Crain's Cleveland Business

VOL. 38, NO. 44

OCTOBER 30 - NOVEMBER 5, 2017

Source Lunch

Akron Rick Hinderer is earning a big slice of the high-end knife industry. Page 24

CLEVELAND BUSINESS

Brad Whitehead, President, Fund for Our Economic Future Page 27 HEALTH CARE

Clinic’s research arm gains muscle

SPORTS BUSINESS

AUTOMOTIVE

Browns attendance, by the numbers

Since 1963, when the Browns averaged a then-franchise-record 69,633 fans per game, the team has had an attendance norm below 65,000 just six times. The six lowest averages in that span are as follows:

lcoutre@crain.com @LydiaCoutre

SEE CLINIC, PAGE 25

Largest parochial, private high schools Page 22

Where did everyone go? Central

By LYDIA COUTRÉ

Cleveland Clinic is considering a facility in Cleveland to house its recently announced Biobank, where researchers can study collected specimen from, it hopes, tens of thousands of patients who will donate samples.

Ideally, the Biobank will allow scientists to potentially find best treatments for individual patients, while also furthering broader research.

The Biobank, announced during the Clinic’s 15th annual Medical Innovation Summit, will hold tissue and materials from living patients and gather scientists from across the institute to collaborate in research.

“So if you’re having something done and if you would like to be a participant and consent to it, we would take any residual tissue or materials that you’d like to donate, and we would keep it in the Biobank,” said Dr. Serpil Erzurum, chair of the Lerner Research Institute. “And then we would be able to do studies with it, and in the future, that may benefit our patients, of course at an individual level, but also a population level.”

The Clinic didn’t specify if it would build or renovate a space, but Erzurum said she hopes to have the Biobank in place in about 18 months. There are tentative plans for a facility to be at the corner of Cedar Avenue and 105th Street.

It’s the latest research initiative at the Clinic, which is on track to be awarded $140 million from the National Institutes of Health this year, up from $128 million last year and $107 million in 2014.

The institute also is launching a Center for Populations Health Research under the leadership of Erzurum, who has been at the helm for more than a year.

Erzurum, who was previously head of the Department of Pathobiology, grew to love helping others do their research by enabling them and reducing barriers. Leading the Lerner Research Institute was the next step.

“This would offer me a larger scope and scale to really develop and accelerate research, not just in one area in the research institute, but across the entire research of all the Cleveland Clinic, which is amazing, but it’s a little bit humbling because it’s a big challenge to do that.”

The List

’75

55,777

’84

57,304

’74

60,630

’82

62,829

’17

63,989*

’95

64,049

’16

64,311

Cadillac rolls into new era

By STAN BULLARD sbullard@crain.com @CrainRltywriter

With fan ‘apathy’ mounting, Browns are on pace for worst year at gate since 1984

Plenty of orange seats were visible late in the Bengals-Browns game at FirstEnergy Stadium on Oct. 1. (Justin Aller/Getty Images)

By KEVIN KLEPS

FirstEnergy Stadium in which the announced attendance was 60,034 or lower. That’s more than 7,000 below the 18-year-old stadium’s capacity, which was reduced by almost 4,000 during a two-year renovation that started prior to the 2014 season.

Through four home games, the Browns’ attendance average of 63,989 was on pace to be the franchise’s lowest since a 57,304 norm in 1984, when Sam Rutigliano was replaced by Marty Schottenheimer as coach halfway through the season.

There’s been a changing of the guard at Central Cadillac, a car dealership with an outsized reputation and long history on the edge of downtown.

After 75 years of ownership by the same family, Frank Porter on Sept. 30 sold the dealership to Brecksville-based Ganley Automotive Group. He then left for a two-week bicycle trip with his wife in Italy and is now back at the dealership to empty out his desk and close the books for September.

“There’s 75 years of history here, not all of it mine, to clean out,” Porter said at an interview last Thursday, Oct. 26, at his wood-paneled second-floor office decorated with modern art.

Pulling out scrapbooks of photos and newspaper clippings, he recalled the history of the enterprise, which his maternal grandfather, George Lyon, launched at Euclid Avenue and East 70th Street in 1942 as a Cadillac service center that also distributed cars to other dealers. After World War II, the family won its own franchise by agreeing to construct a new dealership for Cadillac that opened in 1949 on Carnegie. Newspaper articles chronicled the opening of the million-dollar building, and Porter recalled one noted the property was so cutting edge it had fluorescent lights and air conditioning. It’s been remodeled several times since.

Central is perched on the eastern edge of Interstate 90, the type of high-visibility highway location automakers have pushed suburban dealers to occupy the last few years.

“But we were here before the highway,” Porter recalled, as Cleveland’s Innerbelt came along a decade later.

SEE BROWNS, PAGE 23

SEE CADILLAC, PAGE 23

0

50,000

65,000

* Through four games at FirstEnergy Stadium, the 2017 Browns are drawing only 63,989 fans per contest. SOURCE: Cleveland Browns

kkleps@crain.com @KevinKleps

Dix & Eaton CEO Chas Withers’ tenure as a Cleveland Browns season-ticket holder predates the franchise’s return to the NFL in 1999.

Withers was out of town the weekend the Browns dropped to 0-7 with an overtime loss to the Tennessee Titans on Oct. 22. He offered his seats — free or charge — to three friends, and struck out with each.

Middle Markets Employer-sponsored health insurance market remains stable, but worries concerning costs persist.

Page 11 Entire contents © 2017 by Crain Communications Inc.

“They all laughed at me,” Withers said. “One said, ‘I thought you liked me more than that.’ ” While Withers and his friends were busy doing other things, the Browns drew an announced crowd of 59,061 for the Tennessee game. The actual attendance was much lower, but the team told Crain’s it doesn’t release that data.

The loss to the Titans — the Browns’ 22nd in 23 games with Sashi Brown leading the front office and Hue Jackson as the head coach — marked the fourth time in the last seven regular-season games at

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CRAIN’S CLEVELAND BUSINESS

Bench card targets lenders’ use of cognovits

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

A bench card recently issued by the Ohio Judicial Conference takes aim at some of the power cognovit notes give lenders over commercial borrowers in the state by reducing the chance of them being applied in what some have described as a haphazard fashion.

For at least one lawmaker, who has worked to alter laws for cognovit provisions since 2015, it’s a compromise over abolishing them entirely.

That’s something Rep. Ron Young (R-Leroy Township) said he’d once pitched in an early version of what was eventually introduced in this year’s general assembly as H.B. 67,

which was designed to create “fairness” in commercial contract law by targeting cognovit language. Later versions of the bill would instead target specific elements of the corresponding law over an outright outlawing of it, including limiting a cognovit’s use in technical defaults of some loan convenant and giving a borrower up to a 30-day window to request a court hearing to defend themselves.

Young is now dropping the bill in light of what the bench card is expected to accomplish.

Cognovits are automatically injected into commercial loan documents in Ohio, which is one of only a few states to have them. While illegal in consumer loans, they effectively allow a creditor to obtain judgment against a commercial borrower without legal

proceedings or the presentation of evidence in situations where lenders are facing nonpayment of a loan.

When that happens, a lender calling on debt Young to be repaid immediately can seize property or freeze accounts without prior warning to the debtor because they’ve already waived their right to defend themselves in court by signing a document with a cognovit clause in it.

But Young said the lenders were using the power cognovits provide to do that even in cases when borrowers weren’t behind on their bills.

“We did, at one point, call for the abolishment of cognovits. We would’ve liked that,” Young said, noting states like Indiana don’t use them at all. “But what was really glaring was how the law wasn’t being followed as written.”

Young described a scenario in which a lender provides a loan to a car dealer, whose loan terms were based on collateral of so many vehicles. The lender happens to drive by the lot, notices inventory is a fraction of what was claimed, and then uses the cognovit power to seize whatever assets are left — even if the borrower isn’t behind on payments — on the grounds that a term of the contract was violated. While that may be legally allowed, opponents of cognovits say that's unfair to borrowers.

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judgments like this, said Young, who has described such situations as a violation not of the law, but of the “American way.” Bankers don’t believe that is happening as much as Young seems to indicate, though.

“For every constituent that has come to (Young) to claim they were mistreated by a bank, there will be hundreds more who got better terms on loans because the clause was there because it lowers the risk for the bank,” said James Thurston, spokesman for the Ohio Bankers League industry trade group. “Banks are risk managers.

And this is a risk management tool.”

While a bench card does nothing to change the law itself, it provides guidance to courts in Ohio’s 88 counties with the intent of making sure they’re not used for what Young has described as minor technical violations in a borrower’s contract — like in the issue with the car dealer.

The bench card really just helps ensure the law is followed, which shifts just a little protection to borrowers by putting some more onus on the courts and lenders, said Steven Shandor, chair of Day Ketterer’s banking law practice group.

“And I agree with that,” he said.

“But it doesn’t really change anything. It just makes it a bit easier, hopefully, to make sure the plaintiff has followed the law.”

Nonetheless, bankers, who aren’t keen on yielding any of the authority cognovits ultimately provide them, disagree with the developments. They assert that cognovit judgments are infrequent and having the clauses in contracts actually results in better loan terms — though that's difficult for anyone to clearly and quantifiably prove — because of the mitigation of some risk.

“The judicial conference is promoting this judicial card, which is their interpretation of the statute. We don’t agree with it,” said Jeff Quayle, senior vice president of the OBL. “Our position remains the same that we believe that these clauses are rarely used, but they’re in there to protect the lender from theft and bad actors, and we will continue to assert our rights under those provisions in the rare and unusual circumstances that they are needed.”

Other stakeholders have been split on the cognovit debate.

In testimony on May 2, Ice Miller LLP partner Tyson Crist, chair of the Ohio State Bar Association’s Banking, Commercial & Bankruptcy Law Committee, wrote against H.B. 67, arguing it would negatively impact financial institutions and would ultimately “do more harm than good.”

In March 28 testimony, Cleveland lawyer Mike Sikora, writing on behalf of the NAIOP Commercial Real Estate Development Association, argued for H.B 67 and cognovits reform, arguing they’re biased toward lenders. He said real estate developers are forced to sign contracts with cognovits, putting “Ohio at a competitive disadvantage compared to those states where businesses and property owners are not forced to agree to those onerous terms.”

Being merely guidance on how to interpret the law, the bench card is not legally binding. However, it should, in theory, prevent any supposed improper use of cognovit power by lenders.

With Young killing off H.B. 67, the debate on cognovits is done — for now.

“I’m ready to move on to other things unless my constituents come to me and say this is still a big problem and they have a valid rationale,” Young said.

“Our legislation highlighted the confusion that was throughout the state on this issue, and our search for justice has been satisfied with that bench card.”

CRAIN’S CLEVELAND BUSINESS

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PA G E 3

Book studies city’s lengthy image battle

By JAY MILLER

Cleveland State University history professor J. Mark Souther’s book on managing decline in Cleveland will be out Nov. 3.

(Jay Miller)

jmiller@crain.com @JayMiller

When J. Mark Souther came to Cleveland, he was struck by how concerned Clevelanders were about polishing the city’s image and how sensitive they were about how the city matched up with other metropolitan areas, particularly Pittsburgh, even though they were quick to belittle their hometown.

In his new book due out Nov. 3, “Believing in Cleveland: Managing Decline in the ‘Best Location in the Nation,’ ” the Cleveland State University history professor found that image campaigns promoting the assets of Cleveland since the end of World War II have had little impact on convincing people locally and beyond that decline was over and the city was on the road to a comeback. That’s the case, in part, because Cleveland has been subject to regional, national and global forces beyond its control.

Considering the city’s economic fate from the end of World War II into the 1980s, Souther wrote that many scholars have looked at how the lure — first of green fields beyond the city limits and then the financial incentives from Sun Belt cities — drew industries and jobs away from the country’s older, industrial cities, leading to their decline.

“This book argues that the public’s concern about Cleveland’s decline, real or perceived, unfolded gradually but became palpable by the end of the 1950s,” Souther wrote in the epi-

logue. “In the years that followed, well-publicized responses by growth-minded Cleveland leaders contributed to repeated bursts of hope that perhaps the downward trends might be ephemeral, that Cleveland was still a great city.”

Souther wanted to look at those efforts by groups he calls “growth coalitions” — amalgams of civic and business leaders — who sought to help their city through this period of decline.

“Image became important,” he said in an interview last week in his 13th-floor office in Rhodes Tower at Cleveland State. “When I moved to Cleveland from New Orleans in 2003, most people I talked to were concerned about the city’s image and sensitive about the city’s standing, but also (were) quick to disparage it themselves.”

Souther recounts how campaigns that generated slogans such as “The Best Location in the Nation,” “Believe in Cleveland,” “Cleveland … on the North Coast” and “New York’s the Big Apple, but Cleveland’s a Plum,” ulti-

mately failed to bring about a sustained comeback.

Although he doesn’t blame the civic boosters, who were fighting national and international business trends, he does at one point call the campaigns, “Sugarcoating industrial flight.”

He said the growth coalitions, which had names like the Greater Cleveland Growth Board, the Cleveland Development Foundation and the New Cleveland Campaign, didn’t have proven models to pattern their efforts after.

“On one hand, they were muddling through the best they could,” Souther said. “It’s not that people had bad ideas, but they had ideas that weren’t ready to mature.”

He singles out redevelopment efforts like Erieview, begun in the late 1950s, and the University Circle Research Center in the 1960s, as well-intentioned ideas that civic leaders believed could be used by the growth coalitions to turn around the city’s decline.

While the area encompassed by

Erieview — between East 6th and East 17th street and from Chester Avenue to the lake on the north — was not entirely a slum, Souther writes that the city saw an opportunity to transform 125 acres of aging homes and offices on the edge of downtown into the city’s Rockefeller Center, a civic center that could attract Fortune 500 companies to its high-rise office buildings that would stand alongside new residential complexes.

Souther wrote that after failing to lure any out-of-town firms to relocate to Erieview Tower, the anchor of the district, the Cleveland Development Foundation, which was the growth coalition from the mid-1950s and 1960s, “had to twist arms to get major local companies, including Ohio Bell, M.A. Hanna, White Motor and Eaton to lease floor space for the greater civic good.” Only after decades has Erieview begun to fulfill its potential, he said.

A decade later, city leaders saw the University Circle Research Center (UCRC) as a way to lure research laboratories that had moved to the suburbs, beginning with General Electric Co.’s move to Nela Park in East Cleveland in 1911. It was patterned after Philadelphia’s University City Science Center, near the University of Pennsylvania.

Planned as a symbol of a city retooling for a new economy, it was envisioned as a $100 million research park, complementary to what was then Case Institute of Technology and Western Reserve University, that would eventually employ 7,000 “brainworkers,” Souther wrote.

Two buildings went up, but by 1971, one remained virtually empty and the complex never employed more than several hundred people.

But it “provided a decade’s worth of image-making service for a city struggling to retool for an emerging new economy,” he wrote.

Though he is unstinting in his critical descriptions of the efforts of the growth coalitions to pull the city out of decline, Souther is, in the end, understanding.

“Comeback rhetoric associated with image campaigns in Rust Belt cities has limited potential to produce meaningful growth,” he wrote in the book's epilogue. “The campaigns are often hampered by their myopic or highly selective focus, not to mention that they are subject to regional, national and global forces beyond their control.”

Souther also believes that Cleveland, and other cities as well, can’t be viewed simply as being either in decline or making a comeback, because growth is uneven and parts of a regional economy can be recovering while another part, or another part of a community, is losing ground.

“The problem, of course, is that too often boosters try to sustain an appearance of unbroken progress that leads to incredulousness in times when metropolitan problems can be neither easily resolved nor fully deflected,” he wrote. “Unless civic leaders and the broader public work together to find ways to smooth the peaks and valleys that epitomize urban development, ‘believing in Cleveland’ may remain a challenge.”

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CRAIN’S CLEVELAND BUSINESS

Entrepreneurial brothers expand to beer delivery

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

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Behind Yogesh and Ritesh Patel’s seemingly straightforward endeavor to bring booze and snacks to Northeast Ohio doorsteps lies the beginnings of what could blossom into an innovative technology business.

Indeed, the BeerNow delivery service is more than another revenue stream for the Patel brothers.

It’s the culmination of what they’ve learned working in the business world, what they’ve picked up running retail shops since 2004, and the next chapter in something that has driven them throughout their adult lives: carrying on a family tradition of entrepreneurship.

“We will be a consumer-centric technology company in the next 10 years,” Yogesh said. “It’s really exciting because my background is in technology. But for 13 years, we’ve been doing something else.”

Yogesh, 41, immigrated to the United States in 1993 from India for education, following a degree in biomedical engineering with a master’s in computer science from Cleveland State University. His brother Ritesh, 39, would follow suit, coming to Ohio and pursuing accounting, landing a job at a small firm following his studies while also working on the side at local convenience stores.

Yogesh worked at KPMG out of college in the firm’s management consulting practice. He held that job for four years, mostly working with Fortune 500 companies on large technology implementation projects.

Both left their jobs in 2004 to pursue their dreams of entrepreneurship, using savings and some owner financing to acquire and run their first convenience stores from retiring owners.

Early days The duo in 2004 bought Lucky’s Beverage in Painesville for $60,000 and Ross Beverage in Lakewood for $150,000. Leaving the safety and security of an already lucrative job at a Big 4 firm in his late 20s, Yogesh took a 75% pay cut to focus on running those businesses.

“We wanted to get some real-world experience, so we joined those firms,” Yogesh said. “But my father and my uncles were their own bosses all their lives. So there’s this thing inside you that always says, be your own boss.”

The Patels’ parents worked in agriculture in India, including the rice trade and mills for edible oils, Yogesh said.

In 2006, the duo bought Concord Beverage in Mentor, but they have since sold that.

A pivotal moment came in 2008, when, as the last U.S. recession was settling in, the Patels opened their first Simply Food store in a nearly deserted portion of downtown Cleveland on East 12th Street at what locals know as The Chesterfield Building (an apartment building now branded as The Sphere). In 2010, they added their second Simply Food store inside in the nearby skyscraper at Reserve Square, taking over another store that was already there.

The two weren’t dismayed by the nation’s economy at the time. Yogesh said they were emboldened as they bought into chatter about the Cleve-

Ritesh, left, and Yogesh Patel, who prefer to go by “Rick” and “Yogi,” have launched a BeerNow delivery service. (Jeremy Nobile)

land renaissance that was about to come.

The two also knew the recession wouldn’t last forever.

“We foresaw that changes were going to happen,” Yogesh said. “We knew the university was nearby and saw young people moving downtown, and we said, ‘OK, let’s open up this business’ when downtown was full of empty space.”

It helped that their shop was so near a student population, offering ethnic groceries in addition to beer and wine. They also priced merchandise in line with what products sell for at Giant Eagle, making a deliberate move to stay well below the high markups at other places downtown, such as Heinen’s Grocery Store.

“It was our philosophy to have margins within reason so customers wouldn’t shop around,” Yogesh said.

“Many people started making this into their one-stop shop.”

The ‘customer is king’ The Patels employ about 60 people throughout their chain of stores today, which are mostly clustered in Northeast Ohio. With every business in their portfolio included, the Patels run an operation with about $15 million in annual revenues, which reflects yearly growth of about 2% to 5%.

Seeing, hearing and reading about the rising popularity of craft beer, Yogesh moved to fill unused space in Ross with more brands and styles after buying the shop.

He sought 100 different types so they could promote that selection with a banner outside. Beer aficionados began flocking to the Lakewood store on the main artery of Detroit Avenue, asking for more and more types.

Yogesh — who doesn’t have a main office, opting instead to spend time on the sales floor and, when necessary, working out of back rooms at whatever store he’s at that day — and his managers oblige practically every order, often calling people personally when their requests arrive.

This is why Ross alone now sells a collection of more than 1,000 craft beers and 500 domestics.

“And all this is ongoing because the customer is king,” Yogesh said.

“He decides what sells and doesn’t sell.”

Notably, neither of the Patels drink, but that doesn’t mean they and their staff aren’t knowledgeable

about booze. Both are avid readers, and Yogesh estimates he has 25 books on beer and 50 on wine.

They also employ their own sommeliers and cicerones.

“If you don’t drink, you have to educate yourself,” he said. “But our stores are also molded to hear what customers want.”

And what customers have clamored for more recently is beer delivery.

BeerNow and beyond Developing and launching the BeerNow platform on Oct. 15 required about a $50,000 investment, Yogesh said, adding that on an ongoing basis, “We will be spending millions. Whatever it takes.”

For a $2.99 fee, the service provides deliveries daily from 11 a.m. to 9 p.m. for customers in a test region composed of roughly Cleveland proper through Bay Village (so Rocky River, Lakewood, Gordon Square, etc., are all fair game).

They currently promise delivery within two hours (Yogesh cited non-descript legal reasons for the wide window), but orders have been arriving in about 30 minutes. Shipments are coming from a Lakewood warehouse.

The almost exclusively online BeerNow platform lets you see where your delivery is in real-time, like watching an Uber arrive.

More than a system to buy suds and munchies, however, the BeerNow platform collects customer data that will be used to adapt the service and the business, including opening other warehouses for shipping purposes. The delivery business will max out with, at most, about 500 items, Yogesh said: 300 beers, 150 wines and 50 different types of snacks, he estimates. All deliveries, whether for a single item or an extravaganza’s worth of junk food and drinks, are being treated the same way.

Customer demand will dictate if their delivery hours expand.

But no matter who or what regions are being served, Yogesh said the goal will be to make deliveries in 30 to 40 minutes.

“We are building a proprietary information-gathering tool where we can knock out most of these deliveries in an hour,” Yogesh said. “We will be developing this global platform, and we’ll be opening warehouses based on getting these deliveries as soon as possible.”

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CRAIN’S CLEVELAND BUSINESS

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Slower auto production leads to 4,286-job drop

By JAY MILLER

Crain’s Employment Report

jmiller@crain.com

Crain’s Cleveland Business has partnered with local economist Jack Kleinhenz to provide monthly data — and clarity — about a key factor in business decisionmaking: the size of Northeast Ohio’s workforce.

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Employment fell in Northeast Ohio in September by an estimated 4,286 jobs, according to the latest Crain’s Employment Report (CER), attributable in large measure to a decline in vehicle production.

The drop represents a 0.4% decline in the local workforce. It puts the estimate of employment in the seven-county Northeast Ohio region employed at 1,169,431 people in September, down from 1,173,717 in August.

The region has lost 6,682 jobs, or 0.6%, from an estimate of 1,176,113 jobs in September 2016.

Cleveland Heights economist Jack Kleinhenz, who developed the CER model, attributed the decline to slower auto production. The goods-producing sector of the regional economy, which includes auto production and other manufacturing jobs, lost 3,601 jobs in September, a 1.7% decline, while the service sector, which employs four times as many people as the goods sector, lost only 685 jobs, for a lost of less than 0.1%.

U.S. auto production has slowed in recent months, declining from 326,000 units in August 2016 to 252,800 units in August 2017, according to data compiled by the Federal Reserve Bank of St. Louis. That has led to shutdowns or layoffs at the region’s auto plants. For example, General Motors Corp. scheduled nine weeks of down time at its assembly

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The Patels have their eyes on even grander plans to branch into other areas of on-demand customer service. “We will experiment with this,� Yogesh said, “but the next plan will be related to health care and education.�

Citing one general idea, Ritesh noted how doctor house calls are more common in other countries (and those who offer them in America tend to charge a lot). That’s something he envisions their platform could help address.

Seasonally adjusted employment numbers, Northeast Ohio APRIL: 1,176,014 MAY: 1,172,935 JUNE: 1,167,665 JULY: 1,172,776 AUGUST: 1,173,717 SEPTEMBER: 1,169,431 1,155,000

1,160,000

1,165,000

1,170,000

1,175,000

plant in Lordstown for 2017, according to the Youngstown Vindicator.

By contrast, construction contractors were experiencing a shortage of experienced labor, making it difficult to fill newly created positions, according to regional information in the Federal Reserve Bank’s September summary of economic conditions, or Beige Book.

The Beige Book also reports that disruptions to spending and production are expected to reduce economic activity nationally in the third quarter of the year but boost it in the fourth quarter. Kleinhenz, who is chief economist for the National Retail Federation, agrees with that outlook, as he expects hurricane-hit households to replace lost vehicles

and to fix up damaged homes, while businesses in the path of the hurricanes return to full operations in the last quarter of the year. “A key reason to remain upbeat about the outlook is the optimism evident in business and consumer sentiment surveys,� he reported.

He cited, for example, the University of Michigan’s Consumer Sentiment Index, which jumped 6.0 points in early October to 101.1, its highest level since the start of 2004. “The surge appears to be driven by increased optimism about employment and income prospects,� Kleinhenz said, though he noted that the NFIB small business sentiment index dropped. However, the index still held at a level higher than a year ago.

“We want to align something the same as we do with beer to call in a doctor to come visit you at your house,� Ritesh said.

Other stores and supermarket chains have been increasingly drawn toward delivery services. There’s a sense that while those businesses were already trending that way, the Amazon takeover of Whole Foods is driving smaller competitors to get into the delivery game.

But while competition from massive corporate giants might worry some grocers, Yogesh sees a chance to take the fight to big business.

“Technology — social media, cloud computing — has completely changed the game of how business can be done. We just need to re-innovate ourselves,� Yogesh said. “After all, who knows the customer better than a small business? You need to use that knowledge and focus to change the way we do business and use technology to compete against the companies like Amazon. So this is an exciting time. We want to show other people that we have the ability now to compete against the big ones.� “Our secret to getting ahead,�

Ritesh said, “is getting started.�

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O C T O B E R 3 0 - N O V E M B E R 5 , 2 017 |

CRAIN’S CLEVELAND BUSINESS

Opinion Personal Views

Bipartisan ACA repair possible if Congress is brave

By MARK VOTRUBA

The crummiest path to health coverage in the United States has always been the nongroup market.

Even before the Affordable Care Act, families with nongroup coverage received about 20% less health care per premium dollar than families with coverage through a large employer. And the tax code treats employer-based coverage as untaxed compensation, a break the self-employed also receive, but not regular workers without access to employer-based coverage.

The ACA intended to improve premium affordability in the nongroup market, targeting most of its assistance to specific populations. Lower-income people benefit from publicly financed subsidies. Those with pre-existing conditions receive coverage at the same premiums as healthy policyholders, while older policyholders pay no more than three times the premiums set for younger policyholders. If you are old, sick or poor, these measures have improved the affordability of nongroup coverage.

But for millions of others, the ACA made a crummy situation substantially worse. Premiums have increased steeply for nongroup coverage, and take-up rates have fallen well short of expectations. Insurers have also fared poorly, leading many to exit these markets, resulting in depressed competition and plan choice. The ACA has clearly failed to create a thriving competitive marketplace.

What went wrong isn’t hard to understand. It’s a straightforward example of adverse selection, the result of a design flaw in how the ACA sought to deliver premium assistance to the sick and old.

Editorial

Another shot The Global Center for Health Innovation’s name has always been a dud.

Granted, it’s difficult to attach a name to a complex whose mission was ill-defined from the onset — and “ill-defined” is a generous description of what was first sold to taxpayers as a “medical mart” that would bring hospital operators from around the country to a building that showcased medical equipment and services. Unlike Cleveland, developers in New York City and Nashville wisely canned their medical mart plans before putting their shovels to earth.

However, the hulking complex attached to Cleveland’s convention center appears to have a pulse.

This month, Cuyahoga County announced that BioEnterprise Corp. would take the reins at the Global Center. Under the arrangement, the nonprofit health care and bioscience business accelerator would move the bulk of its management staff and take over strategic management, including programming and tenant relations, of the 4-year-old building on Cleveland’s downtown Mall.

BioEnterprise will not be the building’s property manager.

Catering, security and other aspects of building operations will continue to be overseen by SMG, the convention center management firm that also runs the adjacent Huntington Convention Center of Cleveland.

And if it weren’t good enough news that a well-respected organization with a keen understanding of Cleveland’s space in the broader health care economy would take over the fledgling Global Center, last week it was announced a renowned Silicon Valley innovation company would take over 10,000 square feet of space at the facility to help create an accelerator focused on biotech and digital health innovation.

Cleveland Clinic and JumpStart are teaming up with Plug and Play — one of the largest accelerator programs in the world — for a three-year partnership that will enable the trio to work together in the hopes of attracting dozens of

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com)

CLEVELAND BUSINESS

CLEVELAND BUSINESS

SEE VOTRUBA, PAGE 19

health care startups from around the world to Cleveland every year.

Despite it not even being kindergarten age, turnarounds are nothing new at the Global Center. But somehow, this one feels different.

Cuyahoga County Executive Armond Budish was correct in telling Crain’s that he could have treated the Global Center “as an inherited albatross and kept it at arm’s length.”

And frankly, it would have been easy for Clinic CEO Dr. Toby Cosgrove — one of the most vocal advocates of the original medical mart concept — to do the same as he glides out of the system’s top job at year end. After all, a number of executives with Clinic ties have been involved in the Global Center’s quiet turnaround efforts over the last few years with little to show for their work.

The Plug and Play partnership, in particular, has the potential to infuse some vitality into the Global Center and Cleveland’s already relatively high-performing biomedical sector.

Starting next spring, the accelerator will operate two cohorts per year featuring 10 companies in each. Officials say that over three years, hundreds of startups from across the globe are expected to compete for those 60 slots.

The Global Center’s success is still anything but guaranteed, but we like these odds. It would be naive, for example, to count on the next Google, Dropbox and PayPal — all of which were early tenants in Plug and Play’s Palo Alto office — to be in one of these early cohorts and ultimately stay and grow in Cleveland. But if Cleveland has proven one thing over the last few years, it can impress when given the opportunity.

Ultimately, these moves at the Global Center are much more than another name change, or a new person steering a ship without a destination.

Finally, there appears to be a clear strategy, and a desired and achievable outcome: more businesses in Northeast Ohio.

Now let’s get to work.

Managing Editor:

Scott Suttell (ssuttell@crain.com)

Sections Editor:

Timothy Magaw (tmagaw@crain.com)

Contact Crain’s:

216-522-1383

Can we talk about reducing Medicaid costs?

By JOHN CORLETT

The just-failed U.S. Senate Affordable Care Act (ACA) repeal legislation would have repealed the entitlement to Medicaid, and millions would have lost coverage while doing nothing to get health care costs under control.

As a former Ohio Medicaid director, I’m more sensitive than most to the challenge of rising Medicaid costs. That’s why I hope we can turn our attention to cost-reduction strategies that could reduce short- and long-term spending without repealing the entitlement or kicking patients off the program. Here are 10 ideas on how we might do that.

1. Nearly half of working-age Ohio Medicaid beneficiaries smoke — many of them even while pregnant. Massachusetts Medicaid implemented an evidenced-based cessation plan that reduced beneficiary smoking by 26% in two years. For every $1 they spent, they saved $3.12.

2. Ohio’s Medicaid managed care plans have average or below average performance when compared to other similar plans nationally. Let’s increase the percentage of their premiums withheld by the state so they’re even more incentivized to perform at or above national standards.

SEE CORLETT, PAGE 19

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com.

Please include a telephone number for verification purposes.

CRAIN’S CLEVELAND BUSINESS

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PA G E 9

Providing a private travel experience that exceeds expectations

Letter to the Editor

Push back on greedy drug companies To say that the prescription drug industry is rigged against patients is an understatement. For proof of this, we don’t have to look far. Americans easily pay more for their medicines than most other countries in the world. Or, we can simply look into our own Ohio communities, who have been ravaged by an opioid epidemic proven to be fueled by the drug companies’ drive for increased profits.

Recently, “60 Minutes” and The Washington Post released an investigative story chronicling the actions of PhRMA, the group representing America’s drug manufacturers and distributors, and how they successfully lobbied Congress to pass legislation to cripple enforcement of U.S. drug laws. This effort contributed directly to out-of-control prescription costs and the opioid crisis hurting families and communities in Ohio and across the U.S. The fallout from the news story has been swift. In less than 24 hours after the story appeared, U.S. Rep. Tom Marino, R-Pa., who carried the legislative water for PhRMA in its plan to undermine the Drug Enforcement Administration, withdrew his name from consideration as

drug czar. President Donald J. Trump openly criticized drug companies saying they are “getting away with murder,” and that “prescription drug prices are out of control.” Within 48 hours, PhRMA itself tried to spin the report by calling for the legislation to be repealed — a law they spent over $100 million lobbying Congress to pass at the height of the opioid crisis.

These events helped shine a light on the disreputable activities of the drug industry. Many Americans may already suspect this sort of thing routinely takes place, but The Washington Post story and subsequent “60 Minutes” revelation helped provide a specific example of just how far — and how low — these companies are willing to go to protect their profits instead of their patients.

Now PhRMA is repeating the same strategy in Ohio.

Just as they spent $100 million on D.C. lobbyists to sway Congress to protect their profits, PhRMA is spending nearly $50 million on TV ads and lobbyists who are former state policymakers to convince voters to vote against Issue 2, which, if passed, would eat into drug company profits.

SEE ISSUE 2, PAGE 19

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Focus MIDDLE MARKET

Employers take cover

The employer-sponsored health insurance market remains stable, but worries concerning costs persist

By TIMOTHY MAGAW tmagaw@crain.com @timmagaw

“Stable” is rarely a word used to describe the health insurance market. But when it comes to the employer-sponsored coverage enjoyed by more than 151 million Americans, it’s an appropriate term.

Given that workers will likely be greeted with higher premiums this open enrollment season, the degree of that stability is certainly up for debate. That said, premiums are rising at a much more modest clip — 3% for family coverage, for example — than the headline-grabbing spikes of 15% or 20% on the fledgling Obamacare exchanges. That 3% marks six straight years of increases under 5%, according to a recent survey from the nonprofit Kaiser Health Foundation.

Premium hikes still outpaced inflation and average bumps in worker

Illustration by erhui1979 via iStock

pay, but it’s quite a contrast from the tumultuous individual market, whose stresses have been compounded recently because of moves by the Trump administration — namely, the decision to cut off critical subsidies that help cover out-ofpocket costs for low-income individuals buying coverage. Unease in the individual market amid mounting financial losses already had prompted major insurers to abandon the Obamacare marketplaces — Anthem Blue Cross and Blue Shield being the most visible in Ohio.

“The employer market has sus-

tained, is stable and has been a safe haven,” said Pat Perry, president of ERC, a human resources services organization based in Mayfield Village that also offers insurance offerings through its ERChealth arm.

“Organizations are staying with their coverage. Tomorrow may be a different story, but employers are very savvy these days. It’s a volatile market, but they’ve recognized they can control what they can control. They’ve focused their energies around that.”

While the employer-sponsored market hasn’t burst under the regulatory pressures of the Affordable Care Act, as some had expected, workers are still feeling the pinch.

SEE BENEFITS, PAGE 12

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

BENEFITS

fortably numb to those ongoing increases every year. It was unsustainable five to 10 years ago, and I feel that more today than ever.”

CONTINUED FROM PAGE 11

Premiums, while rising, haven’t soared, but workers are having to pick up more of the tab of their health care before insurance starts paying.

According to Kaiser, the percentage of covered workers with a general annual deductible of $1,000 or more for single coverage has grown substantially, climbing from 34% in 2012 to 51% in 2017. Those with deductibles of $2,000 or $3,000 are also on the rise, per Kaiser. Data provided by Mercer, a New York-based HR consulting firm with offices in Cleveland, reported that in 2016 the percentage of Ohioans with high-deductible plans outflanks the national average — 69% to 53%. In the Cleveland market, that figure goes up to 71%.

Cost-shifting has been one way employers have kept premiums in check, but some experts suggest they may have asked as much as they can of their employees. The size of those deductibles, for one, has remained relatively steady at $1,505 for single coverage in 2017, only a slight increase over 2016’s $1,478 figure, according to Kaiser.

So while premiums have remained stable and the market is relatively healthy, benefits experts and employers aren’t so sure the status quo can remain, especially as health care costs continue to rise.

“If you call ‘stable’ ongoing increases with no end in sight, maybe it is,” said Eric Krieg, president of Risk International Benefits Advisors in Fairlawn. “People have become com-

Percentage of firms offering health benefits, by firm size 100 workers or more

100%

Navigating networks One of the lasting criticisms of the Affordable Care Act is that while it addressed the coverage question for millions of previously uninsured Americans, it did nothing to tackle rising health care costs. And with the expansion in coverage and the steady erosion of reimbursement rates by Medicaid and Medicare, providers are looking to make up their losses elsewhere — and that typically falls to employer-sponsored plans.

“Try as everybody does to find a way to reduce the cost of health care, quite frankly, it’s virtually impossible, under the current system we have in place,” said Gregory Hubbell, a senior vice president at Aon who leads the health and benefits practice in Cleveland.

One way benefits experts say employers — particularly the large, self-funded ones — can drive down those costs is by revisiting provider networks, seeking out those with the highest quality and lowest costs. Of course, that’s easier said than done, particularly in a consolidated health care market like Cleveland.

“It’s a scary proposition, but I think the scarier proposition is where costs have gone, where deductibles have gone. Cost-sharing for employees has gone through the roof,” Krieg said.

Narrow networks — or, high-performing networks, as characterized

50 to 99 workers

80%

All firms

60%

3 to 49 workers

40%

’99

’00

’01

’02

’03

’04

’05

’06

’07

’08

’09

’10

’11

’12

’13

’14

’15

’16

’17

NOTE: Estimates are based on both the sample of firms that completed the entire survey and those that answered just one question about whether they offer health benefits.

SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2017

by some — certainly aren’t a new phenomenon, but will certainly become more palatable by workers assuming they remain the most affordable option.

One sign of the evolving network in Northeast Ohio is the entrance of new players, namely in the primary care space. ERC, for instance, recently forged an alliance with Denver-based Paladina Health, which opened its first primary care outpost in Ohio in May 2016 and is a subsidiary of DaVita Inc., a Fortune 500 company well known for its dialysis centers across the country. ERC’s new so-called direct primary care option, which is underwritten by Anthem, is an alternative payment model that offers consumers concierge-like care for a flat membership fee. Through ERChealth’s new PCP+ option, patients have no co-pays, lit-

tle-to-no wait time to see physicians and 24/7 access to their doc via phone. That highly personalized care, advocates say, can ultimately drive down a company’s health care spend by tackling costly health issues early.

“We have our docs scheduling out a patient load that will accommodate that,” Perry said. “They are not overbooking. This is legit. They can go in and spend time with the doctor who truly understands that individual. It’s a very attractive option for a lot of employees.”

The small business market has perhaps been the most rattled over the last five years. According to Kaiser, 50% of companies with three to 49 workers offered coverage this year.

That’s down from 59% in 2012.

Small business owners have cited cost as the main driver in their inabil-

ity to offer benefits to their employees. Also, as it stands today, small business owners without employees can only gain insurance through the individual market. The Obama administration had grandfathered small-group and individual plans that didn’t meet ACA coverage requirements through the end of this year, and the Trump administration offered an additional one-year reprieve.

“There’s so much noise about individual market even though it’s a fraction of Americans compared to the number of people who gained insurance through small businesses,” said Steffany Larkins, Medical Mutual of Ohio’s executive vice president and chief sales and marketing officer.

“Nothing has been done to address the fact that small businesses are stuck in no man’s land.”

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CRAIN’S CLEVELAND BUSINESS

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MIDDLE MARKET Hoping to fill a need in the market, Medical Mutual and the Council of Smaller Enterprises last year launched a self-funded, multiple-employer health plan for small businesses. The COSE Health and Wellness Trust is a Multiple Employer Welfare Arrangement, or MEWA, that brings together businesses with 50 or fewer employees, including sole proprietors, to self-fund their health plans. The arrangement, which Larkins said has been well received in the small business community, leverages the combined size of many small employers and balances the risk across the pool of companies.

COSE’s fully insured products, meanwhile, are no longer available for newly enrolled groups.

Looming worries Shortly before taking office, President Trump had claimed that drug companies were “getting away with murder” when it comes to the rising cost of pharmaceuticals. Although he reiterated that claim this month, the administration has done little to address the hot-button issue. Still, it’s one that remains top of mind for employers.

According to Mercer’s 2017 survey of employer-sponsored health plans, spending on specialty drugs rose by about 15% at their last renewal, pushing up growth in the overall cost of prescription drugs to more than 7%.

The introduction of new medications used to treat complex conditions like cancer, multiple sclerosis and hepatitis C is helping fuel that increased spend.

One way companies can try to get their hands around the issue is to “dig in deeper” on the pharmaceutical issue, according to Tim Gaab, office leader for health and benefits in Mercer’s Cleveland and Pittsburgh offices. Mercer, for example, says it has pharmacists on staff that can help ensure costly drugs are administered appropriately.

Following Congressional inaction, Trump has tried to loosen the ACA’s grip on employers. In short, the president asked regulators to create rules that would allow small businesses to band together to purchase insurance across state lines. So, could those offer relief for small businesses?

“Yes, they could. But a savior?

We’ll have to wait for the rules to come out,” said Bob Klonk, CEO of Oswald Cos., a Cleveland-based insurance brokerage. “The order says that employers can band together across multiple states. It doesn’t tell us much more than that.”

The order also seeks rules that would allow consumers to buy skimpier, temporary plans. The order also calls for consumers to be able to use health reimbursement arrangements, or HRAs, from their employers to purchase non-group coverage on the individual market. But as is typically the case with health care, it ultimately comes down to how the regulations and rules are written.

“The only thing certain is the uncertainty,” ERC’s Perry said when asked about the state of the health insurance market. “If somebody knows what the outcome is going to be, I’d like them to place my next lottery numbers.”

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET Adviser: Peter Frankfort

Sale in your future? Consider these factors now Most business owners who are preparing for a future sale event should have an intuitive understanding of their company’s key value drivers as well as considerations toward the optimal timing for a sale. Sellers will benefit by aligning the timing of a transaction with strong overall M&A markets, healthy trends in their industry and solid company performance.

Certain business attributes are also typically rewarded in the market in the form of increased valuations,

Frankfort is a managing director with Greenwich Capital Group, a middle marketfocused investment bank in Detroit and Cleveland.

including recurring revenue streams, capital light business models (or ro-

bust historical capital investment), strong growth opportunities, customer diversification, a strong management team, etc. These are all common truths in the market, but many of these factors might not be changeable in the time period preceding the planned sale of a company.

However, advanced planning and preparation during this time can directly impact the nature of a transaction process and valuation outcomes.

Financial data needed to support a transaction Historical statements: Third party prepared financial statements (whether audited, reviewed or compiled) are definitely helpful to providing a baseline for reported revenue and profits. However, internal financial systems are often capable of delivering a significantly greater depth of information with respect to the sources of revenue and profit-

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ability (e.g. by customer, by contract, by part, etc.). While the specifics will vary, virtually all acquirers want to understand the historical trends regarding how and where a company makes money, and a data-driven answer to that question will go much further than an anecdotal one.

Projections: A detailed and defensible set of financial projections is also typically a critical element of a transaction process. Buyers do not customarily give credit to “hockey stick” projections without well-documented support. While the appropriate level of detail for forecasted revenue and profitability will vary significantly by company, those who can draw well-organized connections between historical trends and future projections have the opportunity to capture a significant value premium.

While some management teams are already accustomed to producing and reviewing this type of financial information, many do not typically go into this level of detail in the normal course of business.

To optimize valuation, sellers need to present materials and analyses that drive financial credibility. The opportunity exists to become prepared in this area in advance of a transaction.

Balance sheet considerations Many business owners believe they have surplus working capital.

Excess inventory is usually at the top of the list — whether carried to insure against supplier shortages, to take advantage of price or volume discounts, or any other reason. While working capital levels are usually part of the overall transaction negotiation process, it is very difficult to justify big working capital changes or achieve large price adjustments in this area. It is typically advisable to manage the business with a normalized level of working capital in the year preceding a proposed transaction to maximize seller returns.

Capital investment is another area which is often questioned in the time period leading up to a potential sale.

Many sellers rationalize that they should avoid making presale capital investments since a buyer would receive the future benefit. However, the reverse is also true, as any signs of under-investment could be met with resistance from buyers. While there could be millions of dollars at stake in making capital expenditure decisions leading up to a sale, prospective sellers are wise to continue investing into growth and running the business assuming they are doing so for the long-term benefit of the company.

The areas discussed above are by no means exhaustive and much has been written elsewhere from a legal and tax perspective. In short, don’t wait until it’s too late to get your ducks in a row. An experienced M&A adviser will bring insight across numerous areas in advance of a sale, and when the time is right, be available to position a company favorably in the market, execute a customized transaction strategy and negotiate an outcome that matches a seller’s objectives.

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MIDDLE MARKET Tax Tips: Peter A. DeMarco

Supreme Court rules in favor of taxpayer in retirement dispute Peter A. DeMarco is vice president and director of tax services at Meaden & Moore.

the community in which the taxpayer lived, also pursued the tax and faced the same decision from the BTA, that the SERP was not taxable under that city’s code either.

That case made its way to the 10th District Court of Appeals, which sided with the taxpayer.

The dispute ultimately rested on whether a SERP is, in fact, a pension. National City and the taxpayer regarded it as a pension plan, but Cleveland believed it was deferred compensation for services rendered.

In a detailed legal analysis, the Supreme Court determined the SERP was indeed a pension, and therefore was eligible for Cleveland’s pension exclusion from city income tax.

The case puts companies that offer SERPs on notice regarding their tax obligations related to those SERPs. Companies that offer SERPs need not withhold city income tax in jurisdictions where pensions are not subject to tax.

Executives who earn SERPs should be aware they are not subject to city income tax if local tax codes exclude pensions from the tax. Executives who have paid tax on such disbursements might be entitled to a refund, depending on their particular circumstances and any statutes of limitation that might come into play.

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CLEVELAND BUSINESS VOL. 36, NO. 47

NOVEMBER 23 - NOVEMBER 29, 2015

ALLYSON O’KEEFE, 37 Partner; Porter Wright

35th Anniversary

CLEVELAND BUSINESS

VOL. 36, NO. 47

NOVEMBER 23 - NOVEMBER 29, 2015 Allyson O’Keefe started her legal career at Porter Wright in 2004 after completing a summer internship there as a Case Western Reserve University law student. Since then, she has worked on many significant deals across Cleveland, including Flats East Bank, The Metropolitan at the 9, Uptown in University Circle and Steelyard Commons, and has been promoted to real estateALLYSON partner.

O’KEEFE, 37 “Young professionals who live downtown are so excited about the city,” said O’Keefe, a Partner; Porter Columbus native who lived downtown forWright 10 years before moving to Rocky River. “The ones who aren’t from here are often more excited about it. When you move here from somewhere else, you don’t for granted.”

VOL. 36, NO. take 47 it Allyson NOVEMBER 23 - NOVE NOVEMBER EMBER 29, 29, 2015 201 O’Keefe started her legal career at Porter Wright in 2004 after completing a sumWhen O’Keefe is not working or spending time with her husband and two children, she can mer internship there as a Case Western Reserve University law student. Since then, she has be found volunteering on the boards of nonprofit organizations and watching college football. worked on many significant deals across Cleveland, including Flats East Bank, The Metropolitan at the 9, Uptown in University Circle and Steelyard Commons, and has been proWHAT INSPIRES YOU ABOUT YOUR WORK? moted to real estateALLYSON partner.

O’KEEFE, Just seeing what Cleveland has gone through in the time that I’ve 37 been here, there’s obvious“Young professionals who live downtown are so excited about the city,” said O’Keefe, a ly a lot of excitement around real estatePartner; development.

I started in 2004 when we were crazy Porter Columbus native who lived downtown for Wright 10 years before moving to Rocky River. “The ones busy with development. That was sort of the boom from ’04 through ’08. I saw it go through who aren’t from here are often more excited about it. When you move here from somewhere the downturn, then I saw it rise again, even stronger than before locally. else, you don’t take it for granted.”

Allyson O’Keefe started her legal career eer at Porter Wright in 2004 after comple completing etin ng a sumsumWhen O’Keefe is not working or spending time with her husband and two children, she can mer internship as a Case Western Reserve University law student. Since tthen, hen, she sh he has has WORKED ON there ARE MIXED-USE URBANnPROJECTS. IS MANY OF THE PROJECTS YOU be found volunteering on the boards of nonprofit organizations and watching college football. ss Cleveland, including Flats East Bank, The The worked on many significant deals across THAT AN AREA OF EXPERTISE? rsity d has has ha s been be een proproro Metropolitan at the 9, Uptown in every University and Steelyard Commons, and Yes, definitely. Real estate is extremely interesting because deal Circle is differWHAT INSPIRES YOU ABOUT YOUR WORK? moted to real estate ent. You can never get bored because there’s so partner. much variety there, from tax Just seeing what Cleveland has gone through in the time that I’ve been here, there’s obviousown are O’Keefe e, a “Young who live downtown so excited about the city,” said O’Keefe, credits to historic renovations, from professionals ground-up development to rehab, from ly a lot of excitement around real estate development. I started in 2004 when we were crazy Rive er. “The “T “The ones ones mixed-use to residential. Columbus native who lived downtown for 10 years before moving to Rocky River. busy with development. That was sort of the boom from ’04 through ’08. I saw it go through xcited about it. When you move here from m somewhere som somew ewhere ere who aren’t from here are often more excited the downturn, then I saw it rise again, even stronger than before locally. else, you LEADERSHIP don’t take it for granted.”

YOUR STYLE? HOW WOULD YOU DESCRIBE

CLEVELAND BUSINESS USINESS

Let the Custom Reprint Department help you leverage this great press.

For more information contact Laura Picariello, Reprints Sales Manager Tel (732) 723-0569 • Fax (888) 299-2205 • lpicariello@crain.com

with her husband and two child dre en, sh he c he an O’KeefeI expect is not working or spending timeI work, children, she can I definitely believe in leadingWhen by example. the people withding whom MANY OF THE PROJECTS YOU WORKED ON ARE MIXED-USE URBAN PROJECTS. IS collle eg ge football. foo fo ottball. be found volunteering on the very boards off nonprofit and watching college my associates, to work hard, and they see me working hard.

For me, it’sorganizations all THAT AN AREA OF EXPERTISE? about working hard and doing good work.

Yes, definitely. Real estate is extremely interesting because every deal is differRK? WHAT INSPIRES YOU ABOUT YOUR WORK? ent. You can never get bored because there’s so much variety there, from tax Just WHAT seeingWAS whatITCleveland has gone the time that I’ve been here, th there’s obvioushrough here e’s o bviousus LIKE TO WORK WITHthrough O’KEEFEinON WHAT OTHERS ARE SAYING: credits to historic renovations, from ground-up development to rehab, from ly a lot of excitement around real estate te development. I started in 2004 when we we were were e crazy crazy THE FLATS EAST BANK PROJECT? mixed-use to residential. busy with development. of the boom from ’04 through ’08. I saw itt go go through th hrough “Allyson is extremely bright and quick witted, butThat whatwas trulysort distinguishes her the downturn, then I saw itpeople rise again, even from most successful attorneys is her exceptional skills.

Shestronger has an than before locally.

HOW WOULD YOU DESCRIBE YOUR LEADERSHIP STYLE? uncanny ability to encourage the ‘adversaries’ in her negotiations to work in I definitely believe in leading by example. I expect the people with whom I work, OF THE PROJECTS YOU YOU WORKED Wsaid ORKED ON ON ARE ARE MIXED-USE MIXED-USE URBAN URBAN PROJECTS. PROJECTS. IS IS concert with her to achieve win/win MANY solutions to difficult problems,” my associates, to work hard, and they see me working very hard. For me, it’s all THAT AN AREA EXPERTISE? TISE?of the Scott Wolstein, CEO of Starwood Retail Partners andOF co-developer about working hard and doing good work.

Yes, definitely. Real estate e is extremely interesting because every deal deal is differdifferrFlats East Bank project. ent. You can never get bored there, red because there’s so much variety the ere, ffrom rom m ttax ax — Lee Chilcote WHAT OTHERS ARE SAYING: WHAT WAS IT LIKE TO WORK WITH O’KEEFE ON credits to historic renovations, tions, from ground-up development to rehab, re ehab, from fro om THE FLATS EAST BANK PROJECT? mixed-use to residential.

“Allyson is extremely bright and quick witted, but what truly distinguishes her

successfulInc. attorneys is reserved. her exceptional people skills. She has an Reprinted with permission from the Crain's Cleveland Business. © 2015from Crainmost Communications All Rights YOU DESCRIBE RIBE YOUR YOUR LEADERSHIP LEADERSHIP STYLE? STYLE? HOW WOULD ability to encourage the ‘adversaries’ in her negotiations to work in Further duplication without permission is prohibited. Visituncanny www.crainscleveland.com. #CC15040

I definitely believe in leading ding by example. I expect the people with h whom whom m I work, rk concert with her to achieve win/win solutions to difficult problems,” said my associates, to work hard, and they see me working very hard hard. all d. For For me, me e, it’s a Scott Wolstein, CEO of Starwood Retail Partners and co-developer of the about working hard and doing good work.

Flats East Bank project.

— Lee Chilcote YING: WHAT WHAT WAS WAS IT IT LIKE LIKE TO TO WORK WORK WITH WITH O’KEEFE O’KEEFE ON ON WHAT OTHERS ARE SAYING: THE FLATS EAST BANK PROJECT? PROJECT? “Allyson is extremely bright right and quick witted, but what truly distinguishes dis stin nguish hes her hes

successfulInc. attorneys her exceptional people skills. skills s. She She has has an ha Reprinted with permission from the Crain's Cleveland Business. © 2015from Crainmost Communications All Rightsisreserved. ourage negotiatio ons to to work w wo orrk k in n ability to encourage the ‘adversaries’ in her negotiations Further duplication without permission is prohibited. Visituncanny www.crainscleveland.com. #CC15040

hieve win/win solutions to difficult probl bllem ms,” s,” said concert with her to achieve problems,” co-deve evel velo ve elo el ope pe er off the the e Scott Wolstein, CEO off Starwood Retail Partners and co-developer ct.

Flats East Bank project.

— Lee Le Chilcote Ch C

Reprinted with permission from the Crain's Cleveland Business. © 2015 Crain rain Communications nss IInc. Inc nc. nccc. All n Al Rights Rig rese reserved. rved d. ww.crainscleveland. and.c nd d.ccom. o om. m #CC15040 Further duplication without permission is prohibited. Visit www.crainscleveland.com.

Lawyers who are efficient ef•fi•cient / 'fiSH nt/ adj.

1. Our ability to assess situations and produce results quickly and cost effectively to ensure opportunities are not missed.

2. walterhav.com

e

SERPs are typically used as a form of executive compensation as a way to reward and retain key people.

Often they are awarded to executives whose qualified retirement earnings are limited by “top-heavy” rules. Those are rules meant to assure taxadvantaged retirement plans are fairly awarded to employees at all levels in a company.

Corporate College® provides professional training and development customized for your organization.

e

The Ohio Supreme Court recently handed down a decision in a Cleveland case that affects the taxation of supplemental executive retirement plans.

The city of Cleveland appealed its case all the way to the state’s highest court, defending its assessment of city income tax on the SERP awarded to a retiring bank executive. After more than 10 years, the taxpayer prevailed.

The executive retired in 2006 after working nearly 40 years at National City Bank, before it was eventually absorbed by PNC. His reward for all those years of service included a SERP valued at a little more than $9.1 million.

A SERP is a type of retirement plan typically established as an added benefit for key employees in a company. It is a nonqualified deferred-compensation plan for tax purposes, which means it is not taxed at the time the money is set aside in the account. Instead, it is taxed when the funds are disbursed at some point in the future.

SERPs are typically used as a form of executive compensation as a way to reward and retain key people. Often they are awarded to executives whose qualified retirement earnings are limited by “top-heavy” rules. Those are rules meant to assure tax-advantaged retirement plans are fairly awarded to employees at all levels in a company.

SERPs usually are governed by formal agreements between the company and the executive, promising to pay the executive a certain amount of additional income in retirement based on vesting and other conditions. The company funds the plan using current cash flow or perhaps an insurance policy. The benefit is paid at retirement and taxed as ordinary income.

In this particular case, the National City executive’s SERP promised an annuity payment over the lives of both himself and his wife.

While the taxability of the benefit under federal tax rules was clear, the exposure to city tax was a matter of significant legal debate.

National City did not withhold city income tax on the SERP, believing it was not subject to the tax based on an exclusion the city of Cleveland gives to pension income.

Cleveland took exception with that decision and assessed a little more than $182,000 in city income tax, which was 2% of the SERP benefit amount. The couple protested to the city, but the city administrator defended the decision.

The couple took their appeal to the Cleveland Income Tax Board, which also supported the assessment, so the couple appealed to the Board of Tax Appeals. The BTA sided with the taxpayers, referring to Cleveland’s city ordinances, which exclude pensions from the city income tax.

Cleveland wasn’t the only city income tax authority to assess tax against the couple. Shaker Heights,

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

Abeona’s momentum continues as work on NEO facility begins

By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

Abeona Therapeutics hopes to be creating life-saving treatments out of its own manufacturing facility next year.

The clinical-stage biopharmaceutical company, which focuses on developing novel gene and cell therapies for life-threatening rare diseases, held a ceremony earlier this month for the start of construction on a commercial gene therapy manufacturing facility — believed to be the first in Ohio.

The 6,000-square-foot Elisa Linton Center for Rare Disease Therapies, housed within the offices where Abeona is located in the Health-Tech

Corridor on Cleveland’s eastern rim, will be built out and validated over the next year. The center is named for Elisa Linton, who was born with Sanfilippo syndrome, a rare genetic condition that causes fatal brain damage.

Abeona, which has offices in New York, Dallas and Cleveland, has been hiring about a person per month, and CEO Tim Miller expects that pace to continue for the next 12 to 18 months as manufacturing ramps up.

Moreover, the new center comes at a time when Abeona is experiencing significant growth and has three ongoing clinical trials, two of which are late-stage.

“That has driven the desire and need really to build out our own manufacturing space,” Miller said.

Abeona began in 2013 as a private company with just one employee,

Miller, in 2013. By the time it went public in 2015, the company had three or four employees, and it has since grown to 20 employees in the Cleveland office.

“When we started as a private company, we were founded and funded by foundations from around the world that were basically doing T-shirt sales and races to raise money,” Miller said. “And now, certainly as a public company you have access to the capital market.”

Just this month, Abeona announced the closing of a public stock offering that generated gross proceeds of about $92 million. It also received a grant totaling about $13.85 million from nine foundations for the advancement of Sanfilippo syndrome gene therapy programs.

“But really what’s driven a lot of

the success,” Miller said, “is the clinical trials.”

Abeona’s EB-101 program, which is aimed at treating epidermolysis bullosa dystrophica, is in a pivotal stage III trial, Miller said. The company is working with the U.S. Food and Drug Administration to finalize the pivotal trial design and Miller expects that to be announced and begin in the first quarter of 2018. Epidermolysis bullosa, typically known as EB, is genetic skin disorder typically characterized by crippling blisters.

Its ABO-102 treatment for Sanfilippo A syndrome is in a late-stage I/II trial and will be finishing up enrollment in the first quarter of 2018.

“Basically, it’s very similar to the EB-101 program, although we view this as there’s nothing else out there

Abeona’s commercial gene therapy production facility is expected to be the first in Ohio. (Contributed rendering)

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PA G E 17

MIDDLE MARKET for these patients, and time is really the enemy,” Miller said.

Pending approvals from the FDA, people could see these treatments on the market in 2019, he said.

Before he was full-time at Abeona, Miller was a CEO in residence at BioEnterprise, which supports the growth of bioscience companies.

“We’ll continue to support Tim and help tell the story as best we can, but Abeona is off and running, and they’re just a fantastic asset to have here in the region,” said Aram Nerpouni, president and CEO of BioEnterprise.

The region’s biopharmaceutical sector — meaning the space in which therapies are developed before going to market — is “pretty active” right now, Nerpouni said.

Traditionally, medical devices had dominated the region’s activity in the biomedical space. BioEnterprise defines biomedical in three categories: medical devices, pharmaceutical and health care technology. In 2016, medical device companies raised 45% of the capital funding in the region. Biotech and pharmaceutical

“Really what’s driven a lot of the success is the clinical trials.”

— Tim Miller, Abeona Thereputics CEO

companies raised 29%, according to a report released earlier this year by BioEnterprise and Team Northeast Ohio, the regional business attraction nonprofit.

“Cleveland has a robust biopharma sector with a lot of deal activity right now, and it’s exciting to see,” Nerpouni said. “What we don’t have is a pharmaceutical industry. So it’s great to see some of these other assets, in-

cluding this gene therapy center, come into the region because this is something that will not only benefit Abeona but other companies as well.”

As part of the center, Abeona will have the ability to generate the next generation of vectors, which are the delivery vehicle for the treatments in the body.

“Think of it like the UPS truck trying to deliver a package, and the package is like the gene that’s missing,” said Magdalena Tyrpien, director of corporate strategy for Abeona.

Right now, Abeona uses AAV9 vectors, which are naturally occurring viruses, but the next generation of vectors will enable scientists to make the vector of their choice. It’s effectively a “designer vector,” that Abeona will be able to produce in its labs, Tyrpien said. Last year, Abeona licensed a library of designer vectors from University of North Carolina at Chapel Hill.

“It’s really about the technology and about the platform and how that’s being manufactured and (we’re) doing a lot of the R&D in Cleveland,” Miller said.

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

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By TIMOTHY MAGAW tmagaw@crain.com @timmagaw

LEARN ARN MORE TODAY ABOUT HOW CRAIN’S CAN HELP YOU AND YOUR CONTENT MARKETING PROGRAM. Contact Amy Stoessel at 216.771.5155 or astoessel@crain.com.

Scalerator NEO, an intensive sixmonth bootcamp for established Northeast Ohio companies focused on rapidly increasing their growth rates, is accepting applicants for its second class — and it’s not for the faint of heart.

“It’s tough and challenging, and they don’t let the companies get off easy,” said Deborah Hoover, president and CEO of Burton D. Morgan Foundation, which along with the Richard J. Fasenmyer Foundation, covers the costs of the program. “It’s like going back to school.”

Hoover likens the program, which is geared toward a diverse set of companies with $5 million to $15 million in annual sales, to a “mini-MBA” that offers the “just-in time” learning business leaders need. Participants in the first cohort — a group that ranges from manufacturers, software companies to service providers — report coming away with detailed plans to achieve sales and profit growth, often in excess of 25% a year.

Participants will be chosen on a rolling basis for the program that starts in April 2018. Interested companies can apply at www.ScaleratorNEO.org.

“There’s a chemistry component in putting the class together,” Hoover said. “You don’t want too many from one sector. There are benefits to be gained from hearing leaders from other companies not necessarily in their field. It’s both an art and a science.”

The program is the brainchild of Daniel Isenberg, founding director of the Boston area-based Babson College Entrepreneurship Ecosystem Platform and a former professor of Harvard Business School who has worked with business leaders across the globe. The curriculum is focused on what Isenberg describes as the “primary colors” of growth: cash, capacity and customers.

Burton D. Morgan’s relationship with Isenberg goes back years, but the seeds for the program were planted when the foundation’s reps — joined by others from the Fasenmyer Foundation and Edge, another local nonprofit economic development group — visited Milwaukee’s Scale Up program, which employed Isenberg’s platform.

Scale Up Milwaukee reports that its graduating companies are projecting an average 31% revenue growth in 2017 and have hired more than 600 new employees to date.

“It was a magical thing we saw happening in Milwaukee with so many different parts of the community coming together to recognize that the economic health and vitality of the community depended on the growth of these companies and the scaling of these companies over time,” Hoover said.

Merle Griff, the CEO of SarahCare Senior Solutions, a Canton-based provider of daytime senior care and activities, participated in the first Scalerator cohort. She said the experience “changed her business completely.”

Namely, it forced Griff to focus on three core initiatives: boost sales and revenues of SarahCare franchisees,

Graduates of Scalerator NEO’s first cohort Audimute Soundproofing (Beachwood) — manufactures and distributes acoustical solutions Cleveland Steel Tool (Cleveland) — manufacturer of punches and dies for heavy punching applications Eagle Elastomer (Cuyahoga Falls) — a custom mixer and processor of fluoroelastomers Harrison Paint (Canton) — independent manufacturer of paint, varnish and specialty coatings Heat Seal (Cleveland) — manufactures packaging and process equipment for the food service and industrial packaging markets HyperProductive (Lakewood) — a custom software development company JDD (Cleveland) — provides custodial services and supplies to government and private facilities Mojonnier Unlimited (Streetsboro) — manufacturer of equipment for the beverage, oil & gas and chemical process industries Montville Plastics and Rubber (Parkman) — custom manufacturer of plastic parts for OEMs NobleTek (Wooster) — provides engineering, software training and enterprise IT services PreEmptive Solutions (Mayfield Village) — develops protection tools for desktop, mobile, cloud, internet of things (IoT) apps SarahCare Senior Solutions (Canton) — provides health-related care for seniors at adult day-care centers Terves (Euclid) — manufactures dissolvable and reactive tools and components for the oil and gas market The Technology House (Streetsboro) — contract manufacturer that specializes in additive manufacturing, plastic mold injection, CNC Machining and Urethane molding

increase the number of satellite adult daycare centers and increase the number of management agreements for existing centers.

SarahCare reports it achieved 70% of its growth goal for the year during the six months of the Scalerator NEO program.

“It will change your company, but you need to be prepared,” Griff said about the experience. “It is a significant time commitment, and you want to do it. But you have to do all the pieces for this to work.”

Scalerator estimates the investment occupies 120 hours over the six-month timeframe. Workshops are held at Baldwin Wallace University in Berea; they focus on sales and marketing, finance and marketing and development. The program urges buy-in from a company’s entire management team.

“Based on what I heard at the end of the program, all of us felt pretty strongly we would not have growth this quickly or even grown at all if not for Scalerator,” Griff said.

CRAIN’S CLEVELAND BUSINESS

VOTRUBA CONTINUED FROM PAGE 8

In an unregulated insurance market, premiums will tend to reflect insurers’ expected costs in providing the coverage. If having diabetes means your expected covered medical costs are three times greater than average, then your fair-market premium will be, too. Regulations that seek to overturn this fact can succeed at lowering premiums for those with high expected costs (the sick and old), but only by raising premiums for other policyholders. This results in fewer low-cost individuals purchasing coverage, which leads to higher premiums for those remaining in coverage.

The ACA architects recognized the threat posed by adverse selection, but believed the individual mandate and generous income-based subsi-

CORLETT CONTINUED FROM PAGE 8

3. Ohio Medicaid should expand access to long-acting reversible contraception. Other states have done this and have cut unintended pregnancy and abortion rates nearly in half, saving state taxpayers millions in Medicaid and other human service costs.

4. Carving behavioral health into managed care is an important first step, but unless we fully integrate behavioral and physical health at the provider level and invest in building their capacity, savings won’t ever materialize.

5. Forty percent of health outcomes are driven by non-medical factors. Medicaid should explore focusing on the social determinants of health by expanding coverage to include payment for social services clearly linked to the health of Medicaid enrollees.

6. Nearly all inmates released from Ohio’s jails are eligible for Medicaid, but not all of them get connected to coverage and care upon release. Access to health care following release or parole can reduce recidivism and reduce costs for local and state governments.

7. More clearly incentivize providers to deliver value instead of volume through the creation of provider-based accountable care organizations as an alternative to Medicaid managed care in some parts of the state. Ten states already have done this and have achieved considerable savings.

8. The fastest cost-driver in Medicaid today is pharmacy, and it will likely only get worse. We should consider developing a value-based drug payment system that is more closely tied to health outcomes or give states the ability to narrow their formularies.

9. Rework Ohio Medicaid’s Hospital Care Assurance program. Put less emphasis on reimbursing Medicaid reimbursement shortfalls, which incentivizes high-cost providers, and put more emphasis on hospital programs addressing social determinants of health.

10. Aggressively sign up eligible seniors for the Supplemental Nutrition Assistance Program (SNAP) and increase their monthly benefit. Research shows seniors on SNAP have lower hospital costs and are less likely to need nursing home care.

Corlett, a former director of Ohio’s Medicaid program, is president and executive director of The Center for Community Solutions, a Clevelandbased nonprofit, nonpartisan think tank that focuses on health and human services policymaking.

dies would ensure reasonably high levels of takeup by the young and healthy. They were wrong, and so were insurers. Anticipating a “healthier risk pool,” insurers initially set their nongroup premiums at levels which proved massively insufficient to cover their costs. From large losses, insurer exits and large premium increases naturally followed.

Political chaos has worsened an already bad situation. Insurers have been setting premiums for 2018 with uncertainty about anticipated federal payments. They’ve had to guess how consumers will react to intimations that the individual mandate might not be enforced. By 2016, many analysts perceived a nongroup market that was stabilizing, as insurers came to understand the risk pools they were drawing.

If so, that stability was fleeting.

This year continued the trend of steep premiums increases and dwin-

dling competition. That was before the announcement of President Donald Trump’s recent executive actions to undermine the ACA, which are certain to instigate long court battles. Without congressional action, political uncertainty will continue to hamstring the nongroup market for the foreseeable future, and families relying on that market will continue to suffer the consequences.

Where do we go from here?

As a starting point, Congress should eliminate the political uncertainty, which is unnecessarily contributing to high nongroup premiums and depressing insurance competition. This can be done by formally authorizing the disputed Cost Share Reduction payments and affirming continued enforcement of the individual mandate into the foreseeable future.

Second, Congress should address flaws in the ACA that are responsible

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O C T O B E R 3 0 - N O V E M B E R 5 , 2 017

for the severe adverse selection problem we are witnessing.

Republican repeal proposals contained two solid ideas in this direction: relaxing the age-related premium constraints, and separating high-cost policyholders into highrisk pools with separate public funds to ensure affordability.

Democrats should join Republicans in developing legislation to implement these sensible ideas.

Following this advice will require courage, honesty and a willingness to compromise by both sides. I hope Congress is up to the task, because citizens left to the nongroup market deserve better.

Votruba is an associate professor of economics and director of the Master of Science in ManagementHealthcare Program at the Weatherhead School of Management at Case Western Reserve University.

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ISSUE 2

CONTINUED FROM PAGE 9

They know that if this law passes in Ohio, other states and organizations like private insurers will soon follow suit.

The situation in Ohio is not hopeless. We can stand up to these corporate bullies who use threats of lawsuits and even higher prescription costs. Instead of accepting the status quo, we can bring power back to the people, save millions in tax dollars and lower the cost of prescription drugs.

And, we don’t need to wait for another “60 Minutes” expose to push back on the greedy drug companies. Instead, we can simply vote yes on Issue 2.

Matt Borges Issue 2 campaign director

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LYNN CAPADONA, NASA John H. Glenn Research Center JOHN COUGHLIN, Gilbane Building Company JAMES COWAN, ThenDesign Architecture (TDA) DR. KRYSTAL L. CULLER, Menorah Park STEPHEN FENING, Case Western Reserve University JOHN FENN, Budget Dumpster, LLC JESSE GRANT, CBRE BRANDON GUZMAN, MFS Supply ANNE HARTNETT, Harness Cycle MARY HERZAK, IBM Watson Health ADAM HILL, Cohen & Company ELIZABETH HIJAR, The Centers for Families and Children MICHELLE HIRSCH, Brunswick Companies NANCY HUTCHINSON, The Sherwin-Williams Company CAREY JAROS, GOJO Industries ADAM R. NAZETTE, Thompson Hine DORIVETTE NOLAN, Cuyahoga Metropolitan Housing Authority TORI NOOK, Anchor Cleveland

MELISSA RAMIREZ, Parker Hannifin Downtown YMCA MICHAEL R. RASOR, Cavitch, Familo & Durkin MARQUES P.D. RICHESON, Squire Patton Boggs MAGGIE RIVERA, PNC Bank LAURA RODRIGUEZ-CARBONE, Lifebanc

4

SHERRIE S. ROYSTER, Lewis Brisbois Bisgaard and Smith LLP JOSEPH ROSZAK, Cleveland Metroparks

ELIZABETH SCHEIDERER, NCA Financial Planners GINO SCIPIONE, Grant Thornton LLP

JENNY SPENCER, Detroit Shoreway Community Development Organization GAVIN J. SVENSON, Cleveland Museum of Natural History JASON J. THERRIEN, thunder::tech CHRISTINA VASSALLO, SPACES

GEORGE VLOSICH, GV Art & Design

ALESHA WASHINGTON, Greater Cleveland Partnership DIONNA WIDDER, Cleveland Cavaliers

KIMBERLY J. YOUNG, Huntington Bank

ALEXANDRA YONKOV, Brickhaus Partners

Congratulations to these 40 influential honorees for their professional achievements and civic contributions here in NEO. Crain’s Cleveland Business and the partnering sponsors look forward to honoring them on Nov. 20, at the annual awards event.

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SPONSORED CONTENT

October 30, 2017

ASK THE

EXPERT

Valuation’s Changing Role in Financial and Tax Reporting

A

Insights from a Valuation Expert

s managing director of Valuation Research Corp.

(VRC), Larry Van Kirk has extensive experience in providing valuations throughout a variety of major industries, including energy, health care, estate planning, hospitality, lighting, life sciences, pharmaceuticals and amusement parks. Larry also serves as a practice leader for valuations of closely held companies and valuations related to financial reporting at the firm, and he leads VRC’s Mid-Central Region.

He also specializes in providing financial opinions of fairness, solvency and capital adequacy. Larry shares with Crain Content Studio — Cleveland his perspective on the advantages and other considerations associated with seeking accurate and qualified valuations in business.

What is your perspective on the local business environment?

Northeast Ohio is unique in that it has an active market for publicly traded and closely held companies coupled with a number of private equity investors that are all driving regional and national transactions. Currently, the labor markets continue to be tight, and economists are not predicting any real bubble. An influx of retiring baby boomers, as well as growth in certain industry sectors such as health care and specialty chemicals, has led to a period of robust acquisitions. These trends positively impact our business, as these companies look for expert guidance in financial reporting and tax compliance. On the other hand, there are currently pockets of temporary business slowdown, such as in the lighting industry.

What is valuation’s role in business?

Valuations are critical for both public and private companies. Accurate, non-biased valuations can help with internal transactions, executive compensation, and sale and investment decisions. For public companies, valuation of assets for purchase or divestiture can assist with tax and financial planning.

Privately held firms that are seeking capital from private equity investments must be able to make a reasonable estimate of the value of their firm to make a well-researched investment decision.

What does valuation mean from a financial and tax reporting perspective?

Valuation provides an unbiased, third-party opinion for financial and tax reporting. Over time, a business’s assets have become increasingly complex. These assets can include real property, securities and intellectual property. Each requires different levels of substantiation and proof of value. It’s important to have a partner who can provide valuations that identify possible opportunities for reducing taxes, estimate the range of potential savings and quantify the effects of obsolescence.

Additionally, there has been an increase in interest and scrutiny from investors, partners and government entities such as the SEC and IRS, among others, for documentation. Financial and tax reporting professionals will need a valuation professional who can document and value assets or businesses with potential scrutiny in mind and be able to include evidence in case a valuation is questioned.

When does a business owner need to contact a valuation professional, and when are valuations needed?

The earlier you can contact a valuation professional, the better, particularly when considering your company’s overall goals and business transaction results. When we are involved from the

early stages of the transaction, the more integral our role becomes in assisting the company with defining and achieving the appropriate outcome. Many times, we begin by assisting our clients with their financial and tax reporting requirements.

Ultimately, we become their trusted consultant, assisting with deal model development and/or determining appropriate rate of return or discount rates, amongst other valuation needs.

What should a business owner look for in terms of identifying a qualified valuation professional?

When it comes to managing the complexities of a valuation, working with an experienced valuation expert can help businesses with the specific challenges that each assignment brings.

An expert valuation professional brings solid judgment and responsiveness to a client’s needs. He or she will also provide an understanding of both the interplay and impact on tax and financial reporting. VRC invests heavily in its staff, and strongly encourages its analysts to pursue professional development and key credentials, such as the CFA designation, to enhance their analytical capabilities. Ultimately, it’s about making our clients’ lives easier.

further scrutiny from the SEC, Financial Accounting Standards Board and Public Company Accounting Oversight Board.

It’s important to question management assumptions about forecasts.

With the acceptance of Organization for Economic Cooperation and Development guidelines, transfer pricing policy has become more uniform in terms of documentation and functional and risk analysis. Also, public and privately held companies, especially those with international operations, are dealing with generally accepted accounting principles, which allows for the amortization of goodwill and the removal of consideration of certain intangibles.

How have the current economic and political environments impacted valuations on a national level, if at all?

Are businesses more hesitant or more confident?

If you consider the number of trans-

actions as a barometer of the economy, then I think we can safely say the opportunities and economics have trumped any concerns over politics. Confidence levels appear that they will continue into 2018. Any major changes to the interest rate environment or any expected change to inflation could impact the risk profile of an acquisition target or tax planning.

How can businesses be better prepared to meet valuation’s shifting role in financial and tax reporting?

Look for a valuation professional as soon as possible in your planning process for a better outcome. Experience is key to working with auditors and managing financial scrutiny effectively. A qualified valuation expert with knowledge of both tax and financial reporting issues will be able to see both sides and provide the answers to satisfy both requirements.

What steps can a business owner take during preacquisition planning that can help optimize a valuation?

There are many aspects to preparing for a merger or acquisition, however, the most important is to get a thirdparty valuation expert in the room as soon as possible to determine if a deal will benefit your company.

Business owners and their management teams should identify and monitor their value drivers, which are factors that increase cash flows and reduce risk associated with business.

There are numerous factors to be considered, including capital access; a solid and diverse customer base; economies of scale; financial performance; market environment; marketing strategy and branding; product/service offering; strategic vision; technology; and human capital, also known as your workforce.

a single-minded focus.

Pure valuation means that our well-credentialed professionals concentrate the full depth of their expertise on only one thing – getting to the right value for your business. Our focus goes beyond the typical valuation modeling scenario and deeper into your company’s specific needs and strategic issues to deliver efficient solutions. F I N D O U T M O R E AT VA L U AT I O N R E S E A R C H . C O M

What’s changed in financial and tax reporting needs from a valuation perspective?

Lawrence VanKirk . LVanKirk@ValuationResearch.com

Today, there is a need for businesses to involve a qualified and experienced valuation professional in order to meet quarterly tax deadlines and stand up to 1162_Experts_4X6.indd 1

10/16/17 10:33 AM

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CRAIN’S CLEVELAND BUSINESS

THE LIST

Largest Parochial High Schools Ranked by Fall 2017 Enrollment THIS YEAR SCHOOL

FALL 2017 ENROLLMENT

ANNUAL TUITION

AID AWARDED (1) % RECEIVING AID

STUDENT/ # FACULTY/ % GRADS 4-YEAR FACULTY % ADV. COLLEGE DEGREE RATIO

ENDOWMENT TYPE/ (MILLIONS) YEAR FOUNDED

HEAD OF SCHOOL

1

Saint Ignatius High School, Cleveland (216) 651-0222/www.ignatius.edu

1,512

$15,900

$6,200,000 45%

13:1

118 90%

99%

$70.0

Boys day school 1886

The Rev. Raymond P. Guiao president

2

Walsh Jesuit High School, Cuyahoga Falls (330) 929-4205/www.walshjesuit.org

1,059

$11,850

$2,000,000 30%

14:1

73 71%

99%

$15.6

Co-ed day school 1964

Karl Ertle president

3

St. Edward High School, Lakewood (216) 221-3776/www.sehs.net

945

$15,600

$3,700,000 60%

12:1

81 85%

98%

NA

Boys day school 1949

James Kubacki president

4

Archbishop Hoban High School, Akron (330) 773-6658/www.hoban.org

823

$10,650

$2,400,000 45%

13:1

64 77%

98%

$11.0

Co-ed day school 1953

Todd R. Sweda president

5

Padua Franciscan High School, Parma (440) 845-2444/www.paduafranciscan.com

803

$11,225

NA 55%

12:1

68 60%

98%

NA

Co-ed day school 1961

Father Allan DaCorte president

6

Magnificat High School, Rocky River (440) 331-1572/www.magnificaths.org

735

$14,900

NA 50%

12:1

65 50%

100%

NA

Girls day school 1955

Moira Clark president

7

Saint Joseph Academy, Cleveland (216) 251-6788/www.sja1890.org

723

$13,750

$1,740,000 68%

12:1

68 71%

94%

NA

Girls day school 1890

Mary Ann Corrigan-Davis president

8

Lake Catholic High School, Mentor (440) 578-1020/www.lakecatholic.org

715

$10,200

$1,400,000 65%

13:1

54 62%

92%

NA

Co-ed day school 1970

Mark Crowley president

9

Notre Dame-Cathedral Latin School, Chardon (440) 286-6226/www.ndcl.org

687

$12,300

NA 55%

11:1

68 60%

99%

NA

Co-ed day school 1988

Michael J. Bates president

10

St. Vincent-St. Mary High School, Akron (330) 253-9113/www.stvm.com

640

$10,450

$3,190,887 54%

12:1

54 70%

97%

$11.0

Co-ed day school 1896

Tom Carone president

11

Cleveland Central Catholic High School, Cleveland (216) 441-4700/www.centralcatholichs.org

600

$8,500

$3,736,000 94%

11:1

58 46%

90%

NA

Co-ed day school 1969

Leo P. Hyland president

12

Villa Angela-St. Joseph High School, Cleveland (216) 481-8414/www.vasj.com

455

$9,100

NA 80%

12:1

38 58%

85%

NA

Co-ed day school 1990

Bill Cervenik president

13

Lutheran High School West, Rocky River (440) 333-1660/www.lutheranwest.com

448

$10,480

NA 81%

13:1

33 46%

67%

NA

Co-ed day school 1948

Martin J. Uhle superintendent

14

Elyria Catholic High School, Elyria (440) 365-1821/www.elyriacatholic.com

401

$8,200

$1,090,925 71%

12:1

35 57%

73%

NA

Co-ed day school 1948

Amy Butler president

SOUND SOLUTIONS FOR PRIVATE & PAROCHIAL SCHOOLS Michael Mullee + maloneynovotny.com + 216.363.0100 THE LIST

Largest Private High Schools Ranked by Fall 2017 Enrollment THIS YEAR

SCHOOL

FALL 2017 ENROLLMENT

ANNUAL TUITION ROOM & BOARD

STUDENT/ # FACULTY/ % GRADS 4-YEAR ENDOWMENT TYPE/ AID AWARDED (1) FACULTY % ADV. COLLEGE (MILLIONS) YEAR FOUNDED DEGREE % RECEIVING AID RATIO

HEAD OF SCHOOL

1

Cuyahoga Valley Christian Academy (2), Cuy. Falls (330) 929-0575/www.cvcaroyals.org

584

$10,350-10,750 NA

$1,500,000 NA

12:1

55 43%

93%

NA

Co-ed day school 1968

Jason Spodnik president

2

Hawken School, Gates Mills (440) 423-4446/www.hawken.edu

488

$29,900 NA

$8,200,000 42%

8:1

57 82%

100%

$59.4

Co-ed day school 1915

D. Scott Looney head of school

3

Gilmour Academy, Gates Mills (440) 473-8050/www.gilmour.org

454

$25,500 $4,900

$6,345,768 72%

10:1

63 77%

100%

NA

Boarding/day school 1946

Kathleen C. Kenny head of school

4

University School, Hunting Valley (216) 831-2200/www.us.edu

428

$30,300-33,000 NA

$3,300,000 40%

6:1

68 80%

100%

$82.2

Boys day school 1890

Richard Bryan headmaster

5

Western Reserve Academy, Hudson (330) 650-4400/www.wra.net

400

$36,750 $19,250

$5,260,000 42%

7:1

55 90%

100%

$111.0

Boarding/day school 1826

Christopher D. Burner head of school

6

Hathaway Brown School, Shaker Heights (216) 932-4214/www.hb.edu

391

$27,410-28,800 NA

$5,700,000 44%

8:1

45 89%

100%

$56.1

Girls day school 1876

Fran Bisselle head of school

7

Hebrew Academy of Cleveland, Cleveland Heights (216) 321-5838/www.hac1.org

312

$12,000 NA

NA 75%

17:1

20 85%

80%

NA

Co-ed day school 1943

Rabbi Simcha Dessler educational director

8

Laurel School, Shaker Heights (216) 464-1441/www.laurelschool.org

277

$27,825-29,725 NA

$2,200,000 32%

8:1

36 71%

100%

$52.2

Girls day school 1896

Ann V. Klotz head of school

9

Lake Center Christian School, Hartville (330) 877-2049/www.lccs.com

192

$8,490 NA

$97,306 9.6%

9:1

24 44%

88%

$1.3

Co-ed day school 1947

Joseph Beeson superintendent

10

Lake Ridge Academy, North Ridgeville (440) 327-1175/www.lakeridgeacademy.org

180

$24,000-27,000 NA

$3,650,000 71%

8:1

31 75%

100%

NA

Co-ed day school 1963

Carol L. Klimas president

11

Lawrence School (3), Sagamore Hills (440) 832-7830/www.lawrenceschool.org

162

$29,192 NA

$1,200,000 32%

13:1

25 15%

68%

NA

Co-ed day school 1969

Lou Salza head of school

12

Fuchs Mizrachi School, Beachwood (216) 932-0220/www.fuchsmizrachi.org

105

$21,826 NA

NA NA

4:1

30 85%

100%

NA

Co-ed day school 1983

Avery Joel head of school

13

Montessori High School at University Circle, Cleveland (216) 421-3033/www.montessorihighschool.org

90

$24,333-24,640 $21,301-21,427

NA NA

6:1

18 63%

100%

NA

Boarding/day school 2008

Gregg Good head of school

14

Grand River Academy, Austinburg (440) 275-2811/www.grandriver.org

80

$15,600 $30,650

NA NA

4:1

25 59%

100%

NA

Boys boarding school 1831

Tim Viands headmaster

RESEARCHED BY CHUCK SODER Information is supplied by the schools. Send questions, suggestions and corrections to Chuck Soder: csoder@crain.com. (1) Current school year (2) Data excludes CVCA middle school students. (3) Lawrence School exclusively serves students with learning differences and attention deficit disorders. Admissions are based on degree/type of learning or attention issues, combined with average to above-average IQ.

CRAIN’S CLEVELAND BUSINESS

ANALYSIS

List: Parochial schools shrink, others grow

By CHUCK SODER csoder@crain.com @ChuckSoder

Enrollment is declining — slowly but steadily — for most schools on the Crain’s Largest Parochial High Schools list.

But the opposite is true for our Largest Private High Schools list.

Enrollment fell by 149 students, a 1.1% drop, over the past year, according to data submitted by 28 of the 29 schools on the full digital version of the parochial schools list (one school didn’t submit 2016 data).

That appears to be a trend, when you look at the 16 schools that have consistently submitted enrollment data since fall 2012.

Enrollment at those schools — all of which rank in the top 20 on the list — grew by 3% between fall 2012 and fall 2014, but since then it has dropped by 4.2%, a decrease of 484 students. Only four of those 16 schools reported increased enrollment between fall 2014 and fall 2017.

This isn’t a huge surprise: The vast majority of the schools on the list are Catholic. And enrollment at Catholic elementary and high schools nationwide declined by 17.6% between 2006 and 2016, according to a report by the National Catholic Education

BROWNS

CONTINUED FROM PAGE 1

And with a remaining schedule that includes matchups against the Jacksonville Jaguars, Green Bay Packers (minus an injured Aaron Rodgers) and Baltimore Ravens, the Browns likely will finish 2017 with four or five non-sellouts in a home slate that was reduced to seven dates because of a trip to London for a game against the Minnesota Vikings on Sunday, Oct. 29.

Heading into the Jacksonville game on Nov. 19, the Browns haven’t sold out nine of their last 16 contests at FES, and the sparse crowds — which have been a staple the last two Decembers — have been two months ahead of schedule in 2017.

Have fans finally reached their breaking point with a franchise that, prior to Sunday, had won twice in its last 34 games?

“I thought it started last year, and it’s worse this year,” Dix & Eaton’s Withers said.

Jim Donovan, the play-by-play voice of the Browns’ radio network since 1999, said that as the losses have piled up, fans seem to be less willing to invest their time — even early in the fall.

“Once September hits, I think their window of opportunity to show their stuff to fans is getting a little smaller and shorter,” Donovan said. “People see them in the first couple of games now and say, ‘OK, it doesn’t look good. I don’t think I’ll be there in October, November and certainly not December.’ I think people have really become worn down by it.”

Searching for answers Browns chief revenue officer Brent Stehlik was in London for a few days in early October to receive a 40 Leaders Under 40 award at a reception organized by Leaders and Aspire Academy.

Association. (Elementary schools were hit hardest.)

On the other hand, most of the schools on our Largest Private High Schools list have grown since 2012.

This year, the 14 schools on that list added 55 students, a 1.1% increase.

Granted, only six of the schools posted enrollment gains — the growth was largely driven by Hebrew Academy of Cleveland, No. 7 on the list. But nine of the 12 schools that have been submitting data since 2012 have added students since then. In total, those 12 schools have increased enrollment by 7.2% since 2012.

Again, Hebrew Academy leads the way. It has added 82 high school students since then, a 36% increase.

To accommodate growth across all grades, preschool through high school, the academy has been adding space — through renovations and new construction — at the former Oakwood Country Club in Cleveland Heights, according to news reports.

Also, this year we started asking schools for financial aid data. One takeaway: If you’re wondering whether you can afford to send your kids to one of these schools, look beyond the sticker price. At most of the parochial schools, more than half of the students receive financial aid. Students on the private schools list are less likely to receive aid, but many do.

CADILLAC CONTINUED FROM PAGE 1

Don’t look for much to change at the dealership except for the addition of new models as General Motors Corp. rolls them out.

That’s the word from Ken Ganley, CEO of the family-owned group with 32 locations in Northeast Ohio and one in Florida. The name and location will remain the same, and Ganley agreed to Porter’s request to retain the 60 workers — one-third of them with more than 15 years of service to the company — and to keep Curtis Johnson, a 40-year staffer, as general manager.

“It’s a unique operation,” Ganley said in a phone interview. “It’s a third-generation business, and an iconic place. Everyone knows that Central Cadillac is downtown. And it will stay firmly planted where it is.”

The firm’s website and ads even retained the same look even as the location was integrated with Ganley’s other marketing.

For Ganley, who partnered with Chevrolet dealer Bob Serpentini to buy Central Cadillac, the attraction was that the store “has always done well” with selling an average of 40 new Cadillacs and 30 to 50 used cars monthly.

“It also has a very productive service, parts and body shop business,” Ganley said.

The acquisition also gave Ganley a Cadillac brand, which it did not have among its 14 auto brands.

“There aren’t many brands we can add, and when it’s something we

“Obviously 2017 isn’t the same as the 2014 draft with people immediately buying tickets, but it’s probably the best offseason we’ve had in terms of positive feedback from fans.”

— Brent Stehlik, Browns chief revenue officer

There, Stehlik met fellow honoree Jake Reid, a Trumbull County native who is the president of soccer club Sporting Kansas City — and a big Browns fan.

“We spent the whole evening talking about that,” Stehlik said. “I told him, ‘Hey, I don’t have any answers, either.’ ” During an Oct. 6 conversation with Crain’s, Stehlik said the Browns were ahead of their 2017 goals for season-ticket and suite sales.

“We’ve really made strides,” Stehlik said.

Eleven months earlier, a Browns source told Crain’s that the team had more than 55,000 season-ticket holders.

The attendance the last two seasons — the 2016 norm of 64,311 was the lowest in the history of FirstEnergy Stadium — would suggest, then, that the team’s single-game and group sales are lagging well behind the 2014 season. That year, the firstround selection of Johnny Manziel led to the Browns, according to a source, capping the combined total of season tickets and require comp tickets at 62,000 per game. The limited amount of seats that remained were exhausted via single-game and group sales.

“Obviously 2017 isn’t the same as the 2014 draft with people immediately buying tickets,” Stehlik said earlier this month. “But it’s probably the best offseason we’ve had in terms of positive feedback from fans.”

The first-round selections of Myles

Garrett, Jabrill Peppers and David Njoku created a lot of buzz last spring, and second-round quarterback DeShone Kizer added to the fans’ preseason enthusiasm.

As so often happens, though, the positive furor has been replaced by fury.

From a business perspective, the NFL schedule-makers didn’t help, either.

The Browns’ season opener was against the Pittsburgh Steelers. Stehlik called that a “double whammy” because the first home game is a guaranteed sellout and sure to generate a lot of demand, and it would benefit the team to have a desirable opponent such as the Steelers make their annual trip to Cleveland a little later in the season.

Having the Titans, Jaguars and New York Jets join the Ravens and Cincinnati Bengals on the home slate was even worse for the business team.

“When demand is low, there is no price at which you’ll fill the stadium,” said Greg Loewen, the president and CEO of Digonex Technologies, an Indianapolis-based dynamic pricing company.

Loewen made it clear he wasn’t sure if that was the case in Cleveland, since he hadn’t studied the Browns, but a glance at the secondary market seems to confirm the theory.

As of Wednesday, Oct. 25, the Browns’ website was selling Cleveland-Jacksonville tickets in Section 110 for $110. On Ticketmaster, the team’s official secondary market,

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don’t have, I get really excited about it,” Ganley said.

The seed for the transaction was planted about two years ago, when Ganley called Porter and hinted at interest in the dealership.

“At that time, he wasn’t ready to do anything,” Ganley said.

The deal reflects the conundrum of many long-established Cleveland family firms and the difficulty of selling an auto franchise whose buyer has to be acceptable to the manufacturer.

Porter said he tried once more to convince his two grown sons, Allan and Scott, who are well-established in their careers in, respectively, Carbondale, Colo., and Palo Alto, Calif., to join the family business.

“I even tried showing them the financial statements and said, ‘This could be yours.’ They gave it some thought, but they passed,” Porter said.

Some other avenues did not come to fruition before Porter called Ganley.

Neither party would disclose financial terms of the deal, though Ganley said, “It was not an inexpensive transaction.”

Lou Vitantonio, president of the Greater Cleveland Auto Dealers’ Association trade group, said, “You’ve got a legend exiting the business and someone with a really good name entering the business. The proof of their success is that the Central Cadillac name will remain the same.”

Jeff Epstein, executive director of MidTown Cleveland economic development group, said, “Central Cadillac has been a great corporate citizen in the neighborhood for many years. I certainly hope we have the same ex-

perience in the future. Frank Porter has been an unbelievable leader, and Central Cadillac was really the first visitor destination in MidTown.”

For years, the family decorated the showroom for the holidays the same way as department stores, Porter recalled. At one time, when new models were all released at the same time, the dealership’s windows would be covered until an event was held to unveil them. That went away as new models began rolling in throughout the year Porter, 72, joined his namesake father in the business in 1969, starting as a salesman, although he had sold used cars there over the summers while in college. Before joining the family business, he spent two years working for a sales training firm.

“Calling on sales organizations to sell them on training,” Porter said, “was an invaluable experience.”

Porter and his younger brother George, who retired earlier, also worked with the late Frank Porter Sr. in the family’s real estate business, constructing office buildings and developing land in the eastern suburbs.

Porter plans to keep active with Cleveland nonprofits, and serve on MidTown Cleveland's board, where he has been a member since its inception, and with Vocational Guidance Services.

He also plans to spend more time traveling and skiing.

While the luxury Cadillac brand has struggled with what’s sometimes called a “grandfatherly” image, Ganley said he’s looking forward to the addition of new models by Cadillac in the next 12 to 24 months.

similar seats overlooking the 40-yard line on the southeast end of FirstEnergy Stadium were available for $50.

“Teams pay very close attention to their season-ticket base and usually will not lower (single-game) prices below what a season-ticket holder pays,” Loewen said. “They want to maintain that level of season-ticket holder integrity. Then they get undercut by their own season-ticket holders, who sell their seats on the secondary market.”

That’s been the case for years — usually late in the season — at FES, but it’s been exacerbated this season.

The Browns, to their credit, reduced the prices of about 40% of the seats at FES prior to the season. The cost of the remaining seats remained flat.

But the on-field product, which has been every bit as bad, if not worse, than that of a 2016 team that compiled the lowest victory total in franchise history, has led to wide shots of the stadium that show almost as many orange seats as fans occupying their in-game spot.

“These are big stadiums,” Loewen said. “If you don’t get 70,000 in there, they can look kind of empty.”

lion, in 2017. Of that total, gate revenues accounted for 14%, or $51 million, according to Forbes’ estimates.

And in July, when the finances of the Green Bay Packers, the NFL’s only publicly held team, were revealed, the most staggering number came from the league’s per-team distribution of national revenue. The Browns and their NFL counterparts each got a $244 million cut (which, if Forbes’ numbers are close, would equate to two-thirds of their overall revenue) of the league’s $7.8 billion in national revenues.

So the Haslams, whose billion-dollar investment in the franchise is now worth a projected $1.95 billion, are doing just fine.

But their on-field product couldn’t be much worse — and plenty are arguing that this is as bad as it’s ever been.

“From a marketing standpoint, if I’m the Browns, I’m already working on next year,” Kahler said.

Stehlik, the team’s chief revenue officer since January 2013, said the team’s fans have been incredible.

“The fact that they’ve continued to support us and are passionate makes us want to win even more for them.”

Withers, the Dix & Eaton CEO and frustrated season-ticket holder, believes the successes of the Cavs and Indians makes the Browns’ continued losing even worse from a perception standpoint.

He also thinks the franchise’s struggles are compounded by the “headwinds” every NFL team is facing, such as CTE and the player protests that have caused some division among fans and have been one of many subjects that have resulted in angry tweets from the president.

“The business side of the Browns has to be really feeling the effects of this,” Withers said. “Apathy is playing itself out in terms of attendance. We know what it’s been like in December (at FirstEnergy Stadium) the last two years, but this year looks like it’s going to be worse.”

There’s always next year?

An attendance problem might be more noticeable in an oversized NFL venue than a 20,000-seat basketball arena, but gate revenues account for a much smaller slice of the overall pie in pro football.

“If the same scenario happened to the Cavs and Indians, it would hit them much harder because of the number of occurrences,” said Jim Kahler, the executive director of the Center of Sports Administration at Ohio University and a former Cavs senior vice president of sales and marketing.

When Forbes released its annual NFL team valuations in September, it estimated that the Browns’ revenue increased by $18 million, to $365 mil-

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AKRON

Hinderer earning big cut of knife industry

By DAN SHINGLER dshingler@crain.com @DanShingler

Rick Hinderer is a maker who made it big.

Never heard of him? You must not be into knives.

Because if you were, you’d likely know Hinderer. He’s become a legend in the large but esoteric subculture of high-end knife users, collectors and connoisseurs.

“Rick is really a star. He’s right up there. If not in the top five, he’s in the top 10” among the nation’s knife designers, said Howard Korn, owner of Knifecenter.com in Virginia.

Korn should know, too. He’s also a star in a knife industry that has exploded in recent years.

Korn started as a one-man operation and was one of the first online knife shops in the mid-1990s. Today, he employs 28 people and ships out more than 1,000 knives a day — from cheap $10 imports to pieces made one at a time by master craftspeople that cost thousands of dollars.

Similarly, Hinderer started out as a one-man shop, hired his first employee in 2009 and today employs 15 people in a 14,000-square-foot spot in Shreve, near Wooster, with 18 computer numeric control (CNC) machines, a water-jet cutting station and other equipment.

He’s made knives for Fortune 500 CEOs and celebrities. Hinderer even gets recognized in public himself.

“I was at the airport in San Francisco, and this guy comes up and says, ‘Rick Hinderer — I can’t believe it!’ ” Hinderer couldn’t believe it either.

Yep, the knife industry is enjoying a boom. It’s no wonder the History Channel has a show called “Forged in Fire” that pits blade makers against one another in a competition that resembles “Iron Chef.”

Hinderer and his company, Rick Hinderer Knives, has been not only a participant, but a driver of the trend.

It’s been a long road from modest beginnings, though.

“I started in a shed,” he said, recalling the first knife he made in 1987.

“I had a good friend who was retiring from the Army special forces, and I

Rick Hinderer handcrafts his high-end knives at his shop, The Ranch, in Shreve. (Dan Shingler for Crain’s)

A batch of Half Track Flippers, one of Hinderer’s newer designs, nears the end of the assembly process.

wanted to get him a knife as a present.

But I didn’t have any money, so I figured, I’ll make him one. And I hammered a knife out of a plow point.”

Those early knives were inexpensive. Hinderer sold his first blade in 1988 for $30, he said. But today his work can fetch thousands.

He hammered out hunting knives and other “users” for a few years. But soon Hinderer, who was already a blacksmith, was drawn to making “art knives” — fancy blades, sometimes made of Damascus steel, with exotic

handles. A single piece often would take weeks of work.

The art knives sold for a few hundred dollars when he made them, but today collectors pay thousands for them. Hinderer, who collects his old knives when he can, recently paid $4,500 to get one back.

“I sold it for $300 the first time,” he said with a chuckle.

As he progressed, a hammer and forge were no longer good enough, especially when he started making folding knives and other things that required machining.

Hinderer became a self-taught machinist, then taught himself to use CNC equipment. Today, he designs his knives on a CAD system and makes them in a high-tech shop that he opened in 2015.

How did a former horse trainer, blacksmith and farrier go from a shed to a full-staffed machine shop? With good designs, a great product and, Hinderer concedes, a hell of a tailwind.

Innovations in design and the advent of new materials — such as titanium for frames and a seemingly endless succession of new “super steels” for blades — have resulted in knives that are smoother, sleeker, tougher

and able to hold an edge like no knives ever made before.

Combine that with a lot of people, mostly men, who have both disposable income and an internet connection, and you’ve got the recipe for today’s knife market.

“It’s really a golden age for knife-making,” Hinderer said.

Like a lot of knife makers, Hinderer had a design that took him to fame — the XM-18, a folding knife with a variety of blade options that is designed to take a beating while holding an edge.

Hinderer has invented improvements to knives along the way and developed new products, like the “tactical pen” that also serves as a self-defense weapon. But he’s also made some smart business moves, Korn said. Foremost among them might be Hinderer’s collaborations with other knife makers.

Hinderer doesn’t make that many knives in his shop, a few thousand a year, he said. But hundreds of thousands of knives are made with his name and design each year, sold by brands like Kershaw, Zero Tolerance, Gerber, Benchmade and others. They are big production companies set up to make many more knives than Hinderer. They may not get the handwork

that a knife from Hinderer’s shop gets, but they’re also much less expensive.

A Hinderer design from Kershaw and made in China might cost you $30 to $50. A Hinderer knife made in the U.S. by Zero Tolerance costs between $150 and $300. A knife from Hinderer’s shop costs $425 and up.

If you want one made by Hinderer himself, you can still get one — but that generally will cost you a couple grand.

Those arrangements do a few things for Hinderer. First, he makes money off every knife sold with his name on it. That’s hundreds of thousands of knives a year and represents more income than the knives he actually makes, he said.

But more importantly, it’s a tiered marketing strategy that allows Hinderer to sell knives to people who would not dream of spending $400 or more on one. And, sometimes, they eventually decide they do want, or can afford, a “real Hinderer.”

“You can buy my knives in Walmart,” Hinderer said.

The question is, can he keep it up?

As the knife industry has become more popular, so has the number of new makers. That includes Chinese makers who also can get hundreds of dollars for their knives and compete for sales with guys like Hinderer.

Knife sales are tough to track.

They’re usually lumped in with other hand tools. But the American Knife and Tool Institute, an industry advocate group, estimated in 2015 that U.S. knife sales were more than $950 million at the wholesale level, before retail markups were applied. That represents more than 4,700 jobs at 81 companies, it reported. Sales have since decreased a bit, however, and the industry publication Knife News reported in August that 2017 sales were down about 5%, year-to-date, following a similar decrease in 2016.

Korn, however, said he’s not seen a slowdown in sales, and he thinks people like Hinderer will do just fine because they have established followings and a reputation for making a quality product.

“We’re still a growing enterprise, and the industry is still growing,” Korn said. “For the Rick Hinderers of the world, I think there’s always going to be room.”

Accelerator duo teams up to simplify connectivity

By JUDY STRINGER clbfreelancer@crain.com

For all the hoopla around the digital revolution and how much time and money it will save businesses, the reality is it’s complicated.

Many companies still rely — at least in part — on manual processes. Even those who have digitized nearly every aspect of their workflow struggle to make disparate systems talk with one another. The Software Guild’s Eric Wise said it’s not unlike what we experience personally with our own devices.

“In this digital future we have been promised, I should be able to open up my smartphone and set the temperature on my thermostat at home, and it should remind me when I have a meeting and monitor traffic to tell me when to leave … all of these things to make our lives better,” said Wise, chief academic officer for the Ak-

Vasu

Covender

ron-based software training company. “But we are not there yet.”

Smartphone users aside, a new Akron venture wants to help businesses get “there.”

In July, partners KYC Holdings and CyberAccess, which share offices on the fourth floor of the Akron Global Business Accelerator, announced the formation of Mesh Integration. Along with its offices in the Accelerator, the startup is a tenant at the Braintree Business Development Center in Mansfield, where it recently was

awarded $30,000 from the Appleseed Microfinance Loan Fund.

Simply put, Mesh is the youngest fish in the deepening API connectivity pond. APIs (Application Programmer Interfaces) are components, or hooks, in software that allow platforms, apps and systems to connect and share data with one another. A trigger in system A — someone in sales fills out a new order, for instance — automatically generates an action in system B — the creation of an invoice, perhaps.

While APIs themselves are nothing new, API integration is gaining momentum due in large part to the migration to cloud-based business services, which began with startups, according to Mesh CEO Bill Vasu. To quicken time to market and decrease costs, startups defined their business processes and “then stitched together these applications available on the internet to match up,” he said. “That is

basically what APIs allow you to do.”

“It is an affordable, powerful way to use pre-existing cloud-based internet applications to drive your business, instead of having to have internal IT server and staff and all the overhead associated with those,” he said.

Mesh vice president John Covender said as cloud computing grows among more established companies, so does the need to quickly and efficiently connect APIs. “That is our specialty,” he said.

But it’s not all the five-person company does. Mesh distinguishes itself, particularly from competitors who take a more transactional approach to app integration, by embedding its API platform in a suite of services designed to automate, optimize and secure technology-driven business processes.

“It is one thing to go to an API, or any tech subcontractor, and basically buy some technology and give to

your IT department, and then it’s just a done deal,” Vasu said, “versus dealing with a company like us that is really looking at all of this as enablers for better business processes.”

In 2012, Covender founded KnowYourCustomers.com, a website where companies could crowdsource the outing of deadbeat customers. He linked up with Vasu, CEO of CyberAccess in Chagrin Falls, three years ago while looking for a Customer Resource Management tool to help manage his site’s growing client base.

At about the same time, Vasu and his team were exploring API tools that could help their customers “tie their CRM to other business computer applications like another marketing app or some other internal operations like accounting, order fulfillment or logistics” without coding connectors from scratch, which is cumbersome and time-consuming.

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When he stumbled upon an API innovation being piloted in a large health care project overseas, Vasu jumped on board, offering up CyberAccess’ expertise in CRMs and workflow automation. And when the contractor bowed out to focus on enterprise licensing deals rather than projects, Vasu and Covender stepped in — not only to see the project through but to license the API technology for their burgeoning joint venture.

The API platform consists of a library of 15,000 applications. Among those apps, Vasu explained, are about 200 existing “subconnectors,” sort of like Lego blocks. To build a connector, Mesh developers pick one of the subconnectors and fill in the parameters between it and the apps in question.

“So instead of everything having to be written in hundreds or thousands of lines of codes, in 95% of the cases, you can pull from these 200-prebuilt ‘Legos’ and just tie them together,” he said, cutting development to about one-quarter of the time it takes to manually code connectors.

“We have sped up technology, and that is the cool part,” Covender said.

The Mesh execs said their nascent venture is not your typical

startup. For one thing, the API platform — and Mesh’s workflow process in general — is already in the marketplace, about to be deployed in 1,000 hospitals in the United Kingdom, Australia, Africa and the Far East. Then there’s a backlog of about 400 projects referred to Mesh by its API technology provider and a broad set of partnerships it brings to the table.

The latter includes data center access via SecureData 365 in Canton; micro-token technology that fragments data for secure storage from Eclypses, based in Colorado Springs, Colo.; and account receivables insurance courtesy of Euler Hermes, a global specialty insurance company headquartered in Paris.

“We never wanted to be a standalone company,” Covender said. “We always wanted to be the business resource.”

The challenge now is to raise awareness about Mesh and its unique offerings so the firm can get buy-in from regional business leaders and begin the scale up necessary to meet the demand.

Wise predicts buy-in will not be a problem should the company deliver on the promise to make the burdensome and piecemeal process of business app integration easier.

“If a company can crack being able to hook these things together in a nice, useful way that is easy to do, they will make a lot of money,” he said.

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CLINIC

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Last year, the Clinic started five of its 10 research centers of excellence, which bring teams of people together to work on a patient-oriented problem and diseases.

This helps to bring in grant support, which is more research dollars for the region and another step toward developing Northeast Ohio into a biotech hub, Erzurum said.

To further that momentum, the Lerner Research Institute is moving toward a grants development office for large grants. Many researchers now work though grant development on their own, but the new office will focus on helping to increase the odds of larger grant applications — $10 million to $20 million a year — being successful.

“We want to form a structure of research that will really work in partnership with the disease focus that we have here at the Cleveland Clinic,” Erzurum said. “Just as the institutes focus on specific areas, the research institute wants to focus on specific areas and topics of importance.”

Lerner Research Institute also is seeing commercialization successes, with 85 patents filed last year, up nearly 20% over 2015, according to the Clinic.

Another major upcoming research initiative at the Clinic is the new Center for Populations Health Research.

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It aligns with a new unit on the clinical side, in which the Clinic will be moving about 600 of its providers — primary care physicians from both pediatrics and adult — into a different group of the organizations, where they will be measured by different metrics and judged by their ability to keep people healthy.

Short-term goals for the new research center include fostering interdisciplinary interactions, aligning expertise across the campus and aggregating data from the Clinic and other outside registries in the hopes of learning best practices to manage the health of populations, said Jesse Schold, director of the new research center.

“We can take what is learned from research and potentially integrate it into such a unit,” Schold said. “And also for those initiatives which are part and parcel with the new unit, we can test those in a rigorous hypothesis-driven manner and learn about the benefit and potential impact of the population which we can also generalize through research studies.”

Precision medicine, the theme of this year’s Medical Innovation Summit, is a medical approach that tailors care to each individual, taking into account differences in background, lifestyle, genes, biology and more. It’s the idea that researchers can analyze a specific patient’s genetic and genomic makeup to determine both their risk for disease and how best to treat them.

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“It’s one thing to study it in everybody or in preclinical models; it’s a different thing to know about you specifically,” Erzurum said.

Scientists from across the enterprise will benefit from the Biobank.

Having biospecimens available for collaborative work isn’t entirely new at the Clinic. For example, the Lou Ruvo Center for Brain Health has a biorepository for the neurodegenerative research community, “This is the first time for an institution-wide effort, so it allows both scale and scope of what we do,” said Dr. Wilson Tang, director of the Center for Clinical Genomics at the Clinic. “It also provides a wonderful resource for scientists that now, for the first time, can access a wide range of human biospecimens to study their disease.”

Collecting samples beyond what would routinely be collected, and having the structure to do so in a compliant and broad manner, is key, Tang said.

“I think it will expedite research and give us bigger and better capacity to manage specimens,” said Clinic CEO Dr. Toby Cosgrove.

The Clinic is in the process of identifying potential partners for the Biobank and is “eager” to work with scientific and industry partners with interests in disease research and in using the biospecimens, Tang said.

“It takes many villages to do this, and it’s a broad directive,” he said.

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KeyBank announced that Karen Mueller has been named Senior Commercial Banker in the Eastern Ohio market. In this role, Mueller will provide financial expertise, counsel, and customized solutions to help business clients reach complex goals. Additionally, Mueller will serve as Director of Franchise Lending, Midwest Region for Key. In this new position, she will provide specialized lending solutions to help franchise owners acquire, remodel and rebuild their businesses.

BNY Mellon Wealth Management welcomes Eric Schwarz who recently joined as Senior Wealth Director in Cleveland, Ohio. Eric will lead the firm’s business development focusing on individuals, intergenerational wealth transfer, business owners and business transition strategies. He reports to BNY Mellon Managing Director, Garrett Alton. Eric has over 20 years of industry experience as a wealth manager as well as his CFP designation. Eric can be reached at Eric.Schwarz@ bnymellon.com or 216-593-2017.

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Greenland Engineering welcomes Trinity Webb as a Project Engineer to support the firm’s public projects. She received a Bachelor of Science in Civil Engineering from Ohio University and is an active member of the National Society of Black Engineers (NSBE). Trinity enjoys reading and is an avid Cleveland Indians fan.

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Brad Whitehead

President, Fund for Our Economic Future For two decades, Brad Whitehead was a management consultant with McKinsey & Co. He left in 2002 to join the Cleveland Foundation as a senior fellow and helped the philanthropy expand its commitment to regional economic development. One outgrowth of that effort was the creation of the Fund for Our Economic Future in 2004, an organization for which Whitehead now serves as president. The Fund is a collaboration among nearly 50 regional philanthropies and businesses that have invested their money in the effort to build a globally competitive regional economy by setting regional goals for business growth and attraction with an emphasis on expanding job opportunities. Whitehead serves on the boards of DigitalC, the local advocate for finding digital solutions to community problems, and the Brookings Institution Metropolitan Policy Council. He’s also an avid rower. “A sunrise rowing on Lake Erie rivals any experience in the world,” he once said, and continues to believe. — Jay Miller

Five things Hobby you’re passionate about “Rowing! The stroke has all of the complexity and Zen of a golf swing, but you are anaerobic as you do it.”

Heros “The men and women with whom my son serves in the U.S. Army.”

Book you’re reading “Tears We Cannot Stop: A Sermon to White America,” by Michael Eric Dyson. “The book conveys a pretty raw and painful-to-hear message worth noting before criticizing minorities for the ways they choose to protest,” Whitehead said.

Digital resource you rely on “ ‘The Axe Files with David Axelrod,’ a podcast whose thoughtful questions can make anyone — from the hard right to the far left — a sympathetic figure.”

Best advice you’ve gotten “In a discussion with my clergy several years ago, he said, ‘Nobody really gives a damn what you think.

It’s what you do that defines you.’ ”

Lunch spot Map of Thailand 3710 Payne Avenue, Cleveland

The meal Chicken Pad Thai for one; sweet and sour chicken for the other

The vibe With its white walls and contemporary seating, Map of Thailand is more polished than traditional Asiatown haunts and a little noisy when the small restaurant fills up.

The bill $19.70 with tip

What’s the focus of the organization these days?

Our big push right now is the general theme that we have to have economic growth with equality of opportunity.

There have been so many good signs that we have top-line recovery in the economy, but we’re leaving way too many people behind. And that’s underserving us on many, many levels, and so we have to get past the point where we think, “We’ll deal with that later.” For us, the two big issues are, how do we make sure we’re keeping the focus on innovation and paying significant civic attention to economic polarization.

Where has the region succeeded in terms of innovation, and what other opportunities are there?

We have a wonderful story of the growth of the bioscience cluster. The whole world has benefited from the growth of the biosciences, but we’ve outpaced the world and built something great through research and financing and by attention paid by a whole lot of people. But we still see the potential for Cleveland and Northeast Ohio to own its future in the production economy. For some reason, we’ve become ambivalent to manufacturing. We need the same sort of zeal directed at the production economy that we’ve had for the bioscience economy. In the short term, we need to make sure that with the retiring baby boomers that we can fill the jobs that are coming available with qualified candidates. In the next five years, that’s 55,000 jobs. Amazon’s plan for a new headquarters offers 50,000 jobs over 20 years, yet here’s 55,000 jobs that are right here. Longer term, we have to ask, “How can we be leaders in the technology of what is still 20% of our economy?” There is a lot of opportunity in innovation and the opportunity for jobs.

How can the Fund for Our Economic Future help that happen?

Hopefully, what we can do is seed the investigation of business opportunities, help the players develop the strategies and even make some of the catalytic grants that can unlock other sources. That’s the role we have played in the past.

We’re one player at the table, but philanthropy can bring a longer-term focus and help bring the players together to look at the opportunities.

We can be the first money in, but we

can’t replace the private sector or the public sector. I’m extraordinarily proud of what the members of the Fund have done, going into the economic development arena, which for the philanthropy is taking risks that are difficult and challenging.

What is the Fund doing to make sure that everyone in the region can benefit from the new jobs that you hope will be created?

We’re focusing on two areas. One is making sure people are prepared for the jobs of the future, and prepared to advance in them. The other is making sure everyone has access to the jobs. If you look at the best-performing economies around the world, they also tend to be economies that have more equitable distribution of jobs. For us, it’s about access to job opportunities.

Where will these jobs of the future be? In the cities, the suburbs or in rural areas?

For so long, we haven’t thought about the spatial aspects of our development and what that means for our ability to provide access to opportunity. Part of that is a heavy reliance on automobiles.

Every working member of every household needs access to an automobile because they have long commutes. So we’re working with business leaders for solutions so every working member of every household doesn’t need access to an automobile. It’s an economic competitiveness issue for the next century. We talk a lot about the cost of living advantage in Northeast Ohio.

But if you add up housing and transportation costs, people in Northeast Ohio spend a greater percent of their income on housing plus transportation than residents of Boston, New York or Chicago.

You also think the region needs to overcome past racism, don’t you?

We need to own up to the fact that there are these extraordinary racial disparities and it’s everybody’s business to address them, and we need to be creating more connections for people who have been cut off from opportunity. It includes education, but also the implicit biases we bring. Every organization in every field needs to be thinking about how issues of structural racism may be affecting the business they are doing.

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