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VOL. 33, NO. 39

Insurance rates climb to buoy profit margins Lower investment returns, property losses caused by storms contributing to increases By MICHELLE PARK mpark@crain.com

JANET CENTURY

Chris Baxter, director of operations at the Atlas Cinemas at Eastgate 10 in Mayfield Heights

THEATERS EYE THE BIG PICTURE Cinemas convert from film to digital movie projectors, but costly upgrades challenge some operations

By MICHELLE PARK mpark@crain.com

pstairs, out of sight of the movie-going audiences that came to see a matinee last Wednesday afternoon, a transformation was taking place. And, as a result, between two rows of digital movie projectors playing titles such as “Frankenweenie” and “Looper,” sit a few 35 mm film projectors — dark, quiet, unplugged. Euclid-based Atlas Cinemas last week completed the installation of digital projectors at the Eastgate 10 theater in Mayfield Heights. Now, only one of its five Northeast Ohio theaters uses film projectors. Local theater operators are spending tens of thousands of dollars to outfit their theaters with digital projectors as speculation grows that the See THEATERS Page 22

Commercial property and casualty insurance rates have been on the rise for about a year and are expected to keep climbing as insurance carriers try to counteract blows to their profits dealt by Mother Nature and low interest rates. Insurers make money in two ways — through underwriting and by investing the cash they amass. When both those sources of revenue get pinched, one by property losses caused by storms and the other by interest rates, rate increases are to be expected, industry insiders say. “If I can’t make money on investments, I have no choice but to make more money on insurance,” said Richard W. Dorman, who consults with insurance companies on product management and pricing through his Beachwood firm, Richard Dorman Insurance Consultants. “The only way to make more money on the insurance side is to raise your rates,” Mr. Dorman said. Commercial insurance prices in total rose by 6% during the second quarter of 2012 compared to the

University research budgets hang in the balance Expected government spending cuts likely to crimp projects in some way By CHUCK SODER csoder@crain.com

There’s a good chance that research budgets at Northeast Ohio’s universities are going to shrink. It’s just a matter of when, how and by how much. Those research budgets will need to absorb big cuts fast if the federal government fails to come up with a budget deal before the end of the

year. That failure automatically would trigger massive spending cuts across most federal programs in a process known as sequestration. Those cuts would do serious harm to university research departments, which typically fund most of their projects with federal dollars. They’d be forced to cut salaries, lay off graduate students and postdoctoral researchers, and perhaps even

INSIDE: Manufacturers brace for an impact to business, say cuts could hinder industry momentum. Page 3 shut down entire research projects, according to four officials who oversee research functions at local universities. Many more projects wouldn’t even get off the ground, they said. “I can guarantee that it will impair our ability to do research,”

said Robert Miller, vice president for research at Case Western Reserve University. There’s only one clear way for the federal government to avoid the automatic cuts, which would amount to more than $1 trillion over 10 years, starting in January. The cuts won’t go into effect if Congress and President Barack Obama pass a bill that reduces the deficit by the same amount. That means big spending cuts

“Insurance companies are not going to price themselves out of business.” – Jeremy Bryant, senior vice president, Britton Gallagher year-ago period — the sixth consecutive quarter that aggregate prices rose for all commercial lines, according to the Commercial Lines Insurance Pricing Survey by Towers Watson released last month. The aggregate price increase was the largest in eight years, the survey found. “Nobody likes increases,” said Jeremy Bryant, a senior vice president with Britton Gallagher, a Cleveland insurance brokerage. “In some cases, (a rate hike) could mean a sixfigure increase if you have enough payroll or high enough property insured value.” Commercial property rates are up because of “a real frequency of severe losses” inflicted by tornados, hurricanes and the like in 2010 and 2011, said David C. Jacobs, president and chief operating officer of Oswald See RATES Page 20

INSIDE Creative outreach The Cleveland Museum of Art is ramping up its efforts to become more entrenched in the corporate community. The museum next month plans to launch a membership campaign with incentives intended to enhance the relationship. PAGE 4

See RESEARCH Page 20

SPECIAL SECTION

SMALL BUSINESS Area’s high-profile chefs go beyond the glam to the grit in sharing journeys to success ■ Page 15 PLUS: EXACTCARE TAKES GUESSING OUT OF MEDICINE ■ & MORE

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COMING NEXT WEEK Honoring the region’s top CFOs We profile some of the area’s top financial professionals with our annual CFO of the Year awards.

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THE WRONG DIRECTION Call it the low-wage recovery. Two years after the recession officially ended, the majority of new jobs being added to the economy pay just $13.83 per hour or less, a new report from the National Employment Law Project shows. While the job losses during the recession were concentrated in midwage occupations, the subsequent employment gains continue to come heavily in low-paying jobs. Employment in lower-wage occupations grew 2.7 times faster than in mid-wage and higher-wage occupations. Here’s how the data break down:

CRAIN’S ON THE WEB “Behind the News” podcast ■ Crain’s reporters dig deeper into each week’s trends on our podcast, which you can find at www.CrainsCleveland.com/section/audio.

Best of our Blogs ■ Our roster includes Editor’s Choice, SportsBiz, Small Business, Staffing/HR, Energy and many guest entries, and is located at www.CrainsCleveland.com/section/blogs.

OCTOBER 8 - 14, 2012

Hourly Share of losses Share of gains wages during recession post-recession Higher-wage occupations

$21.14$54.55

19%

20%

Midwage occupations

$13.84$21.13

60%

22%

Lower-wage occupations

$7.69$13.83

21%

58%

SOURCE: NATIONAL EMPLOYMENT LAW PROJECT; WWW.NELP.ORG

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: Joel Hammond (jmhammond@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 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) Lindsey Nordloh (lnordloh@crain.com) Office coordinator: Toni Coleman (tcoleman@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)

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Manufacturers brace for jolt to business Companies refrain from hiring and spending, anticipating budget cuts By GINGER CHRIST gchrist@crain.com

Dramatic federal spending cuts set to take effect at the start of next year likely would take the air out of the balloon of U.S. manufacturing’s resurgence, industry representa-

tives say. If Congress before the end of 2012 fails to reach a compromise to cut the federal budget, the nation will fall off what’s been referred to as the fiscal cliff. That means $109 billion in automatic cuts will go into effect in January, involving an across-the-board $54.5 billion

reduction of Pentagon spending in 2013. “Whatever happens in Washington is something we can’t affect other than react to it,” said Gary Swanson, president and CEO of Thermotion LLC, a Mentor-based manufacturer of heater control

valves. “You sort of feel like you’re on a train, and you’re just along for the ride.” In anticipation of potential budget cuts of $1.2 trillion over the next 10 years as part of the so-called sequestration process, manufacturers are holding off on hiring and on buying new equipment, and instead are waiting to see how the budget saga unfolds.

For companies such as the Bethesda, Md.-based defense contractor Lockheed Martin, which operates a plant in Akron, the situation also likely means layoffs. Lockheed Martin in July said it could need to send out layoff notices starting this month to all its employees in order to remain in compliance with the federal Worker See CUTS Page 19

INSIGHT

Health care spinouts multiply amid need for technology products Efforts to develop, sell IT innovations surge By CHUCK SODER csoder@crain.com

JANET CENTURY

Shane Kline-Ruminski (left) and Mike Heines (center) started The National Basketball Academy, based in Woodmere, in 2002. It’s grown to a 10-city domestic operation — with more to come — and it also has established itself in Greece. Tom Heines (right) has taken on a larger role in the company’s business operations.

ON THE COURT, A SHOT AT MORE GROWTH

If the health information technology sector was hot two years ago, now it’s boiling. Local companies and institutions are clamoring to meet a burning need for IT products that can help health care providers cut costs and improve care. No. 1 among them is the Cleveland Clinic. The institution is spinning out so many information technology companies that it might need a whole building for them. That discussion is still preliminary. Nothing has been decided, not even whether the best course would be to use an existing building or build something new, said Heather Phillips, director of cor-

ike Heines says his company, The National Basketball Academy in Woodmere, was successful long before joining forces with the Cleveland Cavaliers in 2005 and nine other National Basketball Association teams thereafter. And in its latest growth plan, the academy — which administers youth basketball camps and clinics and trains young players in Ohio, across the United States and overseas — is looking to return to those roots. Over the final three months of 2012 and into next year, the company will establish operations in Louisville, Ky.; Portland, Ore.; and Dallas, and supplement its office in Oklahoma City. It also is looking to expand its overseas operations. The academy currently operates in Greece and is finalizing another in Indonesia. Mr. Heines has spoken with officials in Spain, Turkey and China, among other potential markets. That group of cities and countries presents a bigger challenge than the NBA markets in which the academy

THE FOUNDING PARTNERS MIKE HEINES Hometown: Chesterland Résumé: Founder, Aurora Products, sold in 2000; Beachwood-based Crescent Digital SHANE KLINE-RUMINSKI Hometown: Chesterland Résumé: Second-team all-state at West Geauga High School ■ MAC freshman of the year, first-team All-MAC at Bowling Green; led nation in field goal percentage as a senior ■ Played professionally in France, Portugal, Israel, Turkey and Belgium has paired with pro teams. In those instances, the academy runs teams’ youth programs; in exchange, it buys every child who attends a camp or clinic or plays on one of its teams or in its leagues a ticket to one of their local pro team’s games. The academy gets to use the wellestablished pro team’s brand in pitching its various camps and training. In nonNBA markets, that marketing becomes more difficult without the support of a recognized name — but that isn’t See HOOPS Page 11

porate communications for the Clinic. However, the Clinic already is creating lots of companies that could help fill that space. In March 2011, Chris Coburn — executive director of Cleveland Clinic Innovations, the hospital system’s business development arm — told Crain’s that the Clinic had launched five health IT companies during the previous two years. Since then the Clinic has launched a few others, and at least five more are in the works, he said last week. “Without question (health IT) is See HEALTH Page 22

THE WEEK IN QUOTES

Youth camp operator connects with pro teams, expands here and overseas “If I can’t make By JOEL HAMMOND jmhammond@crain.com

INSIDE: Cleveland Clinic software spinout Explorys relocating to new, larger digs. Page 22

money on investments, I have ... to make more money on insurance. The only way to make more ... is to raise your rates.” — Richard W. Dorman of Richard Dorman Insurance Consultants. Page One

“It’s very important for an art museum to think about what it can learn and gain from the corporate community.” — David Franklin, director, Cleveland Museum of Art. Page 4

“You have to be “(ExactPacks) are willing to lose it all much more reliable to gain everything.” than taking pills ... — Matt Fish, Melt Bar & Grilled because they can owner. Page 15 open one package and dump everything down the hatch in one gulp.” — Dr. William Mills, medical director for Western Reserve Senior Care. Page 15

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Museum of Art carves out more tangible ties with businesses Institution launching membership campaign By TIMOTHY MAGAW tmagaw@crain.com

Upon being named director of the Cleveland Museum of Art in August 2010, David Franklin was taken aback by the museum’s less-thanrobust ties with Northeast Ohio’s business community. Two years later, and riding on the momentum of a $350 million reno-

vation and expansion project slated for completion next year, the museum is prepping a re-energized pitch to region’s business leaders — something officials hope could bring more people and ultimately more money into the museum. “It’s very important for an art museum to think about what it can learn and gain from the corporate community,” Mr. Franklin said. “We need to be part of that community in a very instinctive sense.” Next month, the art museum plans to launch a campaign to lure as many as 100 businesses — both PHOTO PROVIDED

The Cleveland Museum of Art’s atrium opened in late August. large and small — to sign up for corporate memberships. Such memberships, which could be structured several ways, would allow businesses, for one, to use the museum’s facilities to entertain employees or clients. “That’s really unusual for museums,” Mr. Franklin said. “In the past, you wanted the corporation to just write a check for a sponsorship and get their name in our catalog.” At present, the museum has about 30 corporate members, according to August Napoli, the museum’s deputy director and chief advancement officer. Being associated with an internationally recognized institution such as the Cleveland Museum of Art would benefit any business, he said. “The takeaway for the business community is that the museum is an asset that is a great value to every citizen but also to their bottom lines and worth the investment,” said Mr. Napoli, who joined the museum in December 2010 from the Summa Foundation, the fundraising arm of Akron-based Summa Health System. Still, the museum hasn’t shied away from hitting up the business community for donations or sponsorships. The museum has about $100 million left in its fundraising effort to support the renovation project, which will add more than 55,000 square feet to the museum once completed and bring its footprint to about 592,500 square feet. Also, Mr. Napoli said the museum is plotting “a much more robust” exhibition and events schedule once construction is completed and as the museum nears its centennial celebration in 2016, which will offer several sponsorship opportunities. The museum recruited a handful of well-known business leaders to help make the pitch. David Selman, president and CEO of Selman & Co., a marketer and administrator of life and health insurance in Cleveland, and Scott Mueller, CEO of Dealer Tire, are cochairing the museum’s corporate leadership steering committee that was organized to lead the effort. ■

Volume 33, Number 39 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the third week of May and fourth week of May, the fourth week of June and first week of July, the third week of December and fourth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2012 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

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OCTOBER 8 - 14, 2012

Brownfield grants will become more selective Older cities such as Cleveland could be at a disadvantage By JAY MILLER jmiller@crain.com

The Kasich administration is narrowing the scope of projects that will be eligible for state money to clean up environmentally contaminated properties as it tries to continue a program caught in a financial bind. The Clean Ohio Council on Sept. 14 released draft guidelines for a $15 million round of brownfield cleanup grants and loans. It said regional offices of nonprofit economic development group JobsOhio would begin accepting financing requests on Oct. 1 in anticipation of the approval of grant and loan criteria. The council is an ad hoc group that has oversight of the Clean Ohio program, which uses proceeds of state public works bonds to help cities clean up abandoned, environmentally contaminated properties to ready them for redevelopment. The draft guidelines reduce the amount available for a single project

to $1 million from $3 million and gives higher priority to projects that have an end-user in place. The latter guideline could hinder older cities such as Cleveland that have used the Clean Ohio money to clean up otherwise attractive industrial sites known to have chemical or asbestos contamination so that the properties would be available for immediate use. In his Ohio Environmental Law Blog, Joseph P. Koncelik, an environmental attorney with Frantz Ward LLP of Cleveland, called the changes “a seismic shift in how funding decisions will be made.” With only $15 million budgeted for fiscal 2013, which ends next June 30, economic development consultant Mark Barbash is concerned that older cities will lose opportunities to attract new or expanding businesses. Mr. Barbash, a development official under former Gov. Ted Strickland, noted that the state spent $37 million on 48 brownfield projects in fiscal 2012. Those grants and loans spurred $168 million in development, creating 1,522 jobs, according to state development records. “The thing that concerns me is what the plan is going forward,” Mr. Barbash said. “Ohio has gotten used to a state-of-the-art program.”

Gov. Kasich planned to redirect money for brownfield cleanup to JobsOhio, which he created after he took office in 2011, after one last round of Clean Ohio awards in January 2012. Communities rushed to apply, fearing the program would be radically changed or could die. Clamor for the program, however, pushed Gov. Kasich to include the $15 million in his mid-term budget last summer. The Clean Ohio Council will approve final guidelines after the end of a public comment period Oct. 17.

Concern over change In the future, JobsOhio and brownfield cleanup programs would be financed by shifting profits from the state’s liquor operation to JobsOhio. But a lawsuit filed by Democratic lawmakers and Columbus-based ProgressOhio, a progressive advocacy group, that maintains using public money for a private enterprise is unconstitutional has held the liquor profits hostage for more than a year, frustrating the governor’s plan. Since its inception under former Gov. Bob Taft in 2001, the Clean Ohio program has financed $393.8 million of environmental cleanup work. The program provided grants

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to local governments to assess the environmental problems on a property or to fund a cleanup, depending on the nature of the project. In a telephone interview, Frantz Ward’s Mr. Koncelik, a former director of the Ohio Environmental Protection Agency under Gov. Taft, said he was most concerned about the process proposed for selecting Clean Ohio winners and the reduction in the maximum amount offered for loans and grants. “The problem is that some of the best Clean Ohio projects in the history of the program were projects that involved significant contamination” requiring millions of dollars to clean up, he said. “Good examples are the Flats East Bank project and the Miceli Dairy project here in Cleveland.” Mr. Koncelik, who served as an adviser to Miceli Dairy Products Inc., added, “It’s questionable if either of those projects would have moved forward if there wasn’t $3 million available.” He also questioned the new process for evaluating which projects win cleanup money and which don’t. “Clean Ohio had a robust scoring process and the cream of the crop rose to the top,” Mr. Koncelik said. “The (new guidelines) say, generally, that they are going to look at the jobs a project creates and its return on investment, but (the guidelines) don’t say, ‘How many jobs?’ and ‘What is a reasonable return on investment?’”

Speculation about spec In the past, projects competed twice a year for funds. Projects in each biannual round were awarded points based upon the nature of the

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proposed development, the amount of clean up occurring and the importance of the applicant’s project to the local community. The top scorers won grants or loans. Because the JobsOhio money isn’t in place, the new guidelines leave the decision on awarding funds to the discretion of the state Development Services Agency, the successor to the former Ohio Department of Development. The agency will make awards on a rolling basis, accepting or rejecting applications as they come in, which gives Mr. Koncelik pause for concern. “If you’re out there as a developer, or someone who works on these projects like myself, you often get into conversation about ‘Do we have a chance to compete for this money?’ It’s very difficult to answer those questions if you don’t know how projects are going to be evaluated.” Cleveland economic development director Tracey Nichols in the past has expressed concern that money for speculative cleanups would be eliminated from the Clean Ohio program. Last week, she declined to comment because she hadn’t yet seen the new guidelines. Lavea Brackman, a member of the Clean Ohio Council and executive director of the Greater Ohio Policy Council, said she, too, questions the award criteria. But she believes there still will be room for speculative projects. “This has been a tremendous program for helping to remove blight in urban neighborhoods in particular and I think there are projects that can be more speculative and still reap great return on investments,” Ms. Brackman said. She said she wants to see what comments the public makes and what changes might be made before the council’s next meeting on Oct. 26. ■

Cuyahoga Capital Partners acquired by Virginia firm Private Advisors LLC of Richmond, Va., said it has acquired Cuyahoga Capital Partners, a Cleveland-based private equity secondaries and fund-of-funds manager with $817 million in assets under management. Terms were not disclosed. Cuyahoga Capital’s investment professionals will join Private Advisors’ private equity unit “and will be focused upon the deployment of their latest secondaries fund, which recently held its final close above its $125 million target.” In a news release, Private Advisors said Cuyahoga Capital focuses on value-oriented, secondary private equity investing. Of the $817 million it manages, about $203 million is in four secondary private equity funds, $65 million is in a primary private equity fund of funds, and $549 million is in advisory relationships.

Private Advisors will take over as general partner for Cuyahoga Capital’s limited partnerships and will assume management of its advisory relationships. The two founders and principals of Cuyahoga Capital, Bart Shirley and Chris Hanrahan, are joining Private Advisors. They formerly managed the fund of funds unit of Key Capital Corp., a subsidiary of KeyCorp, for eight years until spinning out in 2011 as Cuyahoga Capital. Mr. Hanrahan said, “We have invested alongside each other as limited partners in several lower middle market funds in the past and share a similar investment philosophy. We just wrapped up fundraising for our fourth secondaries-focused private equity fund, which will allow us time to invest capital and integrate into Private Advisors’ business before raising our next ■ fund a few years from now.”

WHO TO WATCH: LAW Crain’s seeking up-and-coming law professionals We’re looking to profile some of the region’s legal up-and-comers in “Who to Watch: Law,” a special section slated for publication Nov. 26. If you think you know who will be among those leading the Northeast

Ohio legal sector of the future, drop an email to Amy Ann Stoessel, astoessel@crain.com, or call 216771-5155. Please send in your suggestions by Oct. 22.

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Capital, acquisitions help Meritec better connect to market Painesville outfit employs 320, looks to grow By CHUCK SODER csoder@crain.com

Like the high-tech plugs it makes in Painesville, Meritec is just waiting to be attached to an ultrafast computer. Working with a fresh infusion of capital, Meritec’s new leaders aim to help the quiet, 45-year-old company grab a bigger piece of the market for high-performance interconnects, which move data from computers into cords. Meritec made its first growth move in August, when it acquired two other Painesville companies in the interconnect business. The two companies, Connectors Unlimited Inc. and Xponet/Mold-Tech, employ a total of 140 people. They both have roots that go back to Meritec. Meritec now employs 320 people and is looking for more businesses to buy with the help of a multimil-

lion-dollar investment from company founder Jack Venaleck and CEO Ed Weinfurtner, who joined the company in February. Meritec also is creating a more aggressive marketing strategy, according to Mr. Weinfurtner and president Michael Cole, who was hired in August. Messrs. Weinfurtner and Cole joined the company to help it expand. They both said the business has a strong foundation of technical talent and products. During an interview with Crain’s, Mr. Weinfurtner described how the company’s Hercules-brand interconnect reliably can gulp down massive amounts of data. For instance, the thick plug could be used with military computers that record high-definition video in all directions at the same time, all while rolling down a rocky dirt road. “A tank could run over it. It would

Power cord supplier moves Miss. manufacturing to CLE By GINGER CHRIST gchrist@crain.com

A Cleveland-based power cord supplier is using consolidation to energize its growth. After pulling the plug on its manufacturing plant in Mississippi, Cleveland-based Electric Cord Sets has moved all its production operations to Northeast Ohio. Electric Cord, which was founded in 1947 in Bay Village, in April completed its transition to a 40,000square-foot building on Manufacturing Avenue in Cleveland. The site now houses Electric Cord’s offices, which previously were in North Olmsted, and its manufacturing operations. The company opted to move all its operations under one roof to become more efficient and to return to its Ohio roots, said Mike Smalley, vice president of Electric Cord. Jon Jericho, a third-generation owner, led the move after taking the reins of the company in 2009. The consolidated operations will allow Electric Cord to cut costs and focus on growing its business in new markets — marine and recreational vehicle power cords. The time was right for the move with attractive real estate rates and a number of manufacturing facilities on the market, Mr. Smalley said. Electric Cord paid $715,000 for its Cleveland building, which is 18% less than its appraised value, according to Cuyahoga County auditor’s records. The company now is trying to sell its former manufacturing plant in Mississippi. Since moving in, Electric Cord already has invested $250,000 in renovating the building, which had been unoccupied for two years, and $100,000 in new wire-cutting equipment. It also has hired 19 production and warehouse workers and three office workers to supplement its existing eight-person office staff. It plans to hire another six to 10 production employees as sales pick up.

Electric Cord entered the marine and RV markets in 2011, a move that helped buoy its sales. Electric Cord’s primary sources of business — supplying power cords to sump pump and cooking appliance manufacturers — have not yet fully recovered from the recession. “People are repairing things, not buying new,” Mr. Smalley said. The marine and RV industries, on the other hand, each have seen a resurgence. U.S. retail sales of recreational boats, accessories and marine services in 2011 rose for the first time in five years, increasing 6% from 2010 to $32.3 billion, according to a 2011 Statistical Abstract published by the National Marine Manufacturers Association, a recreational boating industry association. Likewise, shipments of RVs, sales of which started rebounding in late 2009, were 4.1% higher in 2011 than the previous year, according to the Recreation Vehicle Industry Association, a trade association for RV manufacturers and their component parts suppliers. “We knew that was business we were leaving on the table,” Mr. Smalley said. While Electric Cord only distributes aftermarket power cords for those industries at present, it is working to establish relationships with marine and RV manufacturers to get into the business on the front end. Electric Cord posted $30,000 in marine and RV power cord sales in 2011 and already this year has boosted that figure to more than $100,000. The company has annual revenue of $8 million. The company also hopes to boost its sales by moving more manufacturing in house. Electric Cord currently contracts with two companies in China for 70% of its manufacturing. However, increasing costs in China make it more affordable to move production back to the United States, Mr. Smalley said. The company plans to move another 10% of its manufacturing business to Ohio within the next year, he said. ■

still work,” Mr. Weinfurtner said. Meritec, however, traditionally hasn’t put much focus on sales and marketing, which represents an opportunity for growth, he said. There also are big untapped opportunities in the military and medical markets, which need high-performance computer equipment, he said. Meritec is “just scratching the surface” of those markets today, Mr. Weinfurtner said. They already account for about half the company’s sales, which in past years have been in the range of $50 million to $100 million, he said, declining to be more specific. The other half comes from companies that make data and telecommunications products, and equipment used to perform tests on electronic products.

Whiz kid Mr. Weinfurtner has been familiar with Meritec for years; he founded Gateway Megatech Corp., an interconnect distributor in Highland Heights that he sold in 1998 to Heilind Electronics Inc., a larger distributor. After a few years helping lead companies in other sectors, Mr. Weinfurtner and a few other Northeast Ohio business executives formed

Weinfurtner

join the company. “Meritec’s somewhat of a gem in the market that needs more visibility,” he said. As for Mr. Venaleck, his expertise is in developing new products, which is why the 75-year-old founder — whose nickname is “The Whiz” — is the company’s chief technology officer. He remains majority owner.

Cole

private equity firm Blue Olive Partners LLC. He contacted Meritec while looking for investment opportunities for Blue Olive. Mr. Weinfurtner decided to join Meritec and invest his own money in it when he realized how much the company could grow with the right leadership. “The technology is great, but it’s not as well known as it could and should be,” he said. Mr. Cole saw the same opportunity after he and Mr. Weinfurtner reconnected on the social media site LinkedIn. Mr. Cole, who years ago had sold interconnects through Gateway Megatech, most recently was head of the data communications business at TE Connectivity, a Swiss company that Mr. Weinfurtner described as the world’s biggest maker of interconnects. Mr. Cole said he also was looking for investments when he decided to

Down the road The two recent acquisitions will allow Meritec to expand its talent base, acquire customers and build relationships in the medical market, Mr. Weinfurtner said. Connects Unlimited, which designs and makes interconnects, was founded by Marty Ignasiak, who years ago worked at Meritec. Xponet/Mold-Tech, which focuses on connecting cables to the plugs, began as a company that Meritec sold to 3M’s electronic products division in 1986. 3M later spun off the company, which is led by Don Barber. Both Messrs. Ignasiak and Barber have stayed with the company to lead the new subsidiaries. This fall, all the employees of those companies are scheduled to move to Meritec’s campus on West Jackson Street, which is about a mile from the two acquired companies. ■

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PUBLISHER/EDITORIAL DIRECTOR:

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

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

Scott Suttell (ssuttell@crain.com)

OPINION

Yes on 108

usiness and labor don’t agree politically on much these days. However, they are united in their support of Issue 108, a levy increase that would allow the Cleveland-Cuyahoga County Port Authority to make needed investments in Cleveland’s ship channel and waterfront. The Greater Cleveland Partnership, which is the city’s chamber of commerce group, as well as the Northshore Federation of Labor AFL-CIO are among the organizations that are endorsing the levy. Their support for the port underscores the economic benefits the added dollars could produce as they’re used to keep the city’s shipping channel navigable and to set the stage for new waterfront development. Passage of the levy would allow the Port Authority to address what its CEO, William Friedman, recently described as “a long period of under-investment in the shipping channel” by various government entities and by private property owners along the Cuyahoga River. He was kind in that assessment. The river has been everybody’s problem, and nobody’s problem. The city of Cleveland hasn’t had the money to stabilize key parts of the shoreline. Property owners have let bulkheads fall into disrepair. In other cities around the world, port authorities are responsible for handling those types of investments. The Cleveland-Cuyahoga County Port Authority wants to take on that role in Cleveland with the blessing of its mayor, Frank Jackson, but it needs money to do the job. The increase in the levy would provide the Port Authority with $90 million over five years. Nearly half that money — $43 million — would go toward ship channel restoration and slope stabilization. Another $12.5 million would let the port set up an eco-friendly system for dredging and disposing of river sediment, which if allowed to build up would make the river unnavigable by larger ships such as those that make their way to and from the ArcelorMittal steel mill in the Flats. However, the investment wouldn’t stop there. About $25 million of the new money would be used to create a long-sought pedestrian bridge that would link Mall C and Cleveland’s new convention center with North Coast Harbor and an area near Burke Lakefront Airport that Mayor Jackson sees as ripe for commercial and residential development. It can be hard to generate voter enthusiasm for a levy issue of any kind. It can be harder still when anyone who reads the ballot language can see that the port is asking voters in Cuyahoga County to raise its levy to .67 mills from .13 mills — an increase of more than 400%. In dollar terms, though, the increase equates to another $3 a month for the owner of a $200,000 home. That’s not pocket change, but it also isn’t a ton of money when compared to the economic catalyst those few dollars could be when pooled together. We urge county voters to join business and labor in their support of the port by voting “yes” on Issue 108.

FROM THE PUBLISHER

On list of our detractors, we’re No. 1

of Contemporary Art. I reminded him of recent experience with an old the nearby half-billion-dollar plus renofriend reinforced one of my vation and rebuild of the Cleveland longest-held opinions, namely Museum of Art that has created the region’s that Clevelanders remain their most stunning new indoor space in a own worst enemy. grand atrium. A small group of us had gathered in a The next day, I sent Al a YouTube University Circle restaurant to catch up video of the latest construction update with one of our little band who had for the new downtown convenmoved away. When the visitor tion center and medical mart. asked how things are going in BRIAN “Less than a block away, a MiamiCleveland, a group member, who TUCKER based developer is doing a I’ll call “Al,” jumped in to say multi-million-dollar redo of the that no young people his son’s old Sheraton Hotel, and I think age ever go downtown because it’s just a matter of time before it’s not safe. somebody buys the grand “And nobody I know goes school administration building downtown,” Al said. and turns it into a boutique, Our host and I were dumbluxury hotel,” I wrote to Al. founded and caught for a lack The new casino is outpacing of words — something nearly projections and bringing newcomers unimaginable from the two of us. So downtown. The HealthLine rapid-style what did I do? Launch into a recitation of bus line has prompted a dramatic redo all that is promising for Cleveland and its of Euclid Avenue from downtown to environs. University Circle and beyond. A biomedFirst, I recommended that as Al drove ical development is spreading west from back after dinner to his West Side suburban the Cleveland Clinic and University Hoshome that he look at the stunning new pitals; a new building is nearly full and building about to open for the Museum

more plans are under way there. A New York financial firm is bringing more than 1,000 new employees to the old McDonald Investment Center building at East Ninth and Superior. Across the street, efforts are under way to convert the old East Ohio Gas headquarters into apartments. And speaking of apartments, we can’t build them fast enough downtown to satisfy demand. Cleveland State University has transformed its campus from urban brutal to modern and inviting with all its new projects, not the least of which are the new townhouse-style apartment buildings. In the Flats, workers are erecting an office building tower and hotel. The Warehouse District remains a hot dining and nighttime spot, and East Fourth Street is the envy of urban planners across the country. Two tech-related firms have settled in downtown, with something close to 700 professionals. That’s just a starting point for a discussion of what’s going right in Cleveland. If you live in our region, that should make you want to shout about it, to anyone who’ll listen. Even my friend, Al. ■

PERSONAL VIEW

Here’s betting on learned entrepreneurship By DEBORAH D. HOOVER

t’s a decades-old debate inside academia and within the world of business: Can entrepreneurship be taught? We at The Burton D. Morgan Foundation have been actively engaged in that dialogue for years, with thought leaders in both sectors and beyond. Having listened to the lively, well-considered debate, we respectfully submit that perhaps it would be more productive to re-frame the question itself and pose it this way instead: Can entrepreneurship be learned? Our foundation is betting that entrepreneurship can be learned — or, at least, practiced — by providing college students with risk-free opportunities to

Ms. Hoover is president and CEO of The Burton D. Morgan Foundation. learn about entrepreneurship by doing, guided and encouraged by experienced entrepreneurs. The emphasis here is on experiential learning. That’s why we have invested substantially in an innovative program, Blackstone LaunchPad, which provides mentoring, advice and other resources and support to students with ideas. The program was started by the University of Miami in Florida and enjoys significant support from The Blackstone Charitable Foundation. This fall and winter, Blackstone LaunchPad operations will begin on four Northeast Ohio campuses — Baldwin Wallace University, Case Western

Reserve University, Kent State University and Lorain County Community College. Our foundation’s belief in the efficacy of entrepreneurial learning is encouraged, in part, by our collaboration during the past decade with the Kaufmann Foundation on the Northeast Ohio Collegiate Entrepreneurship Program, or NEOCEP. This innovative approach was designed to embed entrepreneurship across the campuses at institutions in this region. While we’re still analyzing the lessons from that program, two conclusions have emerged as abundantly clear: The program ultimately changed the lives of many students, and it transformed how entire campuses think about the educational process. See VIEW Page 11

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Study: Even fewer firms use defined benefit plans

THE BIG ISSUE What did you learn from last week’s presidential debate?

By JERRY GEISEL Business Insurance

GEORGE HOOVER

BRIAN KURZ

MEGAN CRAVEN

SHANNON SCHLARB

Westlake

Avon Lake

Middleburg Heights

Hudson

I don’t think President Obama really knows as much as a lot of people think he does. I also found that Mitt Romney has a plan that he articulates very well. It came across as a student-and-teacher type of environment.

It did seem like Romney had the upper hand. I usually vote Republican, but I was kind of waffling. Now I’m convinced I’m going to vote for Romney.

Nothing I didn’t know beforehand. … It was annoying that the general debate protocols were not being followed.

Romney came off strong, but he kind of seemed arrogant and untrustworthy. But that’s politicians. … Obama did seem a little tired, a little irritated, perhaps.

➤➤ Watch more people weigh in by visiting the Multimedia section at www.CrainsCleveland.com.

Issue 2 would fix redistricting games ■ Regarding your Sept. 17 editorial in opposition to state Issue 2: I’m disappointed to see that Crain’s admirable 2009 support for goodgovernment remedies to politically corrupt practices and institutions (resulting in our promising new Cuyahoga County government) stops at the door when those abuses are committed, this time around, by your co-religionists. Loved the cartoon, though — Issue 2 is a David vs. Goliath struggle, that’s for sure. Here are some flaws in your argument: The reputation for judicial fairness you mention is the very reason that appellate judges are the ideal initial screeners of commission applicants. If they can’t maintain judicial impartiality and fend off political meddlers, then whoever possibly could? Somehow, this shortlived obligation at 10-year intervals doesn’t sound like an overwhelming task. Your confidence that partisan

LETTER elected officials and legislators will fix gerrymandering abuse next year, if only we defeat Issue 2 this year, reminds me of faithful Browns and Tribe fans at the end of every losing season. And our current front offices will surely bring us a winner next year, if we just wait and trust them. Finally, a minor but cleverly prejudicial error: Labor unions joined the Voters First coalition after the amendment was already researched and drafted by patient, persistent advocates at the Ohio League of Women Voters, Common Cause, Ohio Citizen Action and several constitutional law experts. The list of supporting attorneys and nonpartisan nonprofits is long and impressive. Apparently, Crain’s editorial board was swayed by those smokescreens, but it may not be too late for Crain’s readers. Read it — see

WRITE TO US Send your letters to: Mark Dodosh, editor, Crain’s Cleveland Business, 700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 e-mail: mdodosh@crain.com

View: Experimentation can help learning process continued from PAGE 8

With Blackstone LaunchPad, we are building on the lessons learned from NEOCEP and amplifying the importance of experiencing entrepreneurship through the successes and failures that are necessary steps to viable ventures. A key ingredient for aspiring entrepreneurs is a strong relationship with an engaged mentor who asks challenging questions that guide, but do not direct, the startup process. Through this experimentation at each stage with the student entre-

preneur evaluating the advice and calling the shots, he or she internalizes the process and begins to learn how to create a successful venture. Which brings us back to our original point — we think entrepreneurship can be taught, but with a fine distinction. By that conclusion, we mean selftaught and learned by doing entrepreneurship, complete with all the triumphs, blind alleys, sweaty palms, slammed doors, good days and bad days that characterize a true startup experience. ■

how the amendment devises an airtight barrier against partisan redistricting abuse which results in polarized, uncontested fall elections and rigged one-party legislative monopolies. A citizen initiative fixed county government. Now it’s time to fix another. Vote “yes” on Issue 2. Lynda Mayer Shaker Heights

The percentage of the largest U.S. employers that offer a defined benefit pension plan to new salaried employees continues to fall, according to new research. As of June 30, 30% of Fortune 100 companies offered a defined benefit plan to new salaried employees, according to New York-based Towers Watson & Co. That’s down from 33% at the end of 2011, 37% in 2010 and 43% in 2009. As recently as 1998, defined benefit plans were the norm among the nation’s largest employers, when 90% of Fortune 100 companies offered the plans to new salaried employees. Since then, large employers have moved away from the plans. “Large employers have been reassessing their retirement offerings for some time,” Towers Watson said in an article posted last week in “The Insider,” a company publication. “The shift is motivated by several factors, including employers’ desire to reduce overall retirement costs — perhaps due to higher compensation and benefit costs elsewhere, especially health care — perceptions that workers prefer more portable plans, market trends, and the belief that such a shift reduces financial risk.” In addition, as more companies have moved away from defined benefit plans, the competitive pressure on employers to continue to offer the plans has declined, said Alan Glickstein, a Towers Watson senior retirement consultant in Dallas.

Traditional plans hit hardest The move away from defined benefit plans has been especially pronounced for traditional plans, in which the benefit is typically based on employees’ years of service and employees’ salary during their last years of employment. Just 11 Fortune 100 companies offered a traditional defined benefit plan to new salaried employees as of June 30, down from 14 in 2011, 17 in 2010 and 19 in 2009. By contrast, during the 1980s, defined benefit plans were the norm among Fortune 100 companies. In 1985, for example, nearly 90% of Fortune 100 companies offered a traditional defined benefit plan to new employees. The prevalence of hybrid plans, typically cash balance plans, also has sharply declined. As of June 30, 19 Fortune 100 companies offered hybrid plans to new salaried employees. That’s unchanged from 2011, but almost 50% less compared with 2004, when 35 Fortune 100 companies offered the plans. While hybrid plans have defined benefit and defined contribution plan elements, legally they are defined benefit plans. While a handful of big employers, including Dow Chemical Co. and The Coca-Cola Co., have set up new cash balance plans in recent years, new formations have been more than offset by other Fortune 100 companies, including Bank of America Corp., SunTrust Banks Inc. and Wells Fargo & Co., which began to phase out their cash balance plans. ■

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TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. The IRS files a tax lien to protect the interests of the federal government. The lien is a public notice to creditors that the government has a claim against a company’s property. Liens reported here are $5,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.

LIENS FILED Jag Healthcare 2226 Wooster Road, Rocky River ID: 27-2795645 Date filed: Aug. 22, 2012 Type: Employer’s withholding Amount: $547,971 Academy Answering Service Inc. 1446 SOM Center Road, Mayfield Heights ID: 34-0893191 Date filed: Aug. 24, 2012 Type: Employer’s withholding Amount: $231,423 Vivo Cleveland LLC 347 Euclid Ave., Suite 162, Cleveland ID: 81-0554703 Date filed: Aug. 1, 2012 Type: Employer’s withholding, unemployment Amount: $207,757

Wireless Evolution Inc. 10139 Royalton Road, Suite A, North Royalton ID: 27-0189899 Date filed: Aug. 1, 2012 Type: Employer’s withholding Amount: $124,022 Quality Data Management Inc. 4015 E. Royalton Road, Broadview Heights ID: 34-1839449 Date filed: Aug. 1, 2012 Type: Employer’s withholding Amount: $94,445 Start to Finish Inc. 1537 Chardon Road, Unit B, Euclid ID: 34-1937604 Date filed: Aug. 8, 2012 Type: Employer’s withholding Amount: $56,921

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organization exempt from income tax Amount: $45,472

GOING PLACES

First Step Child Enrichment Center Inc. 5550 Northfield Road, Maple Heights ID: 34-1957536 Date filed: Aug. 10, 2012 Type: Employer’s withholding Amount: $44,840

JOB CHANGES

Feingold Enterprises Inc. 1844 Camberly Drive, Lyndhurst ID: 75-3075679 Date filed: Aug. 8, 2012 Type: Employer’s withholding, unemployment, failure to file complete return Amount: $43,742

LORAIN NATIONAL BANK: Steve Dennis to vice president, mortgage lending.

Blasted Glass Inc. 15151 York Road, North Royalton ID: 34-1502031 Date filed: Aug. 1, 2012 Type: Employer’s withholding Amount: $41,915

Records Central Inc. 4700 Lakeside Ave., Cleveland ID: 34-1035430 Date filed: Aug. 24, 2012 Type: Employer’s withholding, unemployment Amount: $51,285

Eighty-One Holdings LLC 24481 Detroit Road, Westlake ID: 45-3012486 Date filed: Aug. 1, 2012 Type: Employer’s withholding Amount: $40,815

Agape Home Health Care 540 E. 105th St., Suite 3058, Cleveland ID: 06-1725145 Date filed: Aug. 24, 2012 Type: Employer’s withholding, failure to file complete return, return of

Anthony Musca & Associates Inc. 440 Hawthorne Farms, Gates Mills ID: 01-0697862 Date filed: Aug. 24, 2012 Type: Employer’s withholding Amount: $37,386

FINANCE FEDERAL RESERVE BANKS’ FINANCIAL SERVICES POLICY COMMITTEE SUPPORT OFFICE: Terrence Roth to senior vice president. Dennis

Roe

Peterson

Benson

Johnson

Grealy

SKODA MINOTTI: Tim Stiller to senior staff accountant.

Smith

Kennedy

Feliciano

WELLS FARGO ADVISORS: Jason Orsky and Daniel Carter to financial advisers.

UTILITY

FINANCIAL SERVICE GRANT THORNTON LLP: Steve Carter and Mindy Malbasa to managing directors; Jaime Onk to director, audit services; Jon Dittrich and Rae Foisel to managers; Leslie Benner, Jennifer Daley, Chris Garman, Katie Gallets, Jeff Koons, Katie Mamrack, Chris Mellish, Bela Nahori, Matt Porter, Constantine Tsatiris and Andrea Velotta to senior associates. RETIREMENT SOLUTIONS: Robert Bojanowski to associate financial consultant.

LEGAL ROBERT J. FEDOR ESQ. LLC: Benjamin C. Heidinger to associate. VORYS, SATER, SEYMOUR AND PEASE: Amanda McMurray Roe to associate.

MANUFACTURING CLIFFS NATURAL RESOURCES INC.: Laurie Brlas to executive vice president and president, global operations; P. Kelly Tompkins to executive vice president, legal, government affairs and sustainability, chief legal officer and president, Cliffs China; Terrance Paradie to senior vice president, CFO; Steven Raguz to senior vice president, corporate strategy and communications and chief strategy officer; James Michaud to senior vice president, human resources and chief human resource officer; Matthew Bittner to vice president, treasurer.

NONPROFIT CUYAHOGA HEALTH ACCESS PARTNERSHIP: Mary Gladys to member and provider services manager; Stephanie Hicks to external affairs manager. GREATER CLEVELAND VOLUNTEERS: Dianna M. Kall to communications and special events coordinator.

RETAIL SLATE ROCK SAFETY LLC: Alisha Hay-Rohrer to business unit manager, FRSafety.com.

SERVICE TENABLE PROTECTIVE SERVICES: Scott Fry to general manager; Kelli Loudin to administrative manager.

TECHNOLOGY EMERGE INC.: Greg Holcomb to project leader. HILEMAN ENTERPRISES: Bob Rawlins to senior vice president, sales and marketing. MCPC INC.: Matt Peterson to credit manager; Ernest Benson and John Johnson to voice engineers. PARTSSOURCE INC.: Christopher Fuss to chief technology officer.

FIRSTENERGY: Anne Grealy to executive director, State Government Affairs.

BOARDS CLEVELAND INTERNATIONAL FILM FESTIVAL: Mark Smith (Cobalt Group) to president; Chris S.W. Blake, Kevin Poor and William E. Koeth to vice presidents; Kate O’Neil to secretary. CM LAW ALUMNI ASSOCIATION: Ian N. Friedman (Friedman & Frey LLC) to president; Gregory S. Scott to president-elect; James P. Sammon to vice president; Kevin M. Butler to secretary; Gregory F. Clifford to treasurer; Jill S. Patterson to immediate past president. GREAT LAKES SCIENCE CENTER: Paul Dolan (Cleveland Indians) to chair. LEUKEMIA & LYMPHOMA SOCIETY, NORTHERN OHIO CHAPTER: Richard Radke (Northern Trust) to president; Mike Burke to presidentelect; Kevin Goodman to vice president; Michele Dorow to treasurer; Ted Evans to secretary.

AWARDS AMERICAN CHEMICAL SOCIETY: Joseph Kennedy (University of Akron) to fellow. INTERNATIONAL ENTREPRENEUR: Jose Feliciano (Baker Hostetler) received the Community Catalyst Award. MEDICAL MUTUAL OF OHIO: Harry and Ann Farmer, volunteers at Akron General Hospice of Visiting Nurse Service, received the Ohio Outstanding Senior Volunteer Award. NATIONAL ASSOCIATION OF PEDIATRIC NURSE PRACTITIONERS, OHIO CHAPTER: Tracey Herstich and Julie Tsirambidis (Akron Children’s Hospital) received the 2012 Pediatric Nurse Practitioners of the Year Award.

RETIREMENT CLIFFS NATIONAL RESOURCES INC.: Duncan P. Price, effective Oct. 1. FEDERAL RESERVE BANKS’ FINANCIAL SERVICES POLICY COMMITTEE SUPPORT OFFICE: Robert Price after 38 years of service.

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

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Hoops: Company offers team benefits continued from PAGE 3

deterring Mr. Heines. “If I have an opportunity to work with an NBA team in their market, I’m going to do it,” said Mr. Heines, who employs 30 full-time workers but contracts with hundreds more in the company’s various markets to conduct camps and clinics. “But while it might take another year to get the business to where it’s fruitful for us (in a non-NBA market), there is a finite list of those teams and markets. I don’t like a finite business.”

A quick start Mr. Heines ran information technology services provider Aurora Products before selling it in 2000. In 2002, he met former West Geauga High School, Bowling Green State University and overseas standout player Shane Kline-Ruminski. Mr. Heines was assisting West Geauga’s boys basketball teams, and Mr. KlineRuminski had helped with youth camps there. Over breakfast, Mr. Heines pitched the academy’s business plan, which had included some number crunching and revenue and expense assumptions. Mr. Kline-Ruminski, who had finished a playing career overseas that took him to Belgium, Turkey, Israel, Portugal and France, was working with a barter exchange group — a job he wasn’t enjoying. So he signed on, as did his wife, Heather. “They say if your wife isn’t happy, you’re not happy; it was the opposite,” Mr. Kline-Ruminski said. “I was miserable, and it made her miserable. She said, ‘At least try it.’” Mr. Heines financed the startup costs — about $60,000, he says — and they were off. Two years later, the duo was introduced to Chad Estis, who at the time was the Cavaliers’ chief marketing officer and had played against Mr. Kline-Ruminski when the former was at fellow MidAmerican Conference school Ohio University. Messrs. Heines and Kline-Ruminski pitched the model to Cavs president Len Komoroski, among others. The sides signed a five-year agreement, and another when that one expired. For the Cavaliers, the partnership allows the organization to reach its youngest fans, and those with the most experience run their youth program. The Cavs set up a mobile team shop at some camps, and they see other family members buy tickets when redeeming their child’s free ticket voucher. “Shane’s a pro’s pro when it comes to running and orchestrating these camps,” said Scott MacDonald, the Cavs’ group sales manager. “We do a survey of the families that attend after the camps, and 95% of them ... had a positive experience.”

But there’s more At that pitch meeting with the Cavaliers was Murray Cohn, who worked with the NBA at that point but later with the Orlando Magic. Mr. Heines later ran into Mr. Cohn while on vacation in Florida, and months later the academy was on board with the Magic as well. The Los Angeles Clippers, Minnesota Timberwolves, New Orleans Hornets, Houston Rockets, Charlotte Bobcats, Memphis Grizzlies, Indiana Pacers and Denver Nuggets followed. In each city, Mr. Heines installs a full-time director to run the academy. In Cleveland and Orlando, the company employs a larger staff, which includes trainers such as Steve Vega

locally. Mr. Vega, a former Avon standout and small-college player, trained Zydrunas Ilgauskas after “Z” was traded to Washington during the 2010 season and later returned to Cleveland for the playoffs. “I always just thought it’d be me and Mike,” Mr. Kline-Ruminski said. “I remember Steve and I were licking envelopes one day ahead of a camp, and we said, ‘Maybe one day we won’t have to be doing this and can just concentrate on basketball.’ But I never would have envisioned this.” The company also has a nonprofit arm, Basketball Assist, which raises funds for kids who don’t have the financial means to attend the academy’s camps. The nonprofit includes Everyone Wins, which Mr. Heines’

son, Tom, has spearheaded and provides opportunities for special needs children to participate. Meanwhile, in non-NBA cities, such as Louisville, Mr. Heines said player programs are next on the agenda and a key way to get the word out. For instance, Boston Celtics star point guard Rajon Rondo returns to Louisville every summer, as does veteran NBA center Nazr Mohammed. A meeting with Mr. Rondo’s representation is on Mr. Heines’ schedule later this month. “Kids really attach to players; those are the most popular programs of all,” Mr. Heines said of camps and clinics that locally have featured Cavaliers players Daniel Gibson, Alonzo Gee and Omri Casspi. ■

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CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

Consultant expresses doubts on 3-D printing By JAMES SNODGRASS European Plastics News

The future for three-dimensional printing — which has grown in popularity in Northeast Ohio as costs have dropped — is “not so rosy,” according to a printing consultant’s remarks last week at a conference in the United Kingdom. Todd Grimm, president of T.A. Grimm and Associates, said he has doubts about the future of 3-D printing, also known as additive manufacturing, based upon the gulf between what is practical today and what is promised in the future. Three-dimensional printing involves depositing thin layers of material, often plastic, one on top of the other to create what sometimes can be extremely complex parts. It’s become a growing field in Northeast Ohio, as the Youngstown Business Incubator is serving as the central hub for the National Additive Manufacturing Innovation Institute. Federal agencies awarded $30 million to an alliance between technology-focused organizations in the Cleveland, Youngstown and

Pittsburgh areas to create the institute. Closer to Cleveland, 3-year-old MakerGear, based in Shaker Heights, has seen growth in demand for its 3D printers. Citing Gartner Research’s 2012 Hype Cycle for Emerging Technologies special report — which indicates that 3-D printing is reaching the “peak of inflated expectations” — Mr. Grimm blames media hype for distorting what can be done today and what reasonably can be expected in the short-term future. Examples of media hype that Grimm identified included Airbus’ announcement that it was going to 3-D-print aircraft. “What the media failed to tell you is that Airbus’ statement said ‘by the year 2050’ … not a single component on an Airbus aircraft flying today is made with additive manufacturing,” Mr. Grimm said. He also cited the stop-motion animated film “ParaNorman,” which used 3-D-printed facial expressions. “What they failed to tell you is that the producers did not save a single dollar or a single second,” Mr. Grimm said. ■

OCTOBER 8 - 14, 2012

screening industry,” according to the news release. The acquisition “now brings the entire manufacturing process ... under one umbrella for a more streamlined process, superior products and better customer service,” IRock said.

BRIGHT SPOTS Bright Spots is a periodic feature in Crain’s highlighting some positive business news that has flown under the radar. To submit information, email managing editor Scott Suttell at ssuttell@crain.com. ■ Don Stallard, founder and CEO of The Reserves Network in Fairview Park, was named to Staffing Industry Review’s 2012 Staffing 100 list. The Staffing 100 appears in the magazine’s October 2012 issue. It’s an annual listing that pays tribute to the most prominent people in the staffing industry. Individuals are not ranked, but rather showcased “for the contributions they have made, and continue to make, in the staffing community,” according to The Reserves Network. Mr. Stallard was recognized for his more than 40 years of work in human resources and staffing. He founded The Reserves Network in 1984. The company provides staffing services for the office, industrial, professional and technical markets. It has more than 35 office locations in nine states. ■ Goodman Real Estate Services Group LLC of Cleveland said it completed a deal to bring Dipped and

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Dazzled Bakery to Stow Workman Plaza in Stow. Dipped and Dazzled Bakery was established by friends Heather Rice and Tara Colopy. The pair “had known each other for years and decided to open a unique, local, and ‘sparkly’ bakery — décor is a vintage elegant look, with a pink, black, and sliver theme with crystal chandeliers,” according to Goodman. The menu’s treats include traditional cupcakes, cake pops, cookies, gourmet brownies, wedding cakes, and gluten-free and vegan pastries. Jim Becker, senior associate with Goodman, is the exclusive leasing agent for Stow Workman Plaza, which is at the southwest corner of Darrow and Graham road.

■ The Burton D. Morgan Foundation announced grants totaling nearly $443,000 in September to support programs for youth, college students and adults to develop skills and gain experience in starting business ventures. The foundation said about $172,000 of the money was awarded to four Junior Achievement affiliates that provide entrepreneurship and financial literacy programs reaching more than 80,000 students in K-12 public, private and parochial school classrooms across Northeast Ohio. In announcing the grants, foundation president Deborah D. Hoover said, “The foundation continues to believe in the power of ... Northeast Ohio entrepreneurship. With each passing year, we see that ecosystem become more expansive and robust. This round of grants reflects the full spectrum of our support as we foster the region’s ... entrepreneurial spirit.” In addition to the grants to the Junior Achievement organizations, some of the most prominent awards were as follows: ■ Invent Now: $75,680 for Camp Invention sites in summer 2013 — two in Akron public schools and one in Wooster City Schools; ■ Foundation for Teaching Economics: $44,000 for the Economics for Leaders high school program in summer 2013 on a Northeast Ohio college campus; ■ John Carroll University: $42,350 to develop and embed academic units on entrepreneurship and creativity within 10 existing courses in the College of Arts and Sciences; ■ NorTech: $50,000 toward development of the FlexMatters prototyping network; and ■ ideastream: $40,000 for “CEO Global Foresight” and “Nightly Business Report” broadcasts on WVIZ-TV in 2012-13.

■ IRock of Valley View, a manufacturer of crushing and screening equipment, said it has acquired Indy Equipment in Independence. The move “marks a significant step in furthering IRock’s long-term business strategy of investing in growth, technology and quality assurance to better meet the needs of its expanding customer base in the aggregates and recycling industries,” the company said in a news release. Terms of the deal were not disclosed. The acquisition was effective Sept. 14 and included Indy Equipment’s fabrication and manufacturing division. The companies have a history together. IRock was established in 1992 with Indy Equipment as a strategic partner providing expertise in equipment design, engineering and manufacturing. The original partnership “strengthened IRock’s manufacturing process by ensuring high quality, purpose built equipment for its dealers and end-user customers, reflecting Independence Recycling Inc.’s (Indy Equipment’s sister company) firsthand knowledge and experience in the crushing and

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CRAIN’S CLEVELAND BUSINESS

OCTOBER 8 - 14, 2012

INSIDE

16 GET DETAILS ON SOME OF THE AREA’S NEWEST BUSINESSES.

SMALL BUSINESS SO, YOU WANT TO BE A STAR CHEF ... Some of area’s best-known restaurateurs are here to tell you that it isn’t always easy By KATHY AMES CARR clbfreelancer@crain.com

PHOTO PROVIDED

Dante Bocuzzi, who owns Dante and Ginko among other Cleveland-area restaurants, is one of many well-known local chefs who have tried to keep a proper work-life balance in a competitive field.

ric Williams jokes he’d own 10 restaurants if he were not married. The founder of Momocho and Happy Dog said he had plans a couple years ago to open another eatery, but once the deal on the Ohio City space closed, he wondered whether he should take on another obligation. He thought of family, his uncompromising work ethic and the effort it took six years earlier to open Momocho. There also was the handshake with partner Nolan Konkoski not to get sick or hurt and subsequent triple-digit hours each week. “I thought it over, then called Nolan. He wanted his own restaurant, so he took over the space and last year opened SoHo,” Mr. Williams said. Mr. Williams since has expanded his brand through pop-up restaurants in other cities, which allows him to manage more carefully Momocho’s year-overyear surge in business while trying to maintain a work-life balance. “There’s the adrenaline of opening See CHEF Page 16

Closed-door pharmacy provides patients with worry-free process ExactCare’s packaging system addresses medication management issues By EILEEN BEAL clbfreelancer@crain.com

own his own business. In 2004, he bought his first pharmacy, and in aving hung out 2009, he started his own in pharmacies closed-door specialty during most of pharmacy. Closed-door his teen years, pharmacies are niche Dale Wollschleger knew operations that are not he was going to be a phar- Wollschleger open to the public. Most macist. provide services to cusWhen he graduated with a tomers with special needs or in pharmacy degree from Ohio group homes or long-term care Northern University in 2000 and facilities and they deliver. became a registered pharmacist, He called the new pharmacy he knew that, like his father, he’d ExactCare because his business

plan doesn’t just focus on providing excellent product — “That’s available at any pharmacy,” said Mr. Wollschleger — it also focuses on providing wrap-around customer service that aims to ensure medications are taken safely, easily and on time. Providing that kind of customer service doesn’t just mean working with the person taking the medications; it means working with the doctor prescribing them and the insurance provider paying for them — and perhaps the customer’s

nurse case manager or social worker. The goal is to make sure that not only are the right medications being delivered by mail but also that there is no break in their delivery. Breaks can cause serious problems — for instance, a psychotic episode can lead to a hospital admission — for customers and those who are caring for them. “When medications are delivered right to a person’s doorstep it eliminates a major reason — they are out — that people aren’t taking their medications,” explained Bert Rahl, director of mental health services at Benjamin Rose Institute on

Aging. A large percentage of ExactCare’s customers are dealing with multiple chronic conditions, such as congestive heart disease and severe depression or diabetes and dementia, that make their care medically complex and requires them to take many different medications.

Good things in small packages That kind of polypharmacy, explained Mr. Wollschleger, means medications must not only be provided in the proper dose, they must be timed and taken so that See PHARMACY Page 17

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16 CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

OCTOBER 8 - 14, 2012

SMALL BUSINESS

Chef: Competition requires commitment

GRANDOPENINGS NANO BREW CLEVELAND 1859 West 25th St. Cleveland 44113 http://nanobrewcleveland.com/ Nano Brew Cleveland — a partnership between Market Garden Brewery’s Sam McNulty and brewmaster Andy Tveekrem — is a neighborhood brew pub with 24 beers on draft, both at the inside bar and at the outdoor Beer Garden Bar. Its hours are 4:30 p.m. to 2:30 a.m. weekdays, and noon to 2:30 a.m. Saturdays and Sundays. Featured beers include those from its one-barrel brew house and those from local craft breweries. Nano Brew also features a bike tuneup station and a simple food menu that features items sourced from local farmers and butchers. 216-862-6631 sam@nanobrewcleveland.com

ASSURED MEDICAL ALLIANCE LLC 19495 Bagley Road Middleburg Heights 44130 www.assuredmedicalalliance.com Assured Medical Alliance, under the direction of CEO Michael A. Pistillo, provides business and technology services to the home health care, assisted living and wellness industry. The firm offers an electronic medical record software package that specifically was designed for home care agencies. Also available are medication reminder systems, medical alert devices and vital sign monitors that are used to record an individual’s weight, blood pressure, pulse, glucose and oxygen levels. The information then can be transmitted to a secure server for historical trending or

spotting a negative trend early in order to prevent a trip to the emergency room or a lengthy hospital stay. 216-539-9571; 855-AMA-4433 (toll free) info@assuredmedicalalliance.com

FIORI DELLA VITA 19041 Old Detroit Road Rocky River 44116 Owned by Catherine Jones, formerly of the Beachcliff Market Square flower shop, Fiori della Vita (Flowers of Life) is a fresh flower market. The store specializes in many flower varieties similar to the open flower markets in France, England and Holland. Fiori della Vita offers fresh flowers and plants. In addition, there are gift items and embroidered items. 440-333-5155 To submit information about a new business, opened within the past six months, send the following information for publication to Amy Ann Stoessel, sections editor, at astoessel@crain.com: business name; address; city and ZIP; web site address; brief description of the business; business phone number; business fax number; and business e-mail.

continued from PAGE 15

a restaurant, but I get to go home,” Mr. Williams said. “I’m in a very good position.” Cleveland has a healthy share of accomplished chef-driven eateries, but the journey toward a restaurant’s revered status often is overlooked or unrealized by consumers and even other aspiring culinary artisans. The corresponding long hours, drain on well-being, financial risk and other personal sacrifice take their toll despite what can become a fulfilling reality of robust business, happy customers, accolades and national media praise. Melt Bar & Grilled owner Matt Fish puts it simply: “You have to be willing to lose it all to gain everything.”

All-or-nothing mentalities Indeed, Mr. Fish took a gamble when he opened the doors to his Lakewood grilled cheese concept with no money and hoped customers would show up so he could make payroll. Six years and four establishments later, the sandwich destination employs about 250 and generates $10 million, although it was just this year Mr. Fish backed off his 100-plus-hour work weeks and hired a senior management team to assume some of the workload. “I hit the burned-out wall this year,” he said. “I was going so hard, so fast for so many years. I felt it was necessary to work seven days a week, 18 hours a day. “I’ve been divorced, and later my girlfriend and I broke up,” he said. “A lot of personal relationships suffered because of it.” The chef said there’s no recipe for the kind of attention a concept like Melt produces, although an aspiring toque needs to think of himself or herself as the dishwasher, janitor, bartender, accountant, line cook and chef. “Chef-driven concepts tend to survive because the chefs who have been in the trenches understand — you are the person that will keep the restaurant afloat for a very long time,” Mr. Fish said. The intensity nearly set Jeff

Jarrett on a new career path about two years ago, while he was working as executive chef at North End in Hudson. “I thought about getting out, but I realized this is a part of who I am. Chef Jeff is my identity,” said the AMP 150 executive chef, whose background involves some of the region’s best restaurants. The death of his mother in June caused restaurateur Zack Bruell to rethink his rigorous schedule. “It took the wind out of my sails,” he said. “Up until that point, I felt like a freight train was behind me and I was just running ahead of it. I was bowled over emotionally. “I’d like to start working on my golf game,” Mr. Bruell said. The 38-year restaurant veteran is known for his pursuit of culinary perfection in each of the businesses at which he’s been affiliated, including his own L’Albatros, Chinato, Parallax, Table 45 and Cowell & Hubbard.

PHOTO PROVIDED

Eric Williams, the founder of Cleveland restaurant Momocho, said he considered the side effects when entertaining a potential new project. “Being such a young person, launched into the spotlight, it has been difficult to slow down, but I’m doing my best now for others and not just myself,” he said. “I surround myself with people better than me.” The chef said he’s been more

“It has been difficult to slow down, but I’m doing my best.” – Chris Hodgson founder, Hodge’s, Dim and Den Sum Mr. Bruell said he’s not fixated on reinventing the wheel like he once was, but rather is focused on ensuring each restaurant’s excellence and growing his business, likely with new concepts in other markets. “I’ve realized it’s not about me. It’s about you,” he said.

Lessons in moderation Chris Hodgson acquired a similar management philosophy this year when he opened Hodge’s, only two years after introducing Cleveland to the food truck phenomenon with his mobile bistro, Dim and Den Sum. The operation’s momentum was unrelenting and carried largely by Mr. Hodgson, who quickly propelled the food truck business into the national spotlight. As the driver, chef, purchaser, bookkeeper and aggressive social media marketer, Mr. Hodgson was in fifth gear more than 100 hours each week.

careful about managing his time between overseeing two food trucks, a catering business and the restaurant (including fewer nights out after work). “I’m always at the restaurant, so you know where to find me. I still have to filet fish,” he said. Dante Boccuzzi’s quartet of eateries is not just a result of his pedigreed background and culinary talent. He also has developed a keen sense of knowing how to delegate responsibility and manage personal time. The father of four children said he physically works 12 hours a day, six days per week, not taking into account time away from the office spent fielding calls and checking emails or texts. “Last night I lay awake until 2 a.m. thinking about what specials to run (at Dante) in Tremont,” he said one day in August. But because all his restaurants are closed Sundays, the chef is guaranteed at least one full day to spend with family. “I’ve realized what my limits are, and I’m pretty good at letting go of work on my day off,” he said.

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Other small outfits and sole proprietors appreciate the exertion that comes with creating a recognizable business in the crowded, competitive restaurant industry. For Britt-Marie Culey, owner of Cleveland Heights home-based Coquette Patisserie, “it’s the greatest thing ever” that area foodies indulged her business when she relocated in 2008 from Connecticut. “There wasn’t a lot of time for social media, so it was all about putting the product in people’s mouths,” said Ms. Culey, who will be featured Nov. 3 at the West Side Market’s centennial gala along with 13 other local and national culinary all-stars. “I’ve stayed true to my style and craft, and it was so well-received and welcomed into the community,” she said. “I live on what I love to do.” ■

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CRAIN’S CLEVELAND BUSINESS 17

WWW.CRAINSCLEVELAND.COM

SMALL BUSINESS

Absent a sale, ways to use low tax rates Pharmacy: Company CARLGRASSI makes dispensing easier

s we head to the presidential election, one of the key political and economic issues continues to be taxes. Several significant tax increases are on the books and will become effective Jan. 1, and a total reprieve from these increases seems less likely than it did at the end of 2010. This political and economic climate has caused many business owners to consider a liquidity transaction to sell their business, in whole or in part, to take advantage of the current low tax rates. However, many business owners feel that the time is not right for a sale of their business; profits likely are to be down or flat as compared with historical performance. Lower profits, of course, typically result in lower valuations. Timing also has now become an issue because three months may not be enough time to adequately market a company for sale and complete a transaction. For business owners who want to take advantage of current tax rates but are unable or unwilling to sell the entire business, there are various alternatives available. The most dramatic potential effect of the imminent tax rate increases is a dividend rate that could be as high as 43.4% (39.6% ordinary income rate plus the 3.8% Medicare surcharge), not including state and local taxes, almost triple current rates. Paying a substantial dividend during 2012 before tax rates increase is therefore worth considering. The IRS is in certain circumstances able to effectively force a corporation to pay a dividend. Corporations are potentially subject to a tax on excess accumulated earnings,

TAX TIPS which taxes corporations holding on to their cash that is beyond its “reasonable needs.” Corporations using a strategy of paying out profits as salary to shareholders may face IRS assertions that such payment exceeds the amount of compensation that is reasonable. These IRS positions likely are to be more aggressively asserted in 2013 if rates do go up. Another technique to extract value is through a redemption. A redemption should be considered where less than all of the shareholders — for instance, a shareholder nearing retirement age — want to create a liquidity event and diversify their investments. One issue with a redemption is that partial redemptions often are treated as a dividend for tax purposes. Tax rates of dividends and longterm capital gains are the same under current law, so there is currently less concern about whether a partial redemption will qualify as such. If tax rates increase as scheduled, the tax difference between a redemption and a dividend again will become significant. Completing this type of transaction in 2012 should guarantee that the transaction will be taxed at the current low

capital gain or dividend tax rate. If a business does not have sufficient cash to pay the dividend or complete a redemption of a significant shareholder, the corporation either could borrow the money or issue a note to the shareholders. If a redemption is financed with a promissory note, locking in the current tax rates would require the shareholder to elect out of the installment method. Under the installment method, the seller pays tax only as payments are received, but at the rates that are then in effect, not the rates in effect when the transaction is completed. So, for instance, if capital gains rates were raised to 23.8% in 2013, a taxpayer selling his stock in 2012 would pay the 23.8% rate on any payments received in 2013 and would not enjoy the 15% rate in effect in 2012 when the stock was sold. A taxpayer can elect out of the installment method by reporting the entire amount of the gain on his return for the year. For sales occurring in 2012, this decision therefore can essentially be deferred until at least April 15, 2013. While it’s unclear what the future holds, opportunities exist to take advantage of current tax rates. In some cases, a taxpayer may be able to close a transaction now but wait until at least next April to decide whether to accelerate gain on the sale. By that time, we may have a clearer picture of what is in store. In any case, given the uncertain future of tax rates, now is the time to act to take advantage of the current low rates. ■

Mr. Grassi is president of McDonald Hopkins LLC.

continued from PAGE 15

they don’t interfere with each other, don’t cause side effects or don’t land the customer in the ER — or worse. That’s why, Mr. Wollschleger said, “I always think of (ExactCare) as being an important part of the customer’s clinical team.” While Mr. Wollschleger would not provide growth or sales figures, he said ExactCare has seen “significant growth every year” since the Valley View-based company started, and that the company currently employs more than 30 pharmacists and pharmacy technicians, one of whom also is a nurse practitioner. A large percentage of ExactCare’s growth has been driven by the introduction and growing use by customers of the company’s trademarked ExactPack. “Most of our customers have found out about (ExactPacks) through word of mouth, so, in general, we haven’t done much marketing,” Mr. Wollschleger said. ExactPacks initially were developed as integrated packaging systems to help individuals with mental health problems and AIDS manage their medications on a daily basis. Increasingly, they are being used by seniors, especially those with impaired dexterity (due to arthritis) or those dealing with mild cognitive decline. “(ExactPacks) are much more reliable than taking pills from bottles because they can open one package and dump everything down the

hatch in one gulp,” said Dr. William Mills, the medical director for Western Reserve Senior Care, a Cleveland-based in-home care firm. Over time, the ExactPack has evolved into an even easier-to-use strip packaging system for dispensing medications at home, in group homes, in assisted living facilities, at dialysis centers or at school. “The goal has always been to make it easy for them to (take their medications) so they can have as normal a life as possible,” Mr. Wollschleger said. While average ExactPacks contain only prescription drugs, they can be further customized with over-the-counter medications, vitamins and herbals, too, he said.

Help all around It’s not just the customers or caregivers who get ExactPacks — and can “tear off a day’s worth or a week’s worth of medications and take them anywhere with them,” said Mr. Wollschleger — who like the home-delivered product. Ambulance drivers and EMS and ER professionals like them, too. “When they are handed the box they know all the medications the person is on,” Mr. Wollschleger said. While ExactCare can ship pharmaceuticals and its trademarked ExactPacks anywhere in Ohio — but only in Ohio due to interstate regulatory issues — the company’s main market is Northeast Ohio. But, he added, “We are definitely thinking about expanding, both in-state and out-of-state.” ■

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18 CRAIN’S CLEVELAND BUSINESS

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SMALL BUSINESS

New retirement fee rules allow better provider comparison

n the movie “The Three Amigos,” Lucky Day (Steve Martin), Dusty Bottoms (Chevy Chase), and Ned Nederlander (Martin Short) are Hollywood silent film actors who portray the heroic Amigos on screen. Believing they are real heroes, Carmen asks them to protect her village from El Guapo. The Three Amigos honor Carmen’s request thinking their appearance alone will be enough to save the day. They soon realize they cannot just go through the motions to protect those counting on them. Just like The Three Amigos, retirement plan sponsors cannot just go through the motions. ERISA (the Employee Retirement Income Security Act) requires plan fiduciaries to act prudently and solely in the best interest of the plan’s participants and beneficiaries when selecting and monitoring service providers and plan investments. Have you ever stopped to think about what this means? ■ Act prudently. You should document that you operate and make decisions that affect the plan

based on some objective process. Be sure to follow the rules described in the plan document. You are not expected to be a fortune teller; you are expected to have some rationale supporting your decisions. If you are not an expert on retirement plans and/or investment options, you are expected to hire people who are, or obtain the necessary training. ■ Act solely in the best interest of the plan’s participants and beneficiaries. Remember this when you select service providers and investment options. Don’t make decisions that impact the plan simply because you or the company receive some favorable treatment (i.e. bank financing). ■ Did you notice the words “selecting and monitoring?” ERISA requires you to revisit your decisions periodically and make changes when appropriate. This evaluation should include a review of the investment options and the service providers (i.e. financial adviser, actuary, third-party administrator, record keeper, auditor). Don’t retain them simply because

CHRISTINESIVAK CRAIGGABEL

ADVISER they are your golfing buddy, relative or manage your personal investments. Make sure your service providers, and the plan’s investment options, continue to do the job you hired them to do. These duties have moved under the spotlight now that new retirement plan fee disclosure rules have gone into effect. Final regulations issued by the Department of Labor required covered service providers to provide fiduciaries with information about their compensation, the services they provide and their fiduciary status. Why? Because these covered ser-

Upcoming Editorial Crain’s editorial features offer the opportunity to align your brand with our award-winning reporting an and analysis, focused on the topics that matter most to Northeast Ohio bbusinesses.

Issue date: October O b 22

vice providers are only permitted to be paid from the plan assets if both the contract/arrangement and the compensation for services are reasonable. El Guapo has arrived, plan sponsors, and you can no longer go through the motions. You need to review the services you are receiving and their respective costs. Your service providers should have given you fee disclosure documents by July 1. Remember those thick documents you received in the middle of the summer? (If you didn’t receive any, you are required to send a written request.) Once you have them, you cannot just put them in your drawer. Now is a good time to do some comparison shopping. This can be done by reviewing survey data or by gathering specific proposals for your plan. You are not required to select the lowest cost alternative, but should make sure you are getting what you (and your participants) are paying for. You think you don’t need to worry about this because you hired “Bob” to do this for you? Small business owners who offer plans to their employees are personally liable if it is determined that they failed to satisfy the fiduciary obligations of ERISA, even if they are not actively involved in the day-to-day management of the plan. Sit down with “Bob” and make sure the review has been done.

Ms. Sivak and Mr. Gabel are partners with Cedar Brook Financial Partners. Securities offered through Securities America Inc., member FINRA/SIPC, Ms. Sivak and Mr. Gabel, registered representatives. Advisory services offered through Securities America Advisors Inc., an SEC registered investment adviser, Ms. Sivak and Mr. Gabel, investment adviser representatives. Cedar Brook Financial Partners LLC and the Securities America companies are not affiliated.

IN BRIEF ■ FIFTH OFFICE: Global Technical Recruiters has opened an office in Mentor, which is the employment firm’s fifth location and the second this year. The office is recruiting for manufacturing, office and professional positions in Lake and Geauga counties. The new office adds to the firm’s coverage area, which already served Cuyahoga, Lorain, Medina and Summit counties. ■ SURGIPLEX ADDITION: The Ohio Clinic for Aesthetic and Plastic Surgery, under the leadership of Dr.

Ad close: Oct. 11 O

The DOL is encouraging plan sponsors to take the necessary compliance steps and has increased examination activity. In FY 2011, the DOL closed 3,472 civil investigations, with 2,614 (75.29%) resulting in monetary results for plans or other corrective action. Recently, in a lawsuit filed by the DOL, a federal judge ordered the president of a Columbus company to personally restore more than $500,000 to the company’s two employee retirement plans. The DOL’s suit alleged insufficient oversight and mishandling of plan assets resulting in multiple violations of ERISA. You cannot afford to put off the review of your plan administration, fees and services. In the beginning, the Three Amigos were playing a role. By the end, they accepted the challenge and began living the part. Will you fulfill your fiduciary duties and live your part? ■

Michael Wojtanowski, has added a surgical facility at its Westlake location. Called the Surgiplex, the newly built suite is designed for plastic surgery procedures, and it is staffed with board-certified anesthesia personnel, surgical techs, surgical assistants and registered nurses. ■ SOUP ANYONE?: Jamie and Kathy Buzzanca have opened a franchise of Zoup! Fresh Soup Company in the Points East Shopping Center in Mentor. The new restaurant will have 17 full- and part-time employees.

Family Business Crain’s will highlight 10 family businesses that have been passed on through the generations in Northeast Ohio. From a furniture store and construction firm to a barber college and print shop, this section will feature a variety of businesses, all with interesting family histories.

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Cuts: Customers’ uneasiness also affecting operations continued from PAGE 3

Adjustment and Retraining Notice Act, which requires that employees receive at least 60 days’ notice of potential mass layoffs. While Lockheed Martin this month issued a statement saying it wouldn’t issue layoff notices, it cited as the reason the Department of Defense’s guidance that contract changes wouldn’t be made for a few months into the year, not that layoffs wouldn’t be necessary. In an Oct. 1 memo to employees, Lockheed Martin chairman and CEO Bob Stevens wrote: “We remain firm in our conviction that the automatic and across-the-board budget reductions under sequestration are ineffective and inefficient public policy that will weaken our civil government operations, damage our national security and adversely impact our industry.” Major projects such as the F-35 fighter jet, which is part of the government’s Joint Strike Fighter program, could be at risk, according to David Silk, partner at SGI Global Business Advisors LLC, a Clevelandbased advisory firm that deals with international economic development groups. The F-35 project, which is headed by Lockheed Martin, touches 2,876 direct and indirect jobs in Ohio and has an economic impact of $353.7 million in the state, according to Lockheed Martin. That means the 47 Ohio suppliers to the F-35 project, not to mention Lockheed Martin itself, could see a loss of business. And that’s only one project.

Fear of the unknown The biggest problem with sequestration is the uncertainty involved. There are unknowns about the programs that would be cut and what those cuts would look like. “By the time it trickles down to us, all we get are more questions than answers,” Thermotion’s Mr. Swanson said. For that reason, Thermotion is delaying any unnecessary spending, including buying equipment and hiring employees, Mr. Swanson said. The 15-person company serves the aerospace and defense sectors, which represent 10% and 30% of its business, respectively, Mr. Swanson said. Customers aren’t making any long-term commitments, Mr. Swanson said. And, without long-term commitments from customers, companies such as Thermotion can’t do long-term planning. “Everything is just stacking up, waiting for someone in Washington to make a decision,” Mr. Swanson said. Daniel Sedor Sr., president and CEO of Voss Industries LLC, said there will be “significant hardship out there” for those companies heavily reliant on military work. Voss, a metal fabricator in Cleveland’s Ohio City neighborhood that makes clamps, couplings and ducting for aerospace, defense and industrial clients, hasn’t yet seen an impact in business because the contracts on which it’s already working haven’t been altered. Mr. Sedor doesn’t expect Voss, which employs 335 people, to be severely impacted by sequestration because of the company’s diversification.

While he doesn’t anticipate any job losses, he did say the cuts could slow Voss’ growth plan. Roger Sustar, CEO of Fredon Corp., a Mentor-based contract specialty machine shop with 86 employees, said with Northeast Ohio so strong in defense manufacturing, sequestration no doubt is going to hurt. Mr. Sustar said a fear of cuts already is halting innovation among potentially affected manufacturers. “We could be so much more productive,” Mr. Sustar said. “We’re wasting the next four or five months before we decide what’s going to happen.”

“They stop the momentum that we’ve generated in the past few years to bring manufacturing back to ... Ohio.” – Don Styblo, vice president of technology, Valtronic USA Inc.

Long-term impact Don Styblo, vice president of technology for Valtronic USA Inc., a maker of miniature electronic devices in Solon with roughly 100 employees, is concerned about what sequestration could mean for the future of manufacturing in Ohio. In cutting financial support to next-generation projects and to research and development, the government could be handicap-

ping the growth of manufacturing, he said. “They stop the momentum that we’ve generated in the past few years to bring manufacturing back to the United States and back to Ohio,” Mr. Styblo said. Manufacturing already is facing a challenge in finding skilled workers to replace aging baby boomers and, if across-the-board cuts are enacted, that pipeline of new workers could become even drier as more students are discour-

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aged from pursuing manufacturing jobs. For example, at Valtronic, it takes two years for an engineer to become fully trained, Mr. Styblo said, so adding new workers is part of a constant evolution. Any sequestration-induced slowdown also could hurt the state’s status internationally as a center of manufacturing, according to Mr. Silk. “Ohio is absolutely one of those states that you see around the world constantly,” said Mr. Silk. “It’s China. It’s Germany. It’s Israel. You name it, we are out there. Ohio, as a large manufacturing state, is one of the most significant players on the international scene.” ■

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Rates: Firms mull self-insurance continued from PAGE 1

Cos., a Cleveland insurance brokerage. Even non-coastal Ohio grappled with significant hail and wind storm damage, he noted. Workersâ&#x20AC;&#x2122; comp rates have climbed because medical costs have risen. â&#x20AC;&#x153;Rates are going to continue to increase,â&#x20AC;? Mr. Jacobs predicted. â&#x20AC;&#x153;Interest rates are virtually nil, so (insurers) are not earning anything (off their reserves). This lack of investment income has caused them to be much more conservative about how they underwrite risk.â&#x20AC;?

End of the deals The rate increases come after years of rate suppression caused by competition and attractive investment yields. â&#x20AC;&#x153;Commercial pricing levels through 2010 and 2011 were really at roughly 2002 and 2003 price levels,â&#x20AC;? said Dave Peterson, national personal lines and small business accounts leader for Westfield Insurance in Westfield Center, which sells more than 40% of its commercial insurance in Ohio and Pennsylvania. â&#x20AC;&#x153;Commercial lines insurance has been a fantastic deal for quite a period of time,â&#x20AC;? Mr. Peterson said. Year to date through August 2012, Westfieldâ&#x20AC;&#x2122;s investment income was down 4.3% from the year-ago period, even though invested assets have grown during that time, a spokeswoman said. That situation means carriers cannot rely on investment returns to make up for underwriting shortcomings as they might have in

other years, Mr. Peterson said. The rate increases vary from carrier to carrier and depend greatly on the risks inherent in a companyâ&#x20AC;&#x2122;s business and its claims history, industry insiders say. Westfieldâ&#x20AC;&#x2122;s Mr. Peterson said he has seen year-over-year increases of 25% or more. For those Westfield clients with unchanged risk â&#x20AC;&#x201D; for example, because they didnâ&#x20AC;&#x2122;t hire more employees or buy property â&#x20AC;&#x201D; premiums are increasing roughly 5% on average, Mr. Peterson said. Likewise, Mr. Jacobs said Oswald clients with good claims experience in â&#x20AC;&#x153;fairly benignâ&#x20AC;? industries are seeing increases of 4% to 6%, while clients with high risk exposure and poor claims history are seeing â&#x20AC;&#x153;well into double-digit increases.â&#x20AC;?

Mid-course adjustments From an insurance industry perspective, the upward trend in pricing is a positive one, said Steven W. Webersen, managing director with Conning, a Hartford, Conn., insurance research and consulting firm. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s definitely good for the industry to improve its profitability,â&#x20AC;? he said. â&#x20AC;&#x153;Rate increases need to continue.â&#x20AC;? And most expect they will. â&#x20AC;&#x153;This market is going to continue until investment income improves, which isnâ&#x20AC;&#x2122;t likely anytime soon,â&#x20AC;? Oswaldâ&#x20AC;&#x2122;s Mr. Jacobs said. Westfieldâ&#x20AC;&#x2122;s Mr. Peterson expects to continue to increase rates in 2013, roughly by percentage rates in the mid single digits, and expects competitors to do the same.

â&#x20AC;&#x153;Prices have been going up now for a year,â&#x20AC;? he said. â&#x20AC;&#x153;That doesnâ&#x20AC;&#x2122;t instantly make you whole.â&#x20AC;? Britton Gallagherâ&#x20AC;&#x2122;s Mr. Bryant predicts increases of 5% to 10% for the next two to three years. â&#x20AC;&#x153;Insurance companies are not going to price themselves out of business,â&#x20AC;? he said. â&#x20AC;&#x153;Instead of hitting the insurance marketplace with the insurance increases they want, theyâ&#x20AC;&#x2122;ll stagger it over a few years.â&#x20AC;? To mitigate the increasing insurance rates they face, some companies are considering self-insurance, taking on higher deductibles and buying excess insurance, said Mr. Jacobs. He said buying excess insurance typically is cheaper than buying coverage with low deductibles. â&#x20AC;&#x153;Clients are taking on more risk themselves to offset the increase in premium dollars,â&#x20AC;? he said. Westfieldâ&#x20AC;&#x2122;s Mr. Peterson said his company has enjoyed pretty stable retention rates, has had clients increase their deductibles and write new risk control plans. Companies may mitigate the increases by taking a more active, strategic approach to managing their risk and their claims activity, Mr. Jacobs advised. Those steps can involve anything from ensuring machine guards are in place to spreading product between properties so that thereâ&#x20AC;&#x2122;s less value lost if a roof leaks or collapses. Also, Britton Gallagherâ&#x20AC;&#x2122;s Mr. Bryant recommends starting insurance renewal processes earlier, at least six months in advance. â&#x2013;

Research: Technology advances may stall continued from PAGE 1

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could be on the way no matter what. Even so, the research department at CWRU will be better off if Congress can come up with its own way to reduce the deficit, Dr. Miller said. â&#x20AC;&#x153;The reductions will be introduced in a much more rational fashion and over a period of time,â&#x20AC;? he said. A lot of money is at stake, especially at CWRU. The universityâ&#x20AC;&#x2122;s research department had a budget of $388 million during the fiscal year that ended June 30. About 80% of that money comes from federal agencies such as the National Institutes of Health and the National Science Foundation. Those programs and others that fund research will need to reduce their budgets by 8.2% under the automatic cuts.

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Itâ&#x20AC;&#x2122;s unclear how those agencies would distribute the cuts, but a few officials interviewed for this story said they expect new research programs to be hit hardest. Existing programs that are up for renewal also could take a hit, but ongoing, multiyear projects probably would be protected to some degree. Federal research agencies need to protect existing projects because itâ&#x20AC;&#x2122;s hard to ramp them back up if they get shut down, Dr. Miller said. However, cutting back too much on grants for new projects isnâ&#x20AC;&#x2122;t a great solution, either, he said. â&#x20AC;&#x153;The problem with that is you dry up your pipeline,â&#x20AC;? he said. Walter Horton still is trying to build that pipeline at Northeast

Ohio Medical University in Rootstown. The university known as NEOMED is in the process of constructing a new research building, and it is in the middle of a five-year plan meant to double the amount of research the school conducts. The school doesnâ&#x20AC;&#x2122;t calculate an annual research budget, but each year typically receives about $8 million from external sources that goes toward research and some other programs, said Dr. Horton, who is vice president for research and dean of graduate studies at NEOMED. The automatic cuts would slow down the effort to increase research at the university, Dr. Horton said. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s no question that this is scary,â&#x20AC;? he said. Thereâ&#x20AC;&#x2122;s only so much universities can do to prepare for possible cuts. For instance, NEOMED plans to provide bridge financing to help existing researchers advance their projects and stay competitive for grants. Dr. Miller said CWRU is trying to broaden its sources of financing, but those efforts take time. The University of Akron is planning to review its federally financed research projects, said George Newkome, vice president for research and dean of the graduate school at Akron. The researchers leading projects often would be the ones to decide whether they pay their assistants less, let them go or spend less on equipment and supplies. Dr. Newkome said the university â&#x20AC;&#x201D; which received $58 million in research grants last year, about half of which came from the federal

government â&#x20AC;&#x201D; doesnâ&#x20AC;&#x2122;t have the resources to protect its research projects from spending cuts. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s not going to be money at the university to cover those costs,â&#x20AC;? he said.

Hope in â&#x20AC;Ś Congress? The cuts over time could hamper the regionâ&#x20AC;&#x2122;s ability to turn university technologies into products and startup companies, said W. Grant McGimpsey, vice president of research and sponsored programs at Kent State University. â&#x20AC;&#x153;Where does that technology come from? It comes out of research,â&#x20AC;? Dr. McGimpsey said. About 75% of Kent Stateâ&#x20AC;&#x2122;s $33 million research budget comes from federal sources, he said. That budget is fairly small compared with budgets at schools such as CWRU or Ohio State University, a difference that might put Kent State at a disadvantage when applying for grants, Dr. McGimpsey said. â&#x20AC;&#x153;The larger institutions that have a longer history with funding agencies are the ones that are going to be looked to first when funding becomes available,â&#x20AC;? he said. Many researchers are â&#x20AC;&#x153;holding their breath,â&#x20AC;? hoping that the federal government comes up with a better way to cut the deficit, Dr. McGimpsey added. Dr. Newkome, of the University of Akron, said heâ&#x20AC;&#x2122;s â&#x20AC;&#x153;not overly confidentâ&#x20AC;? in Congressâ&#x20AC;&#x2122; ability to meet that challenge, but he said he thinks it has a strong incentive to pull it off. â&#x20AC;&#x153;People still have to be re-elected into office, and things like that are remembered long and hard by voters,â&#x20AC;? he said. â&#x2013;

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Global Business Experts Advise Area Companies Crainâ&#x20AC;&#x2122;s event highlights Northeast Ohioâ&#x20AC;&#x2122;s global business potential Going global isnâ&#x20AC;&#x2122;t just a catchphrase. It makes good business sense. At least thatâ&#x20AC;&#x2122;s the word from Amy Liu, co-director and senior fellow of the Metropolitan Policy Program of the Brookings Institution. Ms. Liu, appearing last Thursday, Sept. 27, at the NEO World Trade Conference at Executive Caterers at Landerhaven, said leaders in large U.S. metro areas should encourage local companies to become participants in the international marketplace if they want to see sustained growth. She cited data from the Organisation for Economic Co-operation and Development, which promotes worldwide economic growth, that indicated global consumption of goods is expected to rise from $21 trillion annually to $31 trillion by 2020, largely led by growth in Asia and Latin America. â&#x20AC;&#x153;We view these trends less as a threat than as a market opportunity,â&#x20AC;? Ms. Liu said. â&#x20AC;&#x153;The winners in the next economy will be those who strengthen their global assets and tap new sources of aggregate demand.â&#x20AC;? The U.S. recovery has been led by companies that are exporting, she said. Exports represented 46% of GDP growth in 2001 from 2010, even though exports account for only 13% of the U.S. economy. Cleveland, which is the 28th largest metro in the country, ranks 21st in terms of the share of its GDP represented by exports. Â´7KH ERWWRP OLQH LV LI ZH DUH WR JURZ RXU Ă&#x20AC;UPV QHHG WR ORRN outside the United States,â&#x20AC;? Ms. Liu said. Brian Kim, a foreign exchange strategist of research and strategy for RBS Securities Inc., said the interconnectedness of the worldâ&#x20AC;&#x2122;s markets is leading to a relative slowdown in China. As European countries continue to struggle, the effects will be felt by their global trade partners. â&#x20AC;&#x153;While growth will come out of Asia, a lot of that will be dependent on the rest of the world,â&#x20AC;? he said. Given the struggles in Europe, Mr. Kim said he is more bullish on the U.S. dollar for the next year. He said he is encouraged to see VRPH PRQH\ Ă RZLQJ EDFN LQWR WKH 8QLWHG 6WDWHV DV WKH FRXQWU\ÂˇV trade balance turns more in its favor.

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Thank You to our Keynotes Luncheon Keynote:

Evening Keynote:

Brian Kim

Amy Liu

Foreign Exchange Strategist, RBS Securities

Co-Director and Senior Fellow, Metropolitan Policy Program, Brookings Institution

Thank You Moderators and Panelists ModeratorS Pat Perrin, Global Finance Manager, Ohio Department of Development Ken Marblestone, President, RBS Citizens and Charter One in Ohio Bob Johnson, Vice President, BioEnterprise Andrew Smaltz, Director, Corporate Risk Solutions & Events, RBS Citizens

Panelists Susan Whitney, Director, Cleveland Office, U.S. Commercial Service Amy Liu, Co-Director and Senior Fellow, Metropolitan Policy Program, Brookings Institution Patrick Hayes, Regional Manager, SBA Export Solutions Group, U.S. Export Assistance Center Mark Klein, Export Finance Manager, The Export-Import Bank of the U.S. Rose Lee Askin, Senior VP, RBS Citizens Carl Steidtmann, Chief Economist, Deloitte Steve Hedlund, VP of Strategy & Business Development, Lincoln Electric Ray Ursick, President, REU Associates Will Joliat, Vice President & General Manager, Alltech Medical Systems Jerry Baty, CFO, Secretary and Treasurer, Axiomed Michael Corkan, CEO & Co-Founder, ChinaCentric Business Development Mark Barnes, Partner, High Growth Markets, KPMG Brett Barragate, Partner & Global Co-Leader of Banking & Finance Practice, Jones Day Tom Collin, Partner and Group Leader, Antitrust, Competition & Distribution Practice, Thompson Hine LLP

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Health: Insurers energized over industry activity continued from PAGE 3

the hottest area in medical innovation right now,” Mr. Coburn said. Demand for health IT products has been rising for a few years, but lately local efforts to develop and sell those products have become much more pronounced. For one, investors have pumped a lot more money into local health IT companies over the past 18 months.

The money starts to flow Enforcer eCoaching Inc. — a Lyndhurst company developing software that sends personalized emails to people looking to lead healthier lives — raised $1.6 million from investors in March, according to a document filed with the U.S. Securities and Exchange Commission. That company this summer raised another $250,000 from JumpStart Inc., a Cleveland nonprofit that assists and invests in local startups. So did GenomOncology LLC, a Westlake company developing software designed to automate the process of analyzing genomic data. GenomOncology raised $1.25 million from other investors earlier in 2012. Explorys Inc., a Clinic spinout that has developed software that can analyze vast amounts of patient data, announced in May 2011 that it had raised $11.5 million. The 3-year-old Clinic spinout has raised a total of $20 million and has 79 employees. It is in the process of moving into a larger space in the Clinic-owned building that used to house the Cleveland Play House and the Museum of Contemporary Art Cleveland. The company

eventually could become the anchor tenant in any health IT building the Clinic creates. (See adjoining story for details). Nationally, some investors have created funds that invest only in health IT companies, Mr. Coburn said. So the Clinic expects its spinouts to be able to raise capital without too much trouble. BioEnterprise Corp. is working to help more young health IT companies get off the ground. The Cleveland nonprofit, which was created to help boost the region’s health care industry, in February of this year launched its H.I.T. Accelerator program. Health IT companies that apply to the quarterly program send BioEnterprise information about their products. The nonprofit selects the best of the bunch, then uses an online portal to discuss those products with panels comprised of people from the program’s partner institutions: the region’s five largest hospital systems, Case Western Reserve University and health insurers SummaCare and Medical Mutual of Ohio.

Insurers join the crowd The goal is to help local health IT companies find key customers while also helping institutions find good products, said Jim Weisman, a vice president at BioEnterprise who focuses on health IT. Partner institutions asked to follow up with two of the four companies that participated in the summer session, Mr. Weisman said. The number of health IT startups

in Northeast Ohio keeps growing, he said, adding that University Hospitals has a few spinouts in the works, too. The companies Mr. Weisman sees cover all sorts of sectors, he said. “I’m seeing health and wellness. I’m seeing remote monitors. I’m seeing telemedicine,” he added. Mr. Weisman said insurers also are starting to show more interest in health IT. Medical Mutual in April hired Rahul Rosh to fill a new position: vice president of IT strategy. The Cleveland insurer since then has started making bets on different IT technologies, Mr. Rosh said. In addition to participating in the BioEnterprise program, Medical Mutual has invested in a health ITfocused private equity fund in hopes of getting first dibs on some of the technologies in which it invests. The company also is using an AT&T platform that will allow it to develop medical software programs that will work on a broad range of mobile devices. Although the company for years has used IT to process transactions, now Medical Mutual wants to use it to analyze information, Mr. Rosh said. For instance, data eventually could allow the company to separate smokers with a real desire to quit from those who probably won’t, he said. His position’s existence is a testament to Medical Mutual’s growing interest in health IT, he said from his home in New York City, while preparing to move to Cleveland. “Certainly the emphasis has increased,” he said. ■

Cleveland Clinic software spinout Explorys readies for relocation By CHUCK SODER csoder@crain.com

Want hard, physical evidence that the health information technology sector is growing in Cleveland? You’ll find it at the corner of Euclid Avenue and East 86th Street — the domed building that used to house the Cleveland Play House and the Museum of Contemporary Art Cleveland. That building soon will be the new home of Explorys Inc., a Cleveland Clinic spinout that has developed a system that allows hospitals and health care companies to analyze massive amounts of patient data. Three-year-old Explorys plans to move into 20,000 square feet in the Clinic-owned building by the end of the month, giving the fastgrowing company roughly twice as much space as it has today in the nearby Global Cardiovascular Innovation Center on Cedar Avenue, CEO Stephen McHale said. Explorys has an option to take another 20,000 square feet in the building, but even that may only be enough to satiate the company for a few years, given its growth, Mr. McHale said. The Cleveland Clinic is talking about creating a building specifically for health IT companies, and should it do so, Explorys could

Theaters: Movie studios subsidize some costs continued from PAGE 1

distribution of 35 mm film will come to an end next year. Bottom line: If movie studios stop delivering first-run movies in film and theaters don’t have the projectors to play the digital movies they deliver instead, theaters can’t play the titles. “There are certain things you have to do to stay current and relevant,” said Chris Baxter, director of operations for Atlas. “Digital is one of those things.” Atlas installed 10 projectors at the Eastgate 10 location alone, plus 39 at three other locations. Company leaders are negotiating a deal to convert the final location, in Elyria, too. Likewise, Solon-based Cleveland Cinemas has spent more than $1 million on its digital projector upgrades, said David Huffman, director of marketing for the chain, which operates eight theaters in Northeast Ohio and one in Pittsburgh. The company launched the installations in the summer of 2009, driven in part by the oncoming proliferation of digital 3-D films. Of its 76 projectors, 29 are digital. “No theater is untouched by this,” Mr. Huffman said. For some of the very smallest theaters, though, it’s likely a wrap, insiders predicted. The owner of Parma Theater, for example, cited the cost of going digital as one of the reasons he closed the theater in September. “There are so many theaters that are just barely paying the bills

“(Many theaters) will not be able to spend the $70,000 to put a digital projector in their booth. Northeast Ohio will see fewer independent theaters.”

way you can make money in the theater business is by showing first runs. There’s going to be fewer and fewer prints of first-run movies.”

– John Knepp, president, Cooperative Theaters Inc.

The digital advantage

now,” said John Knepp, who owns two drive-in theaters in Chardon and Ravenna and buys film for theaters in 12 states as president of Cooperative Theaters Inc. in Mayfield Heights. “Those theaters will not be able to spend the $70,000 to put a digital projector in their booth,” he said. “Northeast Ohio will see fewer independent theaters.”

No choice but to pay No movie studios have put a date to when they will discontinue 35 mm distribution, said Mr. Knepp, who works with all of the major names, including Warner Bros. and Universal Studios. But change is here, he noted. “This coming year, you’re going to see less and less 35 mm being made,” Mr. Knepp said. “The studios cannot wait to get rid of film. Film is expensive. As more and more theaters put the digital projectors in, the film costs keep going up.” Consider, he noted, that 35 mm reels come in cans that weigh maybe 50 pounds, making them heavy to ship. And each film print costs roughly $2,000, compared with an estimated $40 for film hard drives. Atlas Cinemas embarked on its

transition five years ago, back when digital projectors still ran some $100,000 apiece. Today, each costs roughly $60,000 to $70,000. The digital projectors cost more and require service plans that film projectors do not, Mr. Baxter said. Fortunately, movie studios have agreed to pay theaters so-called “virtual print” fees, or fees paid to theaters for each digital title they show. Theaters cannot say how much the studios are helping to offset their costs, per nondisclosure agreements. Still, the price remains cost-prohibitive for some. Deb Sherman, owner of Aut-O-Rama Drive-In Theatre in North Ridgeville, expects it will be the reason that final credits roll at many drive-in theaters. “This doesn’t bring any extra money in,” said Ms. Sherman, who operates the 47-year-old drive-in with her five children. “All it’s doing is putting money out. They just can’t afford this extra expense. (Virtual print fees) aren’t going to pay for the whole thing.” Ms. Sherman, however, will seek a loan to replace the two 35 mm projectors at Aut-O-Rama, with installation projected for April 2013. “If we don’t switch to digital, we’ll be out of business,” she said. “There’s no two ways about it. The

Despite the admission price, theater operators see benefits to their entry into digital. For one, digital projectors and film are lauded for their brighter pictures and more consistent quality. “After running digital for the last five years, I honestly don’t miss film,” Mr. Baxter of Atlas said. “I saw what film was becoming. You (the moviegoer) have grown so accustomed to it, you don’t even realize it’s worsened.” Film, Mr. Baxter said, has degraded over the years as movie studios have sought to print it faster and cheaper. And while film can pick up scratches and other blemishes as it’s run through projectors, digital hard drives remain unchanged even after heavy use. “A digital print looks as good the first time you run it as the thousandth time you run it,” Cleveland Cinemas’ Mr. Huffman said. The new projectors also afford theaters the ability to present live events, such as concerts and sporting events, because content can be streamed and played through digital projectors. Plus, the projectors offer greater ease and less expense in playing movie marathons, such as the “Twilight” marathon Atlas has scheduled at two of its theaters

become the anchor tenant in that building, Mr. McHale said, noting that the company has been involved in those discussions. The hospital system is considering a variety of possible locations, said Heather Phillips, director of corporate communications for the Clinic. However, the discussions are very early and nothing has been finalized, she said, noting that the Clinic isn’t even sure whether it would use an existing building or build something new. Explorys has the equivalent of 79 full-time employees, up from about 25 in May 2011, when it announced that it had raised $11.5 million in venture capital. The company plans to keep hiring, Mr. McHale said. Sales at the company are 30% ahead of expectations for 2012, Mr. McHale said, declining to give revenue figures. A total of 12 health systems that manage 114 hospitals use Explorys’ software, which helps them study their operations and conduct medical research. Demand for health IT products that help hospitals analyze patient data is “white hot” right now, which has made it a lot easier to get the attention of health care providers, Mr. McHale said. “There’s more demand than supply,” he said.

in November, because content is more readily available and shipping all those film reels isn’t necessary, Mr. Baxter said. Aut-O-Rama’s Ms. Sherman also sees the potential for her drive-in to host tailgate parties and show football games.

Lost ‘soul’ Some, though, wax nostalgic for film. John Ewing, part-time associate director of film for The Cleveland Museum of Art and director of the Cleveland Cinematheque, which bills itself as the region’s only allanalog theater, regards film as a beautiful medium, but he concedes that both institutions for which he works likely will need to go digital sometime soon. Even today, Mr. Ewing cannot get a lot of the films he would like to show on film. “I think it’s important, especially for nonprofit art institutions, to show work in its original format,” he said. “So if a movie was shot on 35 mm, that’s the way you want to project and present it. At galleries, you’re looking at the canvas that the painter actually put the paint on. You’re not looking at a reproduction. I feel the same way about film. “Hard-core film people will tell you that a film image is slightly warmer than a video image,” he added. “It seems to have a bit of soul.” The vast majority of moviegoers, however, have no idea which they’re watching, Mr. Huffman said, as evidenced by people’s recent posts on Cleveland Cinemas’ Facebook page, pleading that they not switch one particular location — eight months after it already had gone digital. ■

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THEINSIDER

THEWEEK OCTOBER 1 – 7

The big story:

Hyland Software Inc. may construct an office building across the street from its headquarters in Westlake. The content management software developer — Northeast Ohio’s largest software company — has drafted a plan that would involve constructing a three-story, 112,000-square-foot building connected to a 66,000-square-foot building it already owns on the south side of Clemens Road, said Robert Parry, director of economic development for Westlake. Hyland Software says it isn’t sure it will move ahead with the plan. The company is “evaluating multiple opportunities” to help it house its rapidly growing base of employees, said Rick Kirk, director of operations at Hyland Software.

He’s looking for work: Mark Kvamme, president and interim chief investment officer of JobsOhio, is leaving the nonprofit development corporation. JobsOhio board chairman Jim Boland said the organization and Mr. Kvamme “are implementing the leadership transition plan developed during the formation of JobsOhio in 2011.” Mr. Kvamme will resign from his management role and as a member of the JobsOhio board at the board’s Nov. 1 meeting. The board has chosen John Minor, one of JobsOhio’s managing directors, as its new president and chief investment officer. In a Jam: Myers Industries Inc. bought Jamco Products Inc., a maker of heavy-duty industrial steel carts and safety cabinets. Akron-based Myers did not say what it paid for Jamco, which has annual sales in the range of $15 million to $18 million. Myers said Jamco’s product offering, relationships with industrial distributors “and reputation for quality and service complements Myers Industries’ existing Akro-Mils business and aligns with the company’s material handling growth strategy.”

REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS

And now you know the rest of the story ■ Last Christmas, BrandMuscle Inc. came this close to being bought by a private equity firm that was the subject of an HBO movie. BrandMuscle — which sells software that helps companies localize their advertisements — was bought by The Riverside Co. this past winter. But the Cleveland private equity firm wasn’t the highest bidder, said BrandMuscle CEO Phil Alexander Alexander, who last week at Ohio City’s Market Avenue Wine Bar described the story behind the Riverside deal to a group of entrepreneurs who belong to a networking organization called the Gorilla Group. On the morning of Dec. 23, the plan was to sell BrandMuscle to the highest bidder, Kohlberg Kravis Roberts & Co. L.P. KKR is a big, well-known private equity firm in New York made even more famous by a book and movie called “Barbarians at the Gate,” which described KKR’s ill-fated leveraged buyout of RJR Nabisco, which at the time was the largest LBO deal in Wall Street history. Then, on the evening of Dec. 23, Riverside called Mr. Alexander and told him about a plan to have BrandMuscle work with two other companies Riverside recently bought that together would form one big, localized marketing machine. Riverside was offering “marginally less”

WHAT’S NEW

Bigger in Texas: Lubrizol Corp. of Wickliffe will spend $125 million over three years to build a resin and compounding manufacturing plant in Deer Park, Texas. The additional capacity will serve Lubrizol building and construction customers worldwide, the specialty chemicals company said. Lubrizol said it projects “continued strong global growth” in its CPVC business, particularly in developing countries. The plant is expected to be operational by the fourth quarter of 2014.

A strategy that pays dividends: RPM International Inc. raised its quarterly cash dividend by a penny a share, to a new rate of 22.5 cents, in an action that marks the company’s 39th straight year of increased cash dividends. This and that: Private equity firm Resilience Capital Partners in Cleveland agreed to acquire CR Brands Inc., a maker of household cleaning and laundry products, from Juggernaut Capital Partners of Washington, D.C., for an undisclosed price. … Beth Mooney, chairman and CEO of KeyCorp, was ranked second on American Banker’s 2012 list of the 25 Top Women in Banking.

These numbers should shock no one ■ In the all-important presidential campaign spending race, the Cleveland television market’s leading role continues unabated, according to the latest accounting from the Wesleyan Media Project. The Wesleyan University initiative estimated that committees supporting the two candidates spent $5.6 million for 6,583 television spots on Northeast Ohio television stations from Sept. 9 to Sept. 30. That total put the Cleveland market in third place among metro areas in the battleground states. The two candidates spent $9.8 million in the Washington, D.C., market, which serves northern Virginia, and $5.81 million in the Denver market. The tally includes ads bought by the candidates’ campaign committees and the unaffiliated committees that support them on broadcast television only; it does not include cable TV spending. In addition, spending on the races for Ohio’s U.S. Senate seat and for the 16th Ohio congressional district led the spending lists

Don’t drink the water — it’s too expensive

COMPANY: Eye Lighting of North America Inc., Mentor PRODUCT: Super Xenon Solar/Weather durability test chamber Eye Lighting, a provider of lamps, luminaires and related lighting products, says its new Super Xenon Solar/Weather durability test chamber (XER-W75) is “designed for maximum flexibility to provide a single test system that complies with global automotive, textile, plastic, paint and other material test standards.” The system “yields results with exceptional correlation to true outdoor exposure conditions,” according to Eye Lighting. A high-output, proprietary Xenon lamp and filter assembly provides spectral compliance with natural sunlight, and “shower” and “day/night” cycles assure natural exposure effects, the company says. The XER-W75 system complies with common global standards for testing paints, plastics, and textiles, Eye Lighting says. Gary Brown, managing director, Eye Lighting Applied Optics, says the system is based on designs in solar simulation lighting applications from Iwasaki Electric Co., Eye’s parent company.

for their respective houses of Congress. The spending on the race between Democratic incumbent Sen. Sherrod Brown and Republican challenger Josh Mandel for the September time frame totaled just over $6 million. Spenders favoring Sen. Brown bought $2.6 million of ad time and those favoring Mr. Mandel bought $3.4 million. In the congressional race between incumbents Jim Renacci, a Republican, and Betty Sutton, a Democrat, spending approached $2.2 million. Of that, committees supporting Rep. Sutton spent $944,000 and those supporting Rep. Renacci spent $1.3 million. — Jay Miller

Will that be a burrito or bowl, please? ■ Euclid Avenue’s food scene is about to get spicier — or less, depending on how you prefer your made-to-order Mexican food. Chipotle plans to open a downtown Cleveland outlet early next year between East Second Street and East Fourth. In an email, Mark Heath, Chipotle’s real estate manager for the central and southeast United States, said the Denver-based company timed its entry to steer well clear of the redo of Euclid Avenue for Greater Cleveland Regional Transit Authority’s bus/rapid transit HealthLine. Richard Edelman, a principal at Goodman Real Estate Services Group of Lyndhurst, which represented Chipotle, said the brokerage and Chipotle also wanted to ensure the new store would not hurt sales at nearby Steelyard Commons in Cleveland. — Stan Bullard

BEST OF THE BLOGS Excerpts from recent blog entries on CrainsCleveland.com.

Suite deal: Atlanta-based Noble Investment Group acquired the Embassy Suites Cleveland Beachwood and plans to make $8.6 million in improvements at the hotel. Noble said it bought the 216-room hotel because it is near multiple public and private corporations in Beachwood. Cuyahoga County land records show a Noble affiliate, NF II Beachwood LLC, paid $8.15 million for the property at 3665 Park East Drive

than KKR, he said. But BrandMuscle’s management team figured that, if Riverside didn’t buy their business, the private equity firm would buy another similar company. Competing with that group didn’t sound like a lot of fun. So, they took the if-you-can’t-beat’em-join ’em route. “The competition that comes out of it will be hard to beat,” Mr. Alexander said. — Chuck Soder

■ You’ve probably noticed it when you’re paying bills, but a USA Today analysis confirmed that water costs in Cleveland are soaring. The newspaper produced a series of maps that chart where water prices have increased the most since 2000. Cleveland is one of 14 cities in which water costs have increased 130% or more. Cleveland is 14th on that list, which is led by Atlanta, with a 233% increase. San Francisco and Wilmington, Del., also saw increases of 200% or more. USA Today attributed the increasing prices to several factors: ■ The cost of paying off the debt on bonds municipalities issue to fund expensive repairs or upgrades on aging water systems; ■ Increases in the cost of electricity, chemicals and fuel used to supply and treat water; ■ Compliance with federal government clean-water mandates; ■ Rising pension and health care costs for water agency workers; and ■ Increased security safeguards for water systems since the 9/11 terror attacks.

A ranking in the top half is better than our sports teams ■ Cleveland is the 46th best city in America. So said Businessweek.com, which ranked 100 cities based on leisure attributes (the number of restaurants, bars, libraries, museums, professional sports teams, and park acres by population); educational attributes (public school performance, the number of

colleges, and rate of graduate-degree holders); economic factors (income and unemployment); crime and air quality. Throwing all that together, Bloomberg — with help from Onboard Informatics and the nonprofit Trust for Public Land — ranked Cleveland 46th nationwide, just ahead of No. 47 St. Louis, No. 48 Omaha, No. 49 Anchorage and No. 50 Los Angeles. Cleveland is third in Ohio by these rankings, behind No. 20 Columbus and No. 21 Cincinnati. Bloomberg ranked San Francisco as the best city in America, followed by Seattle.

For just $5 million, that Monet can be yours ■ Some of the biggest sellers in the coming fall auctions in New York are museums, The Wall Street Journal reported, and the Cleveland Museum of Art is getting in on the action. The paper reported that Sotheby’s said its Nov. 5 sale of Impressionist and modern art “will include a trio of works by Claude Monet, Pablo Picasso and Pierre-Auguste Renoir that all come from major art institutions.” The Cleveland museum “is asking at least $5 million for Monet’s 1881 landscape, ‘Cornfield,’ which depicts wildflowers and spindly trees against a wispy, blue sky,” The Journal noted. The work “was originally bought by an American collector shortly after it was painted, and it was first exhibited in New York in 1886.” The Cleveland museum received it as a gift in 1947.

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