in their collective bargaining agreement require employees covered by the agreement to either join the union or face discharge, and to have union dues and assessments automatically deducted from their paychecks. However, federal labor law specifically allows that individual states can outlaw those agreements. With the most recent law passed in Michigan, there are now 24 states that have enacted various forms of right-to-work legislation that can override such mandatory union membership. Proponents of such laws argue that individual employees should be able to choose whether they want to become a member of a union. Also, they argue that employers are more likely to create jobs in a particular state where right-to-

akron/canton

Small business will see some benefits from tax relief act

at reforming public sector employment (Senate Bill 5) was repealed at the polls, a narrower issue of mandatory union membership and dues payment might be more successful with voters. A group called Ohioans for Workplace Freedom is gathering signatures in an effort to obtain a vote on an amendment to the Ohio Constitution that would bar compulsory union dues. The impact of a right-to-work law being passed in Ohio could be significant for Ohio employers. If an employer already has a union contract, then it would be likely that when the contract is renewed, mandatory union membership and dues would need to be removed from the contract. In addition, because union membership and dues payment could not be legally mandated, some unions may find it less attractive to attempt to organize employees in Ohio. Ultimately, the union’s funding comes from membership dues. If it cannot ensure it will receive membership dues from a group of employees, it may be more inclined to focus its efforts on employee groups where union dues can be mandated. As Ohio employers enter 2013, they will need to pay close attention to any discussions surrounding proposed right-to-work legislation. In the meantime, they should direct questions to their labor and employment legal counsel. ■

JAMESKUREK

ADVISER work laws exist, as they are viewed as making it less likely that a union will organize the employees. Unions are strongly opposed to right-to-work laws, because it can place them in the position of having to represent a group of employees although only a small percentage of those employees actually are dues-paying members. The reduction in dues money can make representation of a group of employees less attractive to a union. In a study of private sector, nonfarm employment, for the period of 1999 to 2009, employment grew 3.7% in right-to-work states, but shrunk 2.8% in the remaining states.

Looking at Ohio Because Ohio is competing against other Midwestern states for economic development, the fact that two of its neighbors, Michigan and Indiana, now have right-to-work laws may place increasing pressure on Ohio to pass a similar law to maintain its competitive position for future economic development. Although Ohio’s sweeping effort

Mr. Kurek is a partner in the Cleveland office of Fisher & Phillips.

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JANUARY 14 - 20, 2013

NORTHEAST OHIO'S TOP SBA LENDERS RANKED BY DOLLAR VALUE OF 7(A) LOANS IN FISCAL 2012 Dollar value of approved loans fiscal 2012

Dollar value of approved loans fiscal 2011

% change

Number of loans fiscal 2012

Number of loans fiscal 2011

% change

Huntington National Bank Columbus

101,713,800

82,357,400

23.5%

735

681

7.9%

KeyBank NA Cleveland

38,701,600

31,495,900

22.9%

114

101

12.9%

FirstMerit Bank NA Akron

16,794,300

7,847,200

114.0%

4.7%

Ohio Commerce Bank Beachwood

10,723,000

6,460,000

66.0%

90.9%

JPMorgan Chase & Co. New York

9,169,800

14,180,200

-35.3%

-29.8%

Lorain National Bank Lorain

8,336,300

13,057,300

-36.2%

22.6%

Live Oak Banking Co. Wilmington, N.C.

7,838,000

6,647,000

17.9%

0.0%

Citizens Bank Flint, Mich.

6,434,500

2,412,200

166.7%

84.6%

Fifth Third Bank Cincinnati

6,344,500

17,985,300

-64.7%

-66.7%

Portage Community Bank Ravenna

5,508,100

3,531,200

56.0%

20.0%

U.S. Bank NA Minneapolis, Minn.

5,327,900

14,570,400

-63.4%

-14.3%

Westfield Bank FSB Westfield Center

4,082,000

4,855,000

-15.9%

50.0%

Buckeye Community Bank Lorain

3,736,500

————

PNC Bank Pittsburgh

3,576,100

5,542,800

-35.5%

21.1%

CIT Bank Salt Lake City

3,105,000

————

RidgeStone Bank Brookfield, Wis.

3,100,000

1,410,000

119.9%

-50.0%

First Chatham Bank Savannah, Ga.

2,943,200

————

Enterprise Bank Alison Park, Pa.

2,775,000

600,000

362.5%

300.0%

First National Bank Orrville

2,592,000

5,820,000

-55.5%

-37.5%

First Western SBLC Inc. Dallas

2,565,000

1,400,000

83.2%

200.0%

Park View Federal Savings Bank Solon

2,456,300

3,946,000

-37.8%

-40.0%

Wells Fargo Bank NA Sioux Falls, S.D.

2,325,300

1,975,100

17.7%

50.0%

Commercial & Savings Bank Millersburg

2,308,200

620,400

272.1%

-50.0%

Celtic Bank Corp. Salt Lake City

2,300,000

————

Home Savings & Loan Co. Youngstown

2,037,500

4,255,200

-52.1%

-70.0%

Consumers National Bank Minerva

1,912,300

4,570,600

-58.2%

-7.7%

Charter One Bank/RBS Citizens NA Providence, R.I.

1,858,000

5,125,000

-63.7%

-65.1%

Cortland Savings and Banking Co. Cortland

1,770,000

3,130,000

-43.5%

50.0%

State Bank and Trust Co. Defiance

1,526,500

3,431,700

-55.5%

0.0%

California United Bank Encino, Calif.

1,500,000

————

The Farmers National Bank of Canfield Canfield

1,447,400

150,000

864.9%

700.0%

Compass Bank Birmingham, Ala.

1,443,000

858,100

68.2%

-33.3%

Greenfield Banking Co. Greenfield, Ind.

1,335,000

————

West Town Savings Bank Cicero, Ill.

1,045,000

————

Newtek Small Business Finance Inc. New York

1,019,000

1,610,800

-36.7%

0.0%

Genoa Banking Co. Genoa

956,000

1,675,000

-42.9%

-22.2%

First Place Bank Warren

843,000

2,080,000

-59.5%

50.0%

Victory Bank Limerick, Pa.

825,000

————

Andover Bank Andover

735,300

————

The First National Bank of Bellevue Bellevue

714,000

510,000

40.0%

150.0%

Square 1 Bank Durham, N.C.

710,000

————

Rank

Company name Headquarters

This list was compiled from information provided by the Cleveland District office of the SBA for fiscal years ended 9/30/2012 and 9/30/2011. The Cleveland District covers 28 northern Ohio counties. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Individual lists and The Book of Lists are available to purchase at www.crainscleveland.com.

Researched by Deborah W. Hillyer

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CRAIN’S CLEVELAND BUSINESS

Courses: Some institutions aren’t fully embracing open concept continued from PAGE 3

“What the Internet, MOOCs and other websites are showing us is that there are equally valid ways of getting all kinds of information into the hands of students rather than through the bricks-and-mortar, face-to-face meetings.”

Where’s the money? It’s difficult for those in higher education to object to the dissemination of knowledge for free by some of the world’s leading academics. Still, colleges and universities are fueled in large part by tuition revenue, and any threat to the infusion of those dollars isn’t something easily stomached. As such, local institutions are exploring how they might be able to monetize MOOCs. Elad Granot, who oversees online learning initiatives at Cleveland State, likened the relationship between MOOCs and higher education to that of Napster — the now-shuttered file sharing service that led to the propagation of illegally downloaded mp3s — and the music industry. At first, many in the music industry chided services such as Napster for not compensating the artists or record labels for their material. However, the music community has mitigated illegal file sharing to some extent with the growth of new services, such as Apple’s iTunes or Spotify, which allow artists to be compensated somewhat for their work. Dr. Granot said Cleveland State by next fall plans to launch two MOOCs — one course in nursing and another through the university’s law school. He said the university is toying with the idea of allowing those who do well in the courses to buy the academic credits associated with them, which could be transferred to other academic institutions. If the university goes that route, Dr. Granot said, the credit likely would be sold at a premium over the traditional cost of college credits, given the convenience factor of taking a course online. “It’s sort of like a free trial,” said Dr. Granot, Cleveland State’s special assistant to the provost for eLearning development. “If you do

well, you’ll have the ability to buy.”

Differing models Dr. Granot said the university hasn’t decided whether to partner with one of the MOOC giants such as Coursera or to put the courses out there on its own. Dr. Proenza, though, said the University of Akron is in talks about licensing some of its courses through Coursera. Lev Gonick, Case Western Reserve’s vice president for information technology services, said in an email that the private university was “well aware of the evolving exploration of business models for MOOCs, and we are actively engaged in conversations with providers, peers and others on opportunities in this space moving forward.” He said the university plans to launch MOOC offerings in 2013, but he wouldn’t offer any specifics. Ohio State’s arrangement with Coursera wasn’t driven as a way to profit from the offerings, according to university spokeswoman Amy Murray. However, she said the terms of the agreement did suggest the possibilities for future revenue sharing, which would need to be negotiated at the time should any revenue be generated. As a way to generate revenue, Dr. Proenza said he’s encouraging his faculty and staff to explore the possibility of offering credit to students who come to the university with knowledge acquired through MOOCs or other sources. Those students, he said, could take a test for a fee, which would cost less than that of a traditional course. Consider it an extension of the advanced placement program that awards credits to students for certain courses completed in high school. “The next step that has to happen is that somebody develops a business model or an approach that says to a potential student, ‘Regardless of where or how you obtained your knowledge, if you come to us and demonstrate the competency in Physics 101, for example, we will grant you credit,’” Dr. Proenza said.

Not for everyone Unsurprisingly, not everyone is

on board with the MOOC concept. Kent State University, for instance, isn’t ruling out the potential for delving into MOOCs in the future, but for now it’s focused on developing smaller, higher-quality online classes, according to Valerie Kelly, the university’s director of online learning. “We’ve kind of gone in the other direction,” Ms. Kelly said. “We’re working hard to develop these high quality courses, and we really feel strongly that interaction with the instructor and making sure each student can get feedback are important.” Knowing the apprehension some faculty might have about the MOOC concept, Dr. Proenza is launching a campaign of sorts at the University of Akron to drum up support and ideas from university personnel about the evolution of online learning. The university last week launched a web page with information about MOOCs, and Dr. Proenza sent the university community an e-mail asking for feedback. In the e-mail, Dr. Proenza said while computer-based instruction isn’t a new development, this was the first time he’s seen a “real sense of ur-

gency among university leaders who recognize the opportunities in digital learning.” Dave Witt, a University of Akron professor of family studies and spokesman for the faculty union, said it seems as if MOOCs could be the “great equalizer” for those who can’t afford a college a degree. Still, he said given the financial pres-

sures facing universities — especially those supported in part by tax dollars — it’s hard to see how they might generate much-needed revenue. “Proenza likes to be a visionary and look 15 or 20 years ahead and see where we could be,” Dr. Witt said. “Between here and there, there are a whole lot of details.” ■

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Westin: Hotel had hoped work would be done by mid-July continued from PAGE 1

Chaim Schochet, investment executive at hotel co-investor Optima Management, said plans were for the hotel to open just before the new and nearby Cleveland Medical Mart & Convention Center hosted its first big event in mid-July. However, design changes and financing issues created by Mr. Zai’s problems scuttled the schedule. “We’re (a few) months behind, but not much,” Mr. Schochet said in an interview. The Miami-based group is financing the project with its own resources until cash starts flowing from its primary source of financing, the Cleveland International Fund. Originally, Mr. Schochet said, the start of construction was delayed because Optima and partner-operator Sage Hospitality of Denver made changes that Starwood Hotels and Resorts, the Westin franchiser, wanted as part of a new Westin design standard. Then fate came into play. Mr. Zai, who led Cleveland International Fund and ran multiple firms under the Cleveland Group of Cos. name, was indicted last February and pleaded guilty Nov. 5 to nine federal counts in a bank fraud scheme. A new management team assumed control of the fund and now is raising money for the massive conversion project. Mr. Schochet declined to say how much money Miami-based Optima is advancing the makeover while Cleveland International Fund raises more than $35 million for the hotel project. He noted that he and Ken Geist, a Sage partner, had gone to China to promote the Cleveland International Fund’s fund-raising among potential investors. Cleveland International participates in the U.S. State Department’s EB-5 program, which allows investors in foreign countries to obtain preferential treatment for immigration visas for investing in job-

STAN BULLARD

WESTIN HOTEL ILLUSTRATION

The former Crowne Plaza in downtown Cleveland, left, is undergoing a $70 million conversion that, when finished, should look like the image at right. creating U.S. projects. Loan documents for the hotel project at the Cuyahoga County Recorder’s Office illustrate how much ill timing cost delivery of the big project. The loan was closed Dec. 28, 2011 — more than a year ago — but the crisis at Cleveland International Fund meant the money did not flow. Mr. Schochet did not say when Optima decided to start the project with its own resources, though few hotel developers could or would do so. They typically rely on bank or institutional sources for such loans. However, Mr. Schochet has said in the past that Optima has access to funds from concerns in the former Soviet Union that have been privatized.

No biggie The delay deprives the market of its second-largest downtown hotel, with 481 rooms, as well as one of two

hotels facing the big convention center complex on St. Clair Avenue. Nonetheless, the city’s lodging and convention marketing brass pooh-poohed the impact of the Westin delay. Dave Johnson, director of public relations for the Cleveland Medical Mart & Convention Center, said it would be unfair to assert that the Westin’s scheduled 2014 opening will harm the market. Big conventions and shows book at least two or three years in advance, he said, and the prospect of a new Westin nearby outweighs a short-term delay. The new Aloft hotel at the Flats East Bank project downtown and a Courtyard by Marriott at University Circle also will add rooms to the market, he said. Likewise, David Gilbert, president of Positively Cleveland, the city’s convention and visitors’ bureau, said a handful of conventions

that were going to use the Westin were displaced by the delay, but they found room at other inns. “We did not lose any business” because of the delay, Mr. Gilbert said. “It does not have a material effect on the market.” Later, as the medical mart and convention center book more and larger groups, the Westin will be needed, Mr. Gilbert said. Housing the expected 35,000 participants and spectators for the convention center’s first big event, the National Senior Games, involves 34 hotels in the region, but not all are downtown because events for the games are scheduled throughout the area. For example, track and field events are at Baldwin Wallace University in Berea, which will buoy the airport hotel market.

Getting busy In any case, the Westin job is picking up speed daily, according

to Adelbert “Chip” Marous, CEO of Willoughby-based Marous Brothers Construction Co., which is designing and building the project. “We’re going great guns now,” Mr. Marous said last Tuesday, Jan. 8. He said his firm is scheduled to deliver the transformed hotel in February 2014. He estimates he has 75 workers on the job now since financing freed up. Last month, 40 were on the job. More work is under way inside than is apparent outside, Mr. Marous said. Three model suites already are completed so that Sage and Starwood can evaluate the designs and pitch planners of prospective meetings. Mr. Marous said starting the massive exterior update of the building began recently, which is not a bad thing as the later start thrusts more of the outside work on the 20-story building into this spring from the winter. ■

Content marketing is ‘must’ for tech companies By GINGER CHRIST gchrist@crain.com

TOA Technologies, a provider of software for managing mobile work forces, has an editorial department, complete with editors and writers. The Beachwood-based company publishes white papers, reports and blogs all about the business of optimizing the use of staffs of cable television installers and plumbers. TOA is one of a growing number of companies with such departments, a subscriber to the concept of content marketing — a technique involving delivering relevant content to a target audience as a means of attracting business. Think in TOA’s case of blogs, webinars and videos on the cost savings or technical details of using work force management software. “We know that buyers today are doing more of the legwork to educate themselves about our market. We want to be there in front of them providing really useful information,” said Rick Shimko, manager of global demand generation for TOA, which has founded its marketing team on the concept of con-

tent marketing. Content marketing has been identified by marketing insiders as one of the top marketing trends of 2013. “Having a content marketing strategy isn’t an option; it’s a must,” said Julie Rees, team leader of marketing content strategy for Hyland Software Inc., a software development company in Westlake that has been engaged in content marketing for six years. While some industry sectors are in the early stages of developing content marketing strategies, tech companies such as Hyland are well into the process. “I’d like to think we’re ahead of the curve,” said Ms. Rees, whose company produces webinars, ebooks, games and even comic strips to engage audiences. It pushes out content through e-mail, its website and third-party connections such as media publications. Nine out of 10 business-to-business marketers are using content marketing in some way, according to a survey of 1,416 marketing professionals by the Content Marketing Institute, a Cleveland-based organization that teachers marketers how

to employ storytelling. And the extent to which they use it is growing. B2B marketers have been spending more on content marketing, with 54% planning to increase that spending in the course of the next year, according to the survey.

The wall comes down The basic form of content marketing — storytelling — has been around for years. Just ask John Deere, the farm equipment maker that since the 1800s has published a farmer’s magazine. The new twist is accessibility. Prior to the Internet and social media, it was hard for brands to publish their own messages; they had to rely on traditional media to get the word out. As social media and digital technology have advanced, marketers now have a relatively inexpensive way to reach audiences. “There are no barriers to entry anymore,” said Joe Pulizzi, founder of the Content Marketing Institute. Likewise, prospective buyers are doing research on their own before dealing with a company, creating a need for companies to ply them with useful information.

Hyland’s Ms. Rees likens the transition to the car-buying process. A decade ago, potential buyers visited dealerships and read brochures to decide which car to drive home. Today, buyers enter dealerships armed with Internet research and a price point in mind. “The same is true for other big buying decisions,” Ms. Rees said.

Backing up their claims Customers of the document management software Hyland develops typically take nine to 12 months to make a purchase, she said. But they don’t contact the tech vendor until they’ve already made 70% to 90% of the buying decision, Ms. Rees said. “Content marketing allows us to give them the information they need,” Ms. Rees said. It’s a way for companies to prove their credibility to buyers who are becoming increasingly critical of blanket sales claims, said Jackie Bebenroth, principal/editorial director of Muse Content Group, a Clevelandbased content marketing firm. “A company sells widgets and it says it makes the best widgets on its

brochure. People don’t believe those sales claims anymore,” Ms. Bebenroth said. “So, your content, your blog, your Facebook page really work to provide evidence to those sales claims in a very credible way.” Because content marketing is becoming so ubiquitous, it’s increasingly harder for companies to be heard above the clamor, said Mr. Pulizzi of the Content Marketing Institute. To create effective content, companies are developing marketing teams that are now hybrids of traditional marketing departments and publishing houses, Mr. Pulizzi said. And companies such as Hyland use metrics to track how successful a campaign is and to determine what information its potential buyers are seeking. At TOA, the content marketing team creates informational pieces to feed to clients based on whether they come from the technical or operational side of a business. “When you do it right and you have great content, you can use it to impact every aspect of your sales and marketing,” said Kaitlin McCready, manager of public relations for TOA. ■

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Bankers: Late deals avoided hike in capital gains taxes continued from PAGE 1

In the United States, the number of private equity and strategic deals in last year’s fourth quarter climbed 20% to 2,477 from 2,056 in the yearearlier quarter, and in Ohio, it spiked to 81, up 50% from 54 in the fourth quarter of 2011, the data show. Advisers say the late-year frenzy was fueled in large part by sellers’ desire to avoid a hike in capital gains taxes, the top rate of which rose under the fiscal cliff deal to 20% from the previous 15%. When combined with the new 3.8% Medicare surtax on investment income, the overall capital gains rate for higher-income taxpayers effectively climbs to 23.8%. Though clients didn’t sell primarily because of tax reasons, “nobody wants to close a deal Jan. 15 and pick up the incremental tax burden,” said David Dunstan, managing director of Western Reserve Partners. “For any company that might have closed (a sale) in January or February, there was a hard push to get that done by Dec. 31,” he said.

‘Zigging and zagging’ The Riverside Co., Cleveland’s most prolific private equity firm, in 2012 closed a record 36 acquisitions and a record 14 exits, firm executives say. While Riverside’s co-CEO Stewart Kohl said Riverside’s sale of its own portfolio companies was not so much tax-driven, the firm was able to win some acquisitions, in part, because it committed to close the deals in 2012. Lawyers engaged in the deal race set records, too. The M&A practice group of the Cleveland law firm Calfee closed more than double the deals in 2012 that it did in 2011, and did five times more closings in the second half of 2012 than in the last six months of 2011, said Mike Marhofer, practice co-chairman. “There was an incredible amount

“There has never been more cash on corporate balance sheets (and) there is a limited universe of fine companies for sale. The (fund) sponsors have lots of cash, the strategics have lots of cash and they’re aggressively bidding on highperforming companies.” — David Dunstan, Western Reserve Partners, managing director of effort and strain on our core M&A practitioners,” the other cochairman, Doug Neary, said. “People were zigging and zagging to get stuff done.” The private equity group of the Taft law firm also was “substantially busier” in the fourth quarter than in any quarter Michael Wager can recall. A partner in Taft’s business and finance practice group, Mr. Wager said some private equity clients opted to accelerate the exits of mature investments rather than wait until 2013.

An early pause The “hangover” — as one private equity executive called it — has set in now, and the number of deals coming to market has slowed considerably. Many of the investment bankers who were busy closing deals late last year were not as active replenishing their pipelines for 2013, investment insiders say. Plus, some deals that would have occurred in 2013 were accelerated into 2012, and as Mr. Kohl said, “You’re not going to then pull the 2014 exits into 2013.” Still, most who make their money advising on deals are confident 2013 will be a strong year overall, and some even expect to top the records they set last year, particu-

larly with activity in the health care, technology and energy sectors. The conditions are ripe, they say: Financial and strategic buyers have the cash to spend, banks have the cash to lend (and want to lend it), and companies have improved performance. Plus, a number of aging business owners have waited for better earnings and better valuations before putting their businesses on the block. “More companies also are looking to do more acquisitions because they’re having trouble getting organic growth,” said Mark B. Bober, partner and practice leader of transaction advisory services for Bober Markey Fedorovich, an Akron-based accounting firm. The firm’s deal volume in the fourth quarter was up probably 25% from comparable periods in recent years, he noted. Some investment bankers say their 2013 pipelines already are robust. Tom Zucker, president of EdgePoint Capital Advisors in Beachwood, which closed eight of last year’s 12 total deals in the fourth quarter and achieved record revenues for the year, predicts 2013 will be another record year for EdgePoint. And Brown Gibbons Lang & Co. expects to add four or five new analysts in its Cleveland and Chicago offices in the next six months, driven by the expectation that 2013 will trump 2012, said Andrew Petryk, managing director and principal. The investment bank is writing a number of offering memorandums that will go to market later this month or in February, Mr. Petryk said.

Cash is king Would-be sellers need not despair: Despite higher taxes, there is definite upside for those who go to market this year. “There has never been more cash on corporate balance sheets” and “there is a limited universe of fine

companies for sale,” said Western Reserve Partners’ Mr. Dunstan, who noted the firm has budgeted for increased revenue and expects to hire three or four people in 2013. “The (fund) sponsors have lots of cash, the strategics have lots of cash and they’re aggressively bidding on high-performing companies,” he said. “The environment for betterperforming companies is as good as it’s (ever) been.” High prices are one reason why many private equity firms were not as aggressive as Riverside last year. “Many of the private equity funds were not that active in 2012 because prices are still so high,” Calfee’s Mr. Neary said. “They’re unable to deploy their capital with a reasonable expected rate of return when they have to pay such a high price (for a company). That can’t last for too long.” That’s because when private equity funds raise money, they have a timetable for deploying the capital committed by their investors. The need to spend that capital is one reason Mr. Neary anticipates private equity firms will be more active in 2013. The growing supply-demand imbalance is clear, in Mr. Dunstan’s view, in the increased number of inbound calls Western Reserve Partners is receiving from private equity groups that are seeking opportunities, rather than waiting for pitches. Mr. Dunstan predicted some sellers will net such high multiples that, coupled with internal growth, they should generate better net proceeds in 2013 than they would have last year. “If you’re a growing company, the benefit of that growth and the multiples you’ll receive should outweigh the increase in capital gains taxes,” he said. “You’ll make more net proceeds as a seller taking advantage of that growth in 2013 than you would have trying to force a sale in 2012.” ■

ON THE WEB

Story from www.crainscleveland.com

Art museum visitation is on steady rise The Cleveland Museum of Art has announced 423,640 visitors came to the museum in 2012, which represents a 38% increase over the previous year’s numbers. The boom in visitors brings the museum’s attendance figures in line with those from before the institution embarked on its ambitious, $350 million renovation and expansion initiative, which is slated for completion by year’s end. In a news release, the museum attributed the attendance spike to the opening of its new atrium and dining facilities, the blockbuster “Rembrandt in America” exhibition, and new galleries showcasing late medieval, renaissance and Islamic collections. “We are very appreciative of the response we’ve received from the community so far,” museum director David Franklin said in the release. “We invite everyone to visit the museum and experience our galleries, special exhibitions, performing arts, films and programs throughout the year.” The museum’s finances also appear to be in good shape. The museum reported in the first six months of the current fiscal year, which ends June 30, that overall fundraising outpaced last year’s by 44%, totaling $26 million. The museum also reported a balanced budget and that it maintained an AA+ bond rating from Standard and Poor’s. — Tim Magaw

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CRAINâ&#x20AC;&#x2122;S CLEVELAND BUSINESS

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Macedonia injection molder preps for expansion Design Molded Plastics will add 20,000 square feet By JESSICA HOLBROOK Plastics News

Design Molded Plastics in Macedonia plans to break ground this spring on a 20,000-square-foot expansion â&#x20AC;&#x201D; a fitting start to what company officials say will be their companyâ&#x20AC;&#x2122;s best year yet. The custom injection molder occupies two adjacent buildings on Bavaria Road: a 62,000-square-foot plant and headquarters, and a 48,000-square-foot warehouse that also houses the companyâ&#x20AC;&#x2122;s engineering offices. Design Molded

Plastics bought the warehouse in late 2011 after running out of room for expansion at the original site. The warehouse was a â&#x20AC;&#x153;strategic buy,â&#x20AC;? not just for the building but also the property, co-owner and president Jay Honsaker said in an interview. Combined, the two properties encompass about 10 acres. Design Molded Plastics will add 20,000 square feet to the warehouse as well as relocate all parking to that property, freeing up land at its headquarters plant to expand manufacturing operations. The entire

project will take a couple years. Last year, the company added six new injection molding machines: a 500-ton hydraulic press from Wittmann Battenfeld and five Toshiba presses â&#x20AC;&#x201D; two all-electric 110-tonners and three 500-ton hydraulic presses, Mr. Honsaker said. The plant now operates 33 machines, ranging from 88 to 950 tons of clamping force. To support that new capacity, Design Molded Plastics boosted its work force to 200. That move included upping the number of entry-level machine operators to 65

from 30, said Diane Hanson, coowner and company treasurer. Design Molded Plastics did more than $23 million in business in 2012, a record. Mr. Honaker said he expects the company to log a 10% to 20% sales increase in 2013.

Big on â&#x20AC;&#x2DC;Made in the USAâ&#x20AC;&#x2122; As a custom thermoplastic injection molder, Design Molded Plastics makes parts for markets that include home and kitchen appliances, protective equipment, and automotive and medical equipment. In recent years, the company has benefited from reshoring from Asia. It is one of a few U.S. manufactur-

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â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re the exception in the industry when it comes to plant cleanliness and organization and efficiency. You see that immediately when you walk into the plant. A very common phrase is: â&#x20AC;&#x2DC;In all the plants Iâ&#x20AC;&#x2122;ve been in, this is the cleanest.â&#x20AC;&#x2122; â&#x20AC;? â&#x20AC;&#x201C; Jay Honsaker, co-owner and president, Design Molded Plastics in Macedonia ers that still produce parts for vacuum cleaners, said sales manager Jim George. A maker of portable heaters recently returned production to Ohio and Design Molded Plastics also molds parts for that firmâ&#x20AC;&#x2122;s products, he said. The company has aligned itself with customers in high-end markets that offer U.S.-made products and only buy U.S.-made parts, according to Mr. Honsaker. â&#x20AC;&#x153;Those customers have grown even through the weak economy and our business has grown as a result of that,â&#x20AC;? he said. Design Molded Plastics also has attracted, and retained, business by offering more than injection molding. â&#x20AC;&#x153;A big part of our business growth is [from offering] our engineering capabilities upfront with our customers,â&#x20AC;? Mr. Honsaker said. The firm began offering full-service tooling â&#x20AC;&#x201D; building, repair and maintenance â&#x20AC;&#x201D; several years ago. It also has a team of engineers working in product design. â&#x20AC;&#x153;(A customer) can design just about any part they want, but it has to come out of the mold. Thatâ&#x20AC;&#x2122;s where we come in to play,â&#x20AC;? Mr. Honsaker said. The company can collaborate with its customers to design moldable parts that meet their criteria, including aesthetic requirements, at the lowest possible price. The company makes the tooling for the part in-house or outsources it, depending on how quickly the part is needed.

Clean machines Mr. Honsaker also credited the companyâ&#x20AC;&#x2122;s commitment to quality and cleanliness. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re an exception in the industry when it comes to plant cleanliness and organization and efficiency. You see that immediately when you walk into the plant,â&#x20AC;? he said. â&#x20AC;&#x153;A very common phrase is: â&#x20AC;&#x2DC;In all the plants Iâ&#x20AC;&#x2122;ve been in, this is the cleanest.â&#x20AC;&#x2122; Everyone says that, from the ISO auditor to the postman.â&#x20AC;? The entire work force contributes to keeping the plant in top form. Maintenance workers on each shift are charged with keeping the plant clean, and every mold goes through a rigorous cleaning and repairing process before its use, he said. The plant sells itself, Mr. George said. â&#x20AC;&#x153;If we can get (prospective customers) into the door and into the plant, thatâ&#x20AC;&#x2122;s half the job done already, without even supplying them a quote,â&#x20AC;? he said. â&#x2013; (Jessica Holbrook is a reporter with Plastics News, a sister publication of Crainâ&#x20AC;&#x2122;s Cleveland Business.)

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JANUARY 14 - 20, 2013

CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

THEINSIDER

THEWEEK JANUARY 7 - 13 The big story: Young biomedical companies in Northeast Ohio raised a total of $226.5 million from investors last year — a figure that blows away totals from almost every other year in the last decade. The total falls just $15 million short of the $241.8 million total set in 2007, a year when local biomedical startups raised far more than they had in the past. But 2012 took second place by a landslide. By comparison, biomedical startups in Northeast Ohio raised $124.7 million in 2011, $135.1 million in 2010 and $66.3 million in 2009, according to the Midwest Health Care Venture Investment Report from BioEnterprise Corp.

Room to run: Former Ohio Gov. Ted Strickland will not challenge John Kasich in the 2014 governor’s race. The decision opens the door for Cuyahoga County Executive Ed FitzGerald to make a run for governor. Mr. FitzGerald, who had support from the Ohio Democratic Party when he ran for county executive in 2010, has not ruled out a run for governor when asked directly. Placing more bets: Wagering at Horseshoe Casino Cleveland picked up in December, with adjusted gross revenue hitting $24,529,639 for the month, the busiest month at the casino since June. That figure brought the wagering total for 2012 to $151,858,444, according to data released by the Ohio Casino Control Association. The casino opened last May. The bulk of the revenue for the year, 68%, came from slot machines — a total of $103,925,923.

Their man in Washington: Steve LaTourette just left Congress after 18 years, but he already has a new private-sector gig in Washington, D.C. Cleveland-based McDonald Hopkins said Mr. LaTourette will head a new subsidiary, McDonald Hopkins Governmental Strategies, of the business advisory and advocacy law firm. The subsidiary will not be a branch office of the law firm and will not provide legal services, but will operate as an ancillary business, owned by the law firm, and provide lobbying and government relations services in Washington.

Promise of a new day: Great Day Improvements LLC of Macedonia, the company behind sunroom creator Patio Enclosures, acquired Stanek Vinyl Window Co.’s operating assets for an undisclosed price. Great Day, a residential and commercial remodeler, intends to manufacture and offer Stanek-brand windows as part of its line of home improvement products. Steve White, Great Day managing partner, said the Stanek branch in Cuyahoga Heights will remain, but its manufacturing operation ultimately will be moved to Macedonia. The majority of Stanek’s 65 employees, 42 of whom are in the Cleveland area, will be retained. Around the square: Judi Feniger, former executive director of the Maltz Museum of Jewish Heritage, was named executive director of an emerging Northeast Ohio arts powerhouse, the Gordon Square Arts District. She succeeds Joy Roller, founding executive director of the Gordon Square Arts District, who this month became president of Global Cleveland, an economic development initiative focused on connecting newcomers to opportunities in the region. This and that: SPR Therapeutics of Highland Hills raised $5 million in Series A financing, which will fund clinical trials that could lead to the commercialization of new pain therapies using the company’s peripheral nerve stimulation technology. … AxioMed Spine Corp., a company based in Garfield Heights that develops orthopedics products to restore spinal function in patients with degenerative spine disease, completed a new round of financing, raising $3.6 million from current and new investors.

REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS

Clinic gets to the heart of the matter ■ Officials at the Cleveland Clinic are in discussions to link the health system’s lauded heart care program with a handful of other hospitals beyond Ohio’s borders. The Clinic’s Heart & Vascular Institute already has affiliations with nine hospitals outside Ohio, and Dr. Joseph Cacchione, the institute’s chairman of operations and strategy, said the Clinic is eyeing four others that have an “expansive geographic spread.” “We will continue to push forward looking for organizations with a lot of synergies with the Cleveland Clinic that can position us in a way to remain a national player,” Dr. Cacchione said. The affiliations traditionally have been a revenue generator for the Clinic. According to the most recent data available, the Clinic earned $10 million in revenue from such arrangements in 2011. As part of the deals, the Clinic allows partnering hospitals access to the health system’s clinical techniques and quality standards for a fee. The bulk of the partnering hospitals have seen their quality scores increase markedly thanks to the Clinic’s services, Dr. Cacchione said. The Clinic’s heart institute last week announced a partnership with MedStar Health, the mid-Atlantic’s largest health care provider. The affiliation is slightly different from previous ones in that it isn’t centered solely around the clinical enterprise, as the Clinic and MedStar’s robust research programs also will join forces.

The heart institute also is affiliated with hospitals in Illinois, Pennsylvania, Kentucky, New York, North Carolina and South Carolina. — Timothy Magaw

Amping up a mutually beneficial arrangement ■ Medical Mutual of Ohio CEO Rick Chiricosta’s charge to his army of 2,600 employees to do more business with the health insurer’s customers appears to be gaining momentum. Last year, Medical Mu- Chiricosta tual employees logged nearly $10 million in purchases from the insurer’s clients as part of the company’s “Mutual Appreciation” initiative, which Mr. Chiricosta dreamed up in 2011. Consider it an “I’ll scratch your back if you scratch mine” sort of thing. To stir up more activity from his employees, Mr. Chiricosta randomly awarded $2,500 gift cards to clients’ businesses to five employees who had logged their purchases. “After that, all of a sudden the participation rate went through the roof,” Mr. Chiricosta said. About 60% of Medical Mutual’s employees have bought goods or services from the insurer’s client list and logged their purchases, but Mr. Chiricosta said he thinks the company could do better. “No other insurer has the critical mass of employees like we do,” he said. “With this momentum, I think it’ll keep going and keep

MILESTONE

BEST OF THE BLOGS

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Excerpts from recent blog entries on CrainsCleveland.com.

THE OCCASION: Its 10th anniversary

Dots is put on the spot

Principals of the company, including Joseph Murphy, say it was founded “on a mission to revolutionize how pre-employment assessment is created and delivered.” In the last decade, Shaker Consulting Group said it has attracted Fortune 500 clients in the financial services, hospitality, insurance, manu- Stern facturing, medical services, retail and technology sectors. The firm now has operations in four cities — Atlanta, Pittsburgh and Washington, D.C., in addition to its headquarters — and employs 12 Ph.Dlevel industrial/organiza- Murphy tional psychologists who work in selection science and human resource analytics. The firm describes its Virtual Job Tryout as “a custom pre-employment assessment designed to leverage the multi-media capabilities of the Internet to deliver a highly engaging, company-branded candidate experience.” Brian Stern, Ph.D., president of the firm, said the product helps recruiters “obtain information about a candidate that is far more objective and useful than anything found on a resume.” For information, visit www.ShakerCG.com. Send information about significant corporate anniversaries to managing editor Scott Suttell at ssuttell@crain.com.

■ Many companies have big decisions to make about their health benefits in the wake of health care reform. The Wall Street Journal took a close look at how that will play out for various employers, including Dots LLC, the women’s clothing chain based in Glenwillow. Dots “projects that its health costs could go up by around a third because of the law,” The Journal reported. “That is largely because only about 55% of the employees who are currently eligible for health benefits take the coverage, and the retailer thinks that share could jump sharply.” Joanna Curran, benefits and payroll manager at Dots, told The Journal that the company has been preparing for that increase for two years, trimming its costs with moves such as boosting workers’ premium contributions and putting new employees into a more basic health plan. “In coming months, Dots’ top executives will have to decide what else to do. One possibility: more cost-sharing for employees,” the newspaper added. “Dots also will consider more strictly enforcing existing limits on the hours of a small group of part-timers who occasionally go over 30 a week today, to avoid the complexity of having workers bounce back and forth into the law’s definition of full-time status.” Ms. Curran noted, “We are facing the fact that we are going to have to spend more money.” But Dots won’t drop its coverage because it would hurt recruitment and retention of employees, she said.

skyrocketing. I’m pumped about it.” Mr. Chiricosta said he has received positive feedback from the top brass at some of the companies Medical Mutual serves and believes the program is a particularly useful tool for cultivating business. “I really believe it can be the difference maker in getting business and keeping business,” he said. — Timothy Magaw

South Carolina developer is making its exit from area ■ Edens, a shopping center owner and developer based in Columbia, S.C., has completed its departure from Northeast Ohio with the recent sale of two Cleveland shopping centers. Cuyahoga County land records show Edens Dec. 20 sold Broadway Shoppes in the city’s Slavic Village neighborhood for $3.6 million to Rzepak LLC, an affiliate of Cleveland-based Paran Management Co. County records say Edens sold Westown Square in the Cudell neighborhood for $7.3 million Dec. 14 to Westown Investors LLC, a Weston, Fla.-based investor group. An Edens spokeswoman said in an email that the two sales shed the last of its shopping centers in Northeast Ohio. The company launched its exit from the region in 2009, when it put a portfolio of nine properties from Mentor to Fairlawn on the block. Jennifer Childs, Paran marketing director, wrote in an email that Broadway Shoppes brings to 30 the number of retail centers and apartment buildings in its portfolio. Paran was founded by Joseph Shafran in 1975. — Stan Bullard

On top of the world ■ Ohio is home to two of the world’s 100 best universities, according to a new ranking. A group called the Academic Ranking of World Universities ranked Ohio State University as the 65th best school globally, and Case Western Reserve University came in at No. 99. (The organization has been doing this ranking annually since 2003.) Universities are ranked by several indicators of academic or research performance, including alumni and staff winning Nobel Prizes and Fields Medals, highly cited researchers, papers published in Nature and Science, papers indexed in major citation indices, and the per capita academic performance of an institution, the ARWU said.

Making do on 5% less ■ Azim Nakhooda, chief executive of Cedar Brook Financial Partners, was quoted in a Reuters story about what financial advisers are telling their clients in the wake of the fiscal cliff deal that creates higher tax rates for upper-income households. Adviser “have gone into overdrive to help their clients mitigate the negative effects while trying to benefit from the greater clarity,” the news service reported. “That means in some cases finding ways to defer income and in others, working on ways to curb spending. It can also mean being more aggressive about investing in equities rather than bonds or holding cash.” Mr. Nakhooda said he will be telling many of his high-earning clients that they have to reprioritize their personal life to recalibrate it with their financial life. “For every dollar you had coming in, you now have 95 cents,” said Mr. Nakhooda, whose firm manages $1.6 billion in assets. “How do you want to divvy that up?”

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