Crain's Cleveland Business

VOL. 39, NO. 12

MARCH 19 - 25, 2018

Source Lunch

Akron Bounce is behind schedule, but is amping up connections. Page 20

Teri Agosta, GM of the Hilton Cleveland Downtown Page 23

CLEVELAND BUSINESS

The List NEO’s largest M&A deals in 2017. Page 18

TRAVEL

Hopkins, despite service issues, gets high marks

By JAY MILLER jmiller@crain.com @millerjh

Cleveland Hopkins International Airport is improving. Local business travelers notice the improvements to the terminal, like easier check-in and a more spacious concourse now that cumbersome luggage X-ray equipment has been moved behind ticket counters.

What the airport continues to lack, however, is nonstop service to key destinations. Business travelers would like to have direct, nonstop flights to more U.S. cities and believe it would be really great to have a direct flight to an airport in a city on the European continent, like London or Frankfurt.

That European service may be in the offing.

Lee Thomas, the retired managing partner of the Cleveland office of Ernst & Young LLP and chair of the Air Service Demand Task Force of the Greater Cleveland Partnership, hinted in a telephone interview that direct service to an airport on the European mainland could be on the horizon.

“Even though we’re not to the point where we could announce anything and we haven’t closed any deal yet, I have a lot more confidence we could do that,” Thomas said when asked

Hopkins traffic up Passenger traffic through Cleveland Hopkins International Airport is up 21.2% since 2014, the year United Airlines closed its hub. Growth has come largely from low-cost airlines starting to fly into Cleveland.

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whether nonstop service to the European mainland was in the offing.

The task force plays a key role in wooing air service to Cleveland Hopkins since it provides financial incentives, money raised in the business community, to attract new service. It provided incentives to both WOW air and Icelandair, both of which will begin flying between Cleveland and Keflavik International Airport in their home country of Iceland, in May. The Iceland-based carriers will then connect Cleveland travelers to 30 European cities.

Thomas declined to put a price tag on the incentives. However, when WOW introduced service to Pittsburgh International last year, the Pennsylvania Department of Community and Economic Development provided $800,000 to help get the service off the ground.

SEE HOPKINS, PAGE 21

7.2M

8M

Passengers

6M

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: U.S. Department of Transportation, Bureau of Transportation Statistics

Cleveland Hopkins International Airport is projected to welcome 10 million passengers in 2019. The airport hasn’t reached that mark since 2008. (David Kordalski)

HEALTH CARE

SMALL BUSINESS

Philips mishandled thousands of complaints, FDA report says

Danny Vegh’s shrinks to adapt to new retail

By CHUCK SODER

By STAN BULLARD

csoder@crain.com @ChuckSoder

The quality control problems that have plagued Philips Healthcare’s Highland Heights facility for years never really went away.

Philips mishandled 3,623 complaints describing problems with its medical imaging machines — problems that have not caused serious injuries but appear to have the potential to do so, according to an inspection report recently released by the U.S. Food and Drug Administration.

Entire contents © 2018 by Crain Communications Inc.

The FDA uncovered that problem and several other quality control issues during a five-week-long inspection at the facility last summer.

On Feb. 12, Philips announced plans to shut down all manufacturing at the Highland Heights plant during the second half of 2018, cutting local employment by 45%. At the time, the company had about 850 employees at the facility, which has built CT scanners and other medical imaging systems for generations under names such as Picker and Marconi.

Asked whether the 2017 inspection pushed Philips to shut down local manufacturing, spokesman Mario Fante reiterated the company’s previous response, noting that it was “a business-driven decision due to changing market requirements.”

SEE PHILIPS, PAGE 19

sbullard@crain.com @CrainRltywriter

After shutting its Fairlawn shop at the end of February, Danny Vegh’s Home Entertainment is down to one store in Mayfield Heights from a peak of five.

Kathy Vegh, president of the company founded by her father, said in an interview the consolidation is taking advantage of a small company’s ability to be nimble to follow trends in the market, a tough task as online retailing roils malls and storefronts nationally.

“This responded to the realities of business today,” she said. “When we originally put together the chain, people wanted to drive to stores. That

Danny Vegh founded the company that bears his name 55 years ago. It recently consolidated to one flagship location. (Contributed photo)

has changed. Instead of riding the wave down, we decided to go ahead and consolidate to one location with the best selection.”

SEE VEGH’S, PAGE 9

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CRAIN’S CLEVELAND BUSINESS

3D printing making mark on NEO health care

By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

As 3D printing advances, with lower costs and more material options, the technology is becoming an increasingly attractive tool for Northeast Ohio’s health care industry.

The region has companies working in various applications of 3D printing in health care: prototyping, modeling, instruments, explants, implants and more.

Northeast Ohio is “very well positioned” as a region to take advantage of this technology and its uses in medical devices, said Vijay Iyer, vice president of business development for BioEnterprise, the region’s nonprofit health care and bioscience business accelerator.

For the past 12 to 18 months, BioEnterprise has been looking at 3D printing as an area that has “a potential significant impact” for the region’s biomedical industry, Iyer said.

Though 3D printing has been around since the 1980s, it’s gaining renewed attention, especially in certain industries like biomedical, because of advancements in the technology. Things have changed, Iyer said, in terms of what kind of 3D objects can be made, the technology used to form them and the materials and biomaterials that are available.

The costs of the technology — both the equipment itself and the products of the equipment — have also come down in recent years, which has led to higher attention in the last

3D printers enable the creation of models of patients’ imaging, such as this 3D skull created from CT data. (Lydia Coutré)

three to four years, Iyer said.

Streetsboro-based contract manufacturer The Technology House has been working in the 3D printing space for more than 20 years. While health care is only a small part of their additive manufacturing work, it also has the biggest space to grow, said Greg Cebular, vice president of sales and project management for The Technology House.

A couple of years ago, The Technology House became a beta site for the latest technology from Carbon, a Silicon Valley-based digital 3D manufacturing company. Carbon’s technology is much faster than more traditional machines and can pro-

duce materials that are flexible and durable, whereas older 3D printers created more rigid products.

Since offering these new machines, The Technology House has had a range of industries, including health care, show interest in the Carbon technology for its materials, its speed, the finish of the parts and ability to have more complex shapes.

“Since we got this new technology, things that people weren’t really investigating previously, they’re starting to investigate now,” Cebular said.

A 2016 study — from Youngstown Business Incubator and America Makes in Youngstown and Team NEO and Magnet in Cleveland — laid

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out a seven-year plan to propel forward Northeast Ohio’s 3D printing capabilities. One of the goals was to build out the supply chains in the automotive, biomedical and aerospace industries.

Tim Fahey, vice president of industry and innovation at Team NEO, supports the additive manufacturing cluster in partnership with the Youngstown Business Incubator, America Makes and Magnet. He points to six main categories of 3D printing applications in health care.

There’s the area of prototyping, which is well established in 3D printing. The second, modeling tissue, is an area that Fahey says is ripe for growth. 3D printing is also used in creating instruments, such as tools that a surgeon would use. Implants, like hip and knee replacements, and explants, such as dental appliances, are two more areas. And the final category is more in the research stage, but in the future, Fahey said he could see the industry able to print biological organs, such as a kidney or skin.

“Given Northeast Ohio’s legacy around materials and manufacturing, we are absolutely at the forefront of all this 3D printing and application,” said Aaron Pitts, senior managing director of biohealth at JobsOhio.

Cleveland Clinic has had 3D printing machines for at least a decade, said Peter O’Neill, executive director of Cleveland Clinic Innovations. The Clinic primarily uses its printers for prototyping to assist in product development.

But the technology, he said, “unlocks the ability to produce pa-

tient-specific devices for applications that need it.”

“I personally don’t think 3D printing is this sort of ubiquitous hammer that can go around and hit every screw and thumbtack and everything that’s sticking up,” O’Neill said. “It’s not this answer for everything, every medical device.”

But for some, it could be critically important. For instance, O’Neill is also president of Custom Orthopaedic Solutions, a spinoff company that is working to launch a patient-specific airway stent. The parts that are used on patients are 3D-printed and customized to the patient. The three patients that have used the technology under the FDA’s compassionate use have seen “truly amazing” results, O’Neill said.

“3D printing enables … critically important technology that enables certain kinds of devices,” he said.

Iyer compares the region’s efforts to that of Warsaw, Ind., where several orthopedic companies are based.

But their work in 3D printing has been very proprietary, Iyer said, rather than the collaboration he sees in Northeast Ohio.

“I think we’re better positioned to move faster in this region. We also have fundamentally better medical assets,” Iyer said, ticking off the Cleveland Clinic, University Hospitals, MetroHealth, Case Western Reserve University and the University of Akron. “That puts us in a very good place — one, for collaboration, and two, to take the lead on both the technology and the enablement of this technology in the medical device market.”

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Cleveland schools’ plan shifts focus to K-8

By RACHEL ABBEY McCAFFERTY rmccafferty@crain.com @ramccafferty

The Cleveland Metropolitan School District for about the past decade has focused on remaking its high schools, adding career-focused schools, early college schools and schools that emphasize the arts or STEM disciplines for students to choose from.

Now, it’s turning its focus to the district’s K-8 schools.

The K-8 redesign process is a chance for the district to deliver on the promise of the Cleveland Plan to provide a “high-quality school in every neighborhood,� said chief portfolio officer Christine Fowler-Mack. And strengthening the district’s K-8 schools will support the work at the high school level, too. “They’ll exit eighth grade ready to choose, knowing themselves better as people,� Fowler-Mack said. “Knowing who they are, knowing more about their interests, knowing more about themselves as learners and having learning habits, where they can ask for help.�

The Cleveland Transformation Alliance’s five-year assessment of the Cleveland Plan — the district’s wide-reaching plan to improve performance and accountability at all its schools — found that while efforts to overhaul the district’s high schools had seen signs of success (see, for example, the district’s rising graduation rate), progress was limited at the K-8 schools.

The report, released last fall, called for the Cleveland Metropolitan School District to apply the strategies that have

worked at the high school level to the K-8 schools to “repurpose, replace or eliminate low-performing schools,� among other measures. The report encouraged the district to replicate or expand high-performing district and charter schools, and to start new ones.

The district has worked in the past to improve its low-performing K-8 schools, but this new initiative allows it to draw on lessons learned from the high school transformation process, Fowler-Mack said. One big difference is that while the high school redesigns focused on career pathways, the K-8 models are more about how students learn. This cohort — 13 schools plus one set to open in August 2018 — selected three models that will begin in the fall: inquiry-based learning, personalized learning using technology and youth leadership development. Schools that were selected were those that needed additional support, or those that had new facilities opening soon.

The inquiry-based model is focused on helping students explore concepts and engage more with their interests.

The personalized learning-focused model uses technology to “open the door� to information, Fowler-Mack said, while also opening up the ways students can demonstrate learning to their teachers. And the leadership-focused model takes student-identified goals into consideration along with school-wide ones. The goal of all is to make relevant what students are learning and encourage engagement through projects and choice. “We want them to be interested in their learning,� Fowler-Mack said.

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The redesign process is based on K-8 design principles that show a shift toward what students need in a 21st century school, said Brittani Irvin, principal at Oliver H. Perry on the east side of Cleveland. The team at Oliver H. Perry chose the inquiry model, which will “activate their curiosity,� Irvin said, helping to create life-long learners.

This kind of redesign isn’t about adopting a new program — it’s a “philosophical shift,� said Karen Perry, coordinator of personalized learning at the Henry County Schools in Georgia. Schools don’t need compliance to the model; they need com-

mitment, she said.

The Georgia district, which has been moving its schools to the personalized learning model in recent years, doesn’t include a focus on technology like Cleveland, but served as one site visit location for the Cleveland schools during the redesign process.

Fowler-Mack said another lesson the district is taking from its high school transformations is that strong professional development is needed.

The district doesn’t think it needs to start with all-new staff or leadership, but it does want teachers who buy into the model. Teams of administrators, teachers, parents and community partners have been working on the plan to date, and professional development on the new models began Friday, March 16, for teachers in the redesigned schools. The Cleveland Metropolitan School District has more than 60 K-8 schools, and Fowler-Mack said the long-term goal is to scale what’s successful in this redesign process.

The team at Luis Munoz Marin visited the Henry County Schools to get a glimpse of the future of the plan they’ll be implementing, since they chose the personalized learning model. That model fit well with the direction the school was already going, said Principal Ricardo “Rocky� Torres. The school on the southwest side of Cleveland had started focusing on measures that encouraged individualized learning like small group teaching when he arrived in the 2015-2016 school year.

In the past, Torres said he’s seen programs focused on correcting what teachers were doing wrong. But this redesign has a different “lens,� he said. It’s

focused on what schools are doing well and how they can be further supported.

Joe Micheller, executive director of new school development for the district, said school turnarounds used to be about getting schools to a particular achievement level. But this is different. “This is the long game,� Micheller said. “Kids need to be successful in a society that is changing daily. The only way they can be successful is to be critical thinkers, problem solvers, innovators — and you don’t do that targeting a test score.�

And it’s not a change that happens quickly. The district has learned that it’s important to think of this as a process done in phases, Fowler-Mack said, and the redesigns at this cohort of schools will take place over three years.

That timetable gives it a chance to succeed, said Diana Laufenberg, executive director of Philadelphia-based Inquiry Schools. Inquiry Schools is a nonprofit that supports districts and schools through new school startups and school redesigns, including schools in Philadelphia and Henry County, Ga., where Cleveland schools conducted site visits. Inquiry Schools will be serving as a partner for the Cleveland district schools that will be embracing the inquiry-focused model through their redesign.

In school redesigns, starting the work isn’t necessarily the issue, Laufenberg said. It’s sustaining it. And that takes at least three to five years to take hold, she said. To succeed, teachers need to feel supported and given permission to take risks, Laufenberg said. This kind of change can feel operational, she said, but it’s really a very “human process.�

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By JEREMY NOBILE

Finding inspiration

jnobile@crain.com @JeremyNobile

Martin began working at IBM in sales out of college in 1989 and joined software company SAP in 1997. He eventually left there, and Ohio, for a stint at a software startup Martin in Washington, D.C. But he wasn’t happy and left a few months later, returning to Ohio.

Martin considered politics at that point. But not wanting to squander years of expertise in the software world, Martin started his systems integration consulting firm, EntryPoint Consulting, in 2003, which doubled as a reseller for SAP. He eventually sold that firm to KPMG in fall 2014.

While figuring out his next move, he attended the Abundance 360 conference in California where Peter Diamandis, a cofounder of Silicon Valley think tank Singularity University, encouraged the audience of entrepreneurs to consider something they wanted to achieve that could result in large, social impact.

The idea was to figure out how to help people first, and then how to make money would follow.

Martin’s idea was mobile voting. “I had no idea how to do it,� he said, “but I left the conference thrilled that I’m going to do this the rest of my life.�

So Votem formed with the purpose of reimagining the voting process, but without a clear plan on how to get there.

The business incorporated in early 2015, starting with about $1 million of Martin’s own liquidity from selling EntryPoint.

A global innovation challenge in the summer of 2015 partly resulted in the CastIron platform that would come under development in early 2016. The firm also partnered with a company called Tendermint, which was developing a blockchain system without the crypto pieces in it.

Votem acquired Konnech Inc., a mobile voting system with a related product line called ABVote, of which Montana and Washington, D.C., were among existing clients. With that, overseas military personnel were able

Decades ago, Pete Martin, who has long dreamed of a political career, was robbed — or so he feels — of the title of high school class president following an election recount he lost by one vote.

Now he wants to change the way the world votes. “I still joke about how that was the impetus for me doing this, that bad voting experience,� said Martin, a high-energy entrepreneur from Kent who drums in his spare time and often refers to himself in the third person. “Pete sleeps at night because we’re as compliant as anyone can possibly be,� said Martin, the founder and CEO of Votem Corp., touching on the climate today for initial coin offerings (ICOs), in which his firm is involved. “I don’t want a subpoena from the SEC.�

Votem is a Cleveland tech company developing a blockchain-based voting platform that Martin wants to become the new global standard for voting.

The firm appears to be the only one in Ohio currently attempting an ICO, which is the (for now) unregulated equivalent to an initial public offering (IPO) for startups in the cryptocurrency world. Votem also seems to be among a rare breed today gaining traction in using blockchain for applications outside the finance sector, applying the public ledger technology to the authentication of a person’s vote. “We have a very specific, publicly stated goal that by 2025, we want 1 billion people to have voted through our platform around the world,� Martin said. “We truly view the world as our market. And if we can not get traction in the U.S. or North America, so be it. We will do business in countries that are more progressive.�

Votem already has handled the voting events for a handful of elections via online and mobile methods unrelated to its blockhain platform — it’s called CastIron, and the tokens offered in the ICO are called Vast — including managing absentee ballots in the 2016 general election in Montana and votes for inductees into the National Radio Hall of Fame.

But there’s a long path ahead before Votem achieves the revolution it seeks.

to vote in the 2016 general election.

Martin would not disclose revenue figures for Votem, which has 18 employees.

But he said mobile voting contracts can be anywhere from $100,000 annually for collecting military absentee votes to potentially several million depending on the service and how everything integrates with other things, like tabulation machines.

Votem, now powered by CastIron, handled mobile voting in a series of elections following that for different groups, including the Ohio State Bar Association and the fan vote in 2017 for the Rock & Roll Hall of Fame inductions.

The Rock Hall conducted a similar fan vote the year prior, but the system was hacked by bots that would stuff the digital ballot box with fake votes.

So the Rock Hall needed a new system. And that came to Votem, whose blockchain platform authenticates each vote through complicated mathematical algorithms — in the same way blockchain validates Bitcoin and other cryptocurrency transactions — effectively shutting out bots and hackers.

There was a slight “hiccup� in how vote totals appeared on the Rock Hall website, Martin said, which led some to believe the system had been hacked again.

But those issues were resolved. And Votem effectively processed nearly 1.9 million votes in a landmark moment marking the largest successful use of blockchain voting ever.

Path to ICO Through all this, emboldened by some early success, Martin continued slogging across the country attempting to raise Series A money in a traditional fashion.

Getting support in Ohio, where the startup culture and interest in blockchain and crypto pales in comparison to the coasts, was practically impossible. And West Coast investors wanted the firm to be in California, Martin said, but he wasn’t moving. So those efforts weren’t terribly fruitful. “I kind of knew this was going to happen,� Martin said. “But you have to kiss the ring and talk to these people anyway.�

Martin began tuning into ICOs

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By JAY MILLER A voter’s choices are represented as a block.

The vote-block is proposed to parties in the network to be checked for validity.

Parties in the network confirm the vote is valid.

Source: Votem

after his partners in Tendermint raked in $17 million in 28 minutes in their own token offering in late 2016.

For a voting business, optics matter, Martin stressed. So he was leery of getting into the Wild West of ICOs, which are currently under tight scrutiny by the SEC. But everything began to feel more legit as the price of Bitcoin surged to heights impossible to ignore and major VC firms, like California’s Sequoia Capital, said they’d get involved. That was the tipping point that “totally legitimized this whole token sale environment for me,” Martin said.

Votem started down the ICO path in August, putting out a public presale of Simple Agreements for Future Tokens (SAFT) for its Vast tokens in late February. A public token sale is expected to follow in the third quarter of this year.

It can raise up to $50 million.

Among various uses, Martin wants to apply the proceeds to further develop Votem’s Proof of Vote protocol development (the element that helps with authentication of votes), further development of the CastIron platform and to market the business to other government entities across the world.

“We have this ability now to create

this global customer base and a global ecosystem of partners that can take the platform and extend it for languages and local laws for those other regions way faster than if we did this (fundraising) in a traditional sense,” Martin said.

“This instantly gives us global scale.”

Martin noted Votem is not taking any investors from China or Russia because of the surrounding concerns with hackers and the apparent Trump-Russia scandal.

As if election meddling by a foreign government wasn’t enough to make the public leery of electronic voting, issues with voting scandals in the 2000s involving botched votes with Diebold-made machines has created other obstacles for Votem to overcome.

“That’s both an opportunity and an issue. It just requires more education on our part. People are fearful, and I get it,” Martin said. “But we’re not going to shirk our responsibilities to make sure we can engender the trust with elections officials and people buying the system.”

And when their system is perfected, Martin said he intends to opensource everything. That means anyone else could potentially replicate the system and compete with Votem.

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PA G E 5

Brainard leaves key role at OHTec

How voting on the blockchain works

A voter marks a ballot and submits.

M A R C H 19 - 2 5 , 2 018

The block gets added to the blockchain.

Votes on the blockchain are tabulated to determine the winner.

His LinkedIn resume lists his immediate previous job as principal consultant with Java Groupe in Vermilion. Java Groupe maintains a skeletal website and lists Brainard’s home address in Vermilion as its address.

An email left for “Dean” at Java Groupe, and phone messages left for Brainard at his home in Vermilion and a restaurant he and his wife own there, were not returned by Crain’s deadline.

“He left last week,” said Ganesh Iyer, a founder and principal of Vertex Computer Systems, an information technology consulting firm and a member of OHTec’s advisory board in a telephone interview. “I don’t know if there was an underlying issue.”

Another advisory board member, Jodi Tims, chair of the department of computer science at Baldwin Wallace University, said in an email, “Not sure I have a whole lot to offer as I understand that the reason for Dean’s departure is of a personal nature. I’m sure we will talk more about the future direction of leadership at the next board meeting.”

Although the departure was abrupt and close to the beginning of the group’s biggest annual event, there was little concern among close observers contacted, and none expressed on the record that Tech Week planning would be disrupted by Brainard’s departure.

Tech Week runs April 16-22.

“We’ve got a dozen-plus events lined up for Tech Week,” Millard said. “Things are going real well there. I think we’re set up for a good week as usual.”

jmiller@crain.com @millerjh

“We want to make it a global standard for the way the elections are run electronically, whether it’s our system or anybody else’s,” he said. “We need to move the whole system along.”

There’s apparent industry support there, too. Votem board members include Cornell professor Emin Gün Sirer, PayPal CISO Michael Barrett and Blockchain Research Institute cofounder Alex Tapscott. (Those advisers were unavailable to comment for this story. Tapscott declined to comment because of his position with Elections Canada.)

Other blockchain experts see potential in Votem’s platform as well.

“I think that any time a transaction takes place, whether it’s monetary or a vote, any time you’re putting something down in a ledger, utilizing blockchain is just so smart,” said David Croft, an attorney with Meyers Roman Friedberg & Lewis, who is advising clients seeking ICOs (outside of Ohio) and working with blockchain companies.

“As it relates to Votem, I don’t know if what they’re doing is revolutionary or not,” Croft said. “But they’re probably ahead of the wave with what they’re doing. I think it’s very smart to be applying blockchain to things like voting, and I really hope they’re successful.”

Dean Brainard, the executive director of OHTec, a Greater Cleveland Partnership operation, has left the organization. His departure comes less than six weeks before Tech Week, the group’s biggest annual event.

“Dean left the role early last week, and Steve Millard is in the process of determining the right way to replace him,” wrote Gabriel Torok in an email last Tuesday, March 13. Torok, CEO of PreEmptive Solutions, a Mayfield Village software developer, is a member of OHTec’s advisory board.

“He is no longer with us,” confirmed Millard, executive vice president of GCP, in a voicemail left Wednesday, March 14, while he was traveling. “We are figuring out the right way to replace him.”

Brainard joined OHTec in October 2016, replacing longtime director Brad Nellis.

The organization describes itself on its website as a technology industry advocate and support resource. It was founded in 1998 as the Northeast Ohio Software Association. Its members are a subset of the membership of the Council of Smaller Enterprises, the GCP small business arm.

Brainard joined OHTec after a career as a tech consultant and as a fundraiser for the Case Western Reserve University School of Medicine.

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Two state legislators are sponsoring a bill that would allow Ohio communities to strengthen their bids to host major sporting events — with the National Football League’s annual draft at the top of the list.

Republican state Reps. David Greenspan of Westlake and Kirk Schuring of Canton are sponsoring House Bill 531, which would ensure a pool of state money is available to use as a financial incentive when communities compete for events such as the draft or major college tournaments.

State law currently allows the Development Services Agency (DSA) to award communities, or a nonprofit organizing committee, grants to cover the cost of bringing a sports event to a city, just as it awards other financial incentives to attract businesses to the state. The size of a sports grant is based on a calculation of the incremental increase in state sales tax revenue the event is projected to generate. The award can equal 50% of that increase, with a cap of $500,000 for a major sports event.

However, David Gilbert, president and CEO of the Greater Cleveland Sports Commission, said the current structure doesn’t often work for the communities that his organization and similar organizations in Cincinnati, Columbus and elsewhere in the state work with to attract events.

Communities and organizations like his bid on events that may be several years in the future. As it stands, though, they can’t pledge to promoters that state money will be there

when needed because DSA can’t commit to a grant for an event that won’t take place within the current, two-year budget cycle. In addition, state law limits the total amount DSA can award to such events during a single year to $1 million.

“We have been looking at major events and bidding on them two, three, sometimes five or six years out,” Gilbert said. “And so the difficulty for us is, as the program exists now, there is no certainty as to whether funding will be available in the program. The promoters of some of these events would ask very specif-

“The promoters of some of these events would ask very specifically, ‘Is there state support?’ and we can’t say yes.”

— David Gilbert, president and CEO of the Greater Cleveland Sports Commission

ically, ‘Is there state support?’ and we can’t say yes.”

The legislation proposes creating a special fund and diverting sales tax receipts attributable to sports events into that fund. The maximum amount that could be put in the fund for an event would be calculated as it is under the current law. However, the annual cap of $1 million and the limit of $500,000 for a single event would be eliminated.

“It’s extraordinarily important,” Gilbert said. “The genesis of it was, ‘How do cities in Ohio stay competitive for hosting major events when we know that there are more than 30 states that have some sort of incentive program for the hosting of major events?’ ”

Event promoters and communities use established formulas for calculating the economic impact of such events on communities. Destination Cleveland, the visitors and convention bureau that Gilbert also leads, commissioned studies that calculated the impact of the 2016 Republican National Convention on the city, for instance.

The bill was introduced in February. On March 13, Greenspan told the House Government Accountability and Oversight Committee that bringing the NFL draft to Northeast Ohio would cost around $3 million while generating around $90 million in economic impact. He said the proposed program, called Major Sporting Event Grant Program, only would fund events that generated more than $250,000 in incremental state sales tax growth, as measured by the two-week period surrounding the event.

“We’re promoting this as a pay-forsuccess program,” Greenspan said in a telephone interview. “We remove the uncertainty of getting local funding because this bill would put a permanent vehicle in place.”

The entry Cleveland and Canton submitted last year to host the NFL draft in 2019 or 2020 was named in February one of finalists for the event, along with Denver, Kansas City, Nashville and Las Vegas. A decision is expected in May. Hosting the event would allow the Pro Football Hall of Fame to promote the Johnson Controls Hall of Fame Village, a multi-phase, $800 million mixed-use development set to open by 2020. The project will include a retail center, a four-star hotel, youth football facilities and convention space.

Greenspan said the bill will get further testimony at a hearing this week.

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At the Table

Bruell ‘blown away’ by national TV experience Who would have ever thought finding Cleveland in the spotlight would seem an almost common occurrence?

Yet when the bright lights shine on one of the city’s favorite sons, an extra round of applause is well-deserved.

Zack Bruell will take a Joe bow on behalf of his home- Crea town when he appears on “CBS This Morning Saturday.” The chef-owner of six acclaimed restaurants, all within the city of Cleveland, will be the guest in the program’s weekly segment “The Dish.” The air date is tentatively set for March 24, but check the “CBS This Morning Saturday” website for the schedule.

“It’s not a ‘cooking segment,’ ” said Bruell, reflecting on the whirlwind experience in participating in the pretaped production over a recent weekend. “At my age, it’s almost like a retrospective. And as I was looking back, I’m thinking, ‘Geez, I guess I’m no longer 28!’ ” Guests invited to appear on “CBS This Morning’s” culinary profile typically rank among the nation’s top chefs. They present an array of their most popular dishes while talking about their roots, backgrounds, education and life experiences that brought them to prominence.

“So they have this food stylist that does all the dishes, and they ask me for the recipes I want to show off. I’m trying to come up with the ‘best’ dishes from each of my restaurants, and I’m trying to show something from each of my places, L’Albatros and Alley Cat and Parallax.

And I said, ‘Oh, let me just make them and we’ll bring them in.’

“And the producer says ‘Well, that’s really not how we do it — and do you really want to take all that on?’ And suddenly I thought, ‘What the hell am I thinking? No, that’s the last thing I want to do.’ And when I walked over to the table I thought, ‘Thank God I listened to someone else for a change!’ ” Bruell, who usually shrugs off most media attention, continued, “It was a really good interview experience. It wasn’t an interview about food so much, or recipes, the restaurants, or even my career. It was an interview about my life. And, honestly, I was blown away. This was an honor.”

Rascal House looks to expand Generations of Clevelanders grew up with Rascal House pizza. Now, owner Niko Frangos hopes to expand that affection outside of Northeast Ohio.

The family owned business currently operates five locations in the Cleveland area. Now the Frangos are accepting applications to franchise the popular concept to other parts of the Buckeye State: Akron, Toledo, Columbus and Cincinnati. According to a corporate statement, the company is also registered to offer franchise opportunities in Pennsylvania, West Virginia, Indiana and Michigan.

In a media release, the company said, “Rascal House is seeking franchise partners interested in joining an emerging franchise with nearly 40 years of success. Including a franchisee fee of $30,000, the initial investment to open a Rascal House franchise ranges from $386,700 to $694,700. The average restaurant is 2,500 square feet and employs roughly 40 full- and part-time people. The average volume nationwide, per restaurant, exceeds $1.3 million.”

Interested? Learn more about the restaurants at rascalhouse.com, and find out more about franchising options at rascalhousefranchise.com

“It’s not a ‘cooking segment.’ At my age, it’s almost like a retrospective. And as I was looking back, I’m thinking, ‘Geez, I guess I’m no longer 28!’ ” —Zack Bruell

Blackout Stout.

Tickets for the meal are $58 per person. Admission to the Two-Tap Takeover is free. The Burnham and Bar 32 are located at 100 Lakeside Ave. East, Cleveland. For reservations to the dinner, call 216-413-5053.

Zack Bruell, chef-owner of six Cleveland restaurants, is scheduled to appear on “CBS This Morning Saturday” on March 24. (Contributed photo)

course beer-pairing menu starting at 6 p.m. in the Burnham. Hosted by Great Lakes brewer Steve Forman, who will discuss the matches and how the brews and food selections balance and enhance one another, the evening will kick off with a reception followed by the courses:

Poached pike, puffed barley, orange supremes, local greens paired with Holy Moses white ale.

J Santa Maria certified angus beef tri tip and rarebit, served with Commodore Perry IPA. J Irish Car Bombe Mousse Cake alongside Great Lakes’ much-loved J

Graeter’s news Clevelanders can’t seem to get their fill of top-shelf ice cream. Cincinnati-based Graeter’s Ice Cream and Candy will soon add a second Northeast Ohio shop, in the new Pinecrest shopping destination in Orange Village. The brand already operates a shop in Crocker Park in Westlake.

Great Lakes tastings on the lake There’s a doubleheader on tap Thursday, March 22, at the Burnham Restaurant and Bar 32, both in the Hilton Cleveland Downtown, for fans of Great Lakes Brewing Co.’s beers.

First, Great Lakes co-founder Pat Conway will take over the taps at Bar 32 for a free party open to patrons ages 21 and older. In addition to the brewery’s first Cleveland release of their Cloud Cutter ale, a selection of other special 2017 brews will be available: Barley Wine (barrel aged), Rackhouse Ale (rum barrel aged), Tripel Dog Dare (barrel aged) and Blackout Stout (double barrel aged).

All brews will be available for sale.

Meanwhile, there will be a three-

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CRAIN’S CLEVELAND BUSINESS

Opinion From the Editor

CEO: Diversity, inclusion more than a formula

Editorial

Ascending There’s a welcome energy again at Cleveland Hopkins International Airport, which, following the double-whammy of a recession and the departure of an airline hub operation, is bolstering its flight lineup and gaining passengers as a result.

The airport’s not quite where it needs to be to serve as a vibrant economic development engine for the region. But it is making significant progress under the direction of Robert Kennedy, Cleveland’s director of port control, and is laying the groundwork for more improvements to come.

More than 9.1 million passengers traveled through Hopkins in 2017, an 8.5% increase from the 8.4 million passengers who used the city of Cleveland-owned airport in 2016. Last year’s number was significant because it marked the first time since 2013 — the last year United Airlines operated its hub here — that Hopkins crossed the 9 million mark.

In 2007, Hopkins served 10.8 million passengers, but the 2008 recession cut into that number hard, and the loss of the United hub led to a further plunge in volume.

But as Crain’s government reporter Jay Miller writes in a Page One story this week, Hopkins is getting some of its swagger back.

A focus on convincing smaller domestic airlines to initiate or expand service from the airport is paying off, as four such carriers — Allegiant, Frontier, Southwest and Spirit — last year added flights on 21 routes. That service is especially valuable to business travelers, who lost the ability to get easily to some destinations as the flight lineup at Hopkins withered. Meanwhile, international carriers WOWair and Icelandair will add service here in May, giving Cleveland passengers access to flights connecting to the European mainland. As a result of those and other gains, Kennedy says, the 10 million passenger mark is in sight for 2019.

Airport officials, to their credit, know they need to do more with direct, nonstop flights to more U.S. cities and, in particular, add a direct flight to a city like London. (The chair of the Air

Service Demand Task Force of the Greater Cleveland Partnership in this week’s story suggests that’s a possibility.)

Other gains — new luggage handling system, a better snow removal operation, and expanded retail and food options — helped Hopkins this month earn the 2017 Air Service Quality award for most improved North American airport from the Airports Council International. Hopkins was a first-time winner of the award, which is based on surveys of passengers at the airport on their day of travel.

The airport, though, still doesn’t always pass the eye test.

In a recent letter to the editor, Chesterland resident Jim Rundo, who described himself as a “frequent traveler” who has been to “hundreds of airports around the world,” bemoaned the state of Hopkins. His bill of particulars included “distant dropoff of remote parking, Uber and Lyft passengers (long walk to terminal),” “poor location of the rental car pickup buses in the arrivals area (dangerous for passengers),” “crowded ticketing area (poor layout)” and “inadequate seating in the A and B concourses, especially for Southwest Airlines.”

And in our Source Lunch feature on Page 23 of this week’s issue, Teri Agosta, the general manager of the Hilton Cleveland Downtown, responded to a question about Cleveland’s needs, in part, this way: “We need to focus on the airport and a sense of arrival. It’s our front door. We need a greater sense of place.”

Those are aesthetic issues, and while they’re clearly not as important as an expanded lineup of flights, they’re meaningful.

In our March 12 editorial, “Building momentum,” about the improved performance of the Huntington Convention Center of Cleveland and the neighboring Global Center for Health Innovation, we took note of the significant uptick in meeting and convention business here since the city hosted the 2016 Republican National Convention.

For those visitors, Hopkins usually is the first and last impression they have of the city. The team running the airport needs to do more to make sure those impressions are first-rate.

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

CLEVELAND BUSINESS

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When Tim Ryan started his job as PwC chairman and senior partner on July 1, 2016, he had a plan to grow revenue, expand the firm and invest for the future. Sounds pretty much like any new CEO armed with a 30-60-90-day plan.

Everything changed, though, over the course of three days that first week in July 2016. After two black men were fatally shot by white police officers in separate incidents in Louisiana and Minnesota, a black man ambushed police in Dallas, killing five officers and wounding nine.

Racial tension in our country was high, and suddenly Ryan, the new CEO, knew he had to do something. But what? He huddled with his leadership team and decided to send an email to the 50,000 employees at PwC: “We know you’re hurting. We don’t Elizabeth have all the answers, but we want you to McIntyre know we care and we’re open to your feedback.” That email sparked an overwhelming outpouring from PwC employees that prompted Ryan to throw his business plan out the window. He realized that despite all the diversity and inclusion programs at PwC, something was lacking — a true understanding of how people think and what they experience.

Ryan shared his journey to advancing diversity and inclusion in the workplace last Monday, March 12, for nearly 200 Northeast Ohio business leaders at the annual CEO Forum presented by the Greater Cleveland Partnership and the Commission on Economic Inclusion.

As he described in his speech, conversations started happening as the result of his call for feedback. On July 21, 2016, PwC devoted an entire day across all its locations for employees to sit down, talk and listen to each other. “That day was a turning point,” he said. “We shed more tears on that day then we had in our 160-year history.”

Several weeks later, when Ryan thought he could get back to his business plan to grow revenue, he was stopped by a question from a colleague: What’s your role outside of PwC on a societal topic as important as diversity and inclusion?

“I realized that the biggest risk that I feel I have as a leader is losing touch with what’s really important. And what’s really important is the difference we make on society,” Ryan said. “Diversity and inclusion is one of the biggest opportunities we have to help this country reach its full potential.”

If Ryan sounds like a man on a mission, that’s because he is.

He began reaching out to corporate leaders to make a commitment to advancing diversity and inclusion in their workplaces.

In June 2017, he launched CEO Action for Diversity and Inclusion. As of today, more than 400 CEOs and presidents, across 85 industries, have pledged to create safe, trusting work environments, to commit to unconscious bias education, and to share best (and not-close-to-best) practices around diversity and inclusion.

Northeast Ohio’s KeyBank, FirstEnergy and Progressive are among the hundreds of companies that have signed the pledge and have shared their stories at www.ceoaction.com Ryan stressed that businesses of all sizes are invited to take the pledge and offer success stories as well as the unsuccessful ones.

“If we don’t do things differently in the short term, we won’t be relevant in the long term,” Ryan said. “You will not win the war for talent, and you will not win the war for your customers’ hearts and minds.”

With diversity and inclusion as a focus, Ryan sees a better path to accomplishing his original plan: to grow revenue, expand the firm and invest in the future.

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.

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multi-unit apartment buildings Danny Vegh’s Mayfield Heights location is its only bricks-and-mortar store remaining. (Contributed photos)

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Although she did not use the term “showrooming,” it’s one of the ways retailers are trying to cope with the challenge online stores are giving bricks and mortar ones.

In Danny Vegh’s case, the process was simplified because the company owned the Mayfield location and most of the others were leased.

Effectively, the original, and bestknown, store at 12225 Lorain Ave. was the first to go as it was sold in 2014, although the younger Vegh said that store was closed because it was no longer a viable retail location.

Her father had launched the store 55 years ago after a career as a celebrity playing pingpong on national TV shows such as “The Tonight Show Starring Johnny Carson” and “The Today Show” as well as college campuses and malls across the land. At 15 Danny Vegh became the Hungarian Boys table tennis champion. He emigrated to the U.S. in 1956 and by 1960 became the U.S. champion in doubles and singles table tennis. At one point he operated a pool hall with pingpong tables in downtown Cleveland as he transitioned into retailing merchandise associated with his main sport as well as pool.

Of the latest change in the company, Danny Vegh said in a prepared statement, “Sometimes you have to make difficult decisions in order to stay in business for the long run.”

The Mayfield store was already a showplace because the younger Vegh said extra care had gone into its design as the freestanding building was owned by the company.

“We went with our best location where we had the most selection,” she said, and built upon that with additional vendors so visitors can assess products such as a pool table ranging in cost from $1,500 to one costing $5,000. The store also sells patio and game room furniture.

The company already had a highly trained staff to help consumers; Its staffers had an average tenure of eight years, which she described as “forever in retail.” However, Vegh’s staff had to shrink, down to 11 full time from at most 43.

“That is the one place where it breaks my heart to answer the question,” she said.

At least one other factor also came into play with the downsizing.

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The process to consolidate to the Mayfield location was simplified because it owned — rather than leased — the facility.

Kathy Vegh’s My Heart Wall venture has considerable display space at Danny Vegh’s Mayfield Heights showroom.

also made a focus on serious customers more important.

The local retailer also gained competition from Chicago-based The Great Escape, a Midwest operator

“Instead of riding the wave down, we decided to go ahead and consolidate to one location with the best selection.”

— Kathy Vegh, president of Danny Vegh’s Home Entertainment

which has 25 stores, including five in Northeast Ohio from Strongsville to Youngstown.

However, Kathy Vegh said Great Escape was not a factor in the family firm’s change in strategy or sales.

One of the additions to the Mayfield store are wall-sized photographs from a business Kathy Vegh launched called My Heart Wall which helps people display their digital photos on personalized wallpaper.

“I realized we had all these walls here,” she said, and the business has a dedicated staffer at the store. The firm provides personalized wallsized prints using a family or individual’s own digital photos. It has also evolved, adding adhesives that can be repositioned and creating collages she compares to family photo galleries along stairways and mass produced photo murals of sports and children’s themes.

My Heart Wall is growing, she said.

She declined to disclose revenues of either firm but said both are profitable. My Heart Wall is internet focused, and the store gives it a gallery.

Meantime, Danny Vegh’s Facebook page includes her video about how to buy a pool table that’s been viewed more than 430,000 times. Vegh said she is looking at ways to make the website more user friendly for online sales. “We all shop on the internet,” she added.

She also feels the bricks and mortar showroom strategy is working.

Shortly after the Fairlawn store closed, Kathy Vegh said, the Mayfield location had serious customers there from Elyria and Akron as well as Cleveland’s east suburbs.

PA G E 10

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Focus

Brewnuts co-founder John Pippin, far right, chats with customers on a bustling evening at the corner doughnut shop/beer pub in Gordon Square. (Photographs by Peggy Turbett for Crain’s)

SMALL BUSINESS

The hole truth of the doughnut’s rebirth

America’s insatiable craving for the doughy treats has given rise to local startups vying for bites of the action

By DOUGLAS J. GUTH clbfreelancer@crain.com

There’s apparently dough to be made in the latest confectionery trend sweeping through Cleveland.

A doughnut evolution is on the rise nationwide due to major chains providing new flavor varieties and expanding their menu offerings beyond the classic sweet treat. Nationally, according to Chicago-based research firm Information Resources, sales of doughnuts at supermarkets and convenience stores reached $1.97 billion in 2016 — a 3.4% jump over the previous year —and local purveyors are trying to get a slice of that action.

In Cleveland, discerning pastry patrons can visit a variety of doughnut-based startups differentiating themselves with creative concoctions and boundary-pushing business models.

Brewnuts combines craft beer and doughnuts from a brick-and-mortar shop in the heart of Gordon Square.

Launched in September by owners Shelley and John Pippin, the bar/ bakery uses beer as an ingredient in every single doughnut it produces.

“It’s a combination of two of our

Fruity Pebbles leads an array of beer-based doughnuts, including Maple Bacon, Blackberry Mint, Frosted Flakes and Tagalong (chocolate with peanut butter), at Brewnuts.

favorite guilty pleasures, and something that feels authentically Cleveland,” Shelley Pippin said. “We’re a unique destination doing a fun spin on the mom-and-pop corner shop.”

While traditional flavors such as

glazed and chocolate are available, Pippin’s self-described “mad scientist’s workshop” also produces maple bacon doughnuts and Creamsicle-flavored pastries filled with custard.

Brewnuts’ small bar has 16 locally made beers on tap, while adult beverages are integrated into the doughnuts themselves, albeit with the alcohol cooked off. A milk stout from North High Brewing in Columbus, for example, is the main ingredient for a doughnut topped with chocolate icing and sea salt.

The Pippins birthed their beer-fueled concept from Cleveland’s relatively recent food and brewery boom.

Thus far, the reaction has far exceeded their expectations, as Brewnuts often is packed during morning coffee-and-doughnut hours as well as on the weekends, when the eatery stays open well into the night.

“We spotted an opening in the marketplace we thought people would respond to,” Pippin said.

“Cleveland has some great bakeries, but there wasn’t anyone doing highly creative artisanal doughnuts. It felt like a huge opportunity.”

City Girl Donuts opened last fall in the former Grady’s Fine Wines shop in Rocky River. Owner Barbara Fazio

Baker Mike Miller restocks the Brewnuts shelves with freshly made Vanilla doughnuts with sprinkles.

Pippin offers a variety of custom beer-based doughnuts with flavors changing on the whims of the season.

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SMALL BUSINESS

City Girl Donuts owner Barbara Fazio displays her artisan doughnuts at a University Hospitals fundraiser. (Contributed photo)

has always loved the confection, beginning in childhood when she spent her lunch money on her favorite maple cream Long John. Fazio’s travels in later years revealed inventive doughnut delights not available locally, and she saw no reason why the concept couldn’t work here.

Fazio partnered with pastry chef Erica Coffee to offer fresh-made, from-scratch doughnuts using quality ingredients, toppings, jams and fillings. A menu of customary favorites is bolstered by small-batch, hand-crafted delicacies like the Everything Bagel Donut, which, as the name suggests, is loaded with savory spices and a cream cheese filling.

“All we do here stands apart from traditional-style shops in Cleveland, because everything is hand-cut, made and rolled,” said Fazio.

City Girl Donuts veers from outlandish flavor profiles, instead focusing on fresh ingredients for an endless array of options. Cannoli- and

vanilla buttercream-packed doughnuts are year-round best sellers, but spring will see more rhubarb-filled offerings with the vegetable in season. The shop also makes apple glazed fritters and peach fillings depending on time of year.

“You want your customers to think you’re open ‘25/8’ so there’s never a stigma of running out of doughnuts. It’s fun to make people happy, and it’s incredibly easy to do that with doughnuts.”

— Kelly Brewer, co-owner of Bigmouth Donut Co.

Bigmouth Donut Co.’s Kelly Brewer and Courtney Bonning. (Marsha Gaul)

2017 welcomed yet another independent doughnut endeavor to Cleveland, the product of a team up between Courtney Bonning, chef-owner of the former BonBon Cafe in Ohio City, and Kelly Brewer, formerly with the local visitors bureau and Ritz-Carlton. Bigmouth Donut Co., now operating out of a 1,700 square-foot space on East 55th and St. Clair, is readying an additional retail space in the Hingetown area of Ohio City, expected to open in late spring. Both locations will feature scratch-made doughnuts cooked with the adventurous eater in mind, Bonning said.

“Our flavors change constantly, and there’s lots of butter in our doughnuts,” she said. “Butter makes our doughnuts velvety and luxurious — they’re not going to deflate in your mouth instantly.”

The team traveled the country to research the business, visiting shops from Virginia to Missouri, even picking up a recipe from a kindly entrepreneur in New York City. A passion for doughnuts was a striking commonality among shop owners, one Brewer and Bonning take to heart.

“You want your customers to think you’re open ‘25/8’ so there’s never a stigma of running out of doughnuts,” Brewer said. “We make sure to never run out at peak times. It’s fun to make people happy, and it’s incredibly easy to do that with doughnuts.”

Cleveland’s doughnut upsurge continued in 2018 with the January opening of the region’s first Daylight Donuts & Coffee, a chain managing nearly 1,000 sites worldwide. Located at 3077 Mayfield Road in Cleveland Heights, the shop acts as a drivethrough retail component of the Motorcars Collision Center owned by Chuck Gile and his sons, Matt and Trevor. One portion of the building is dedicated to Daylight, while the collision center takes up the other side.

The Giles family, owners of the Cleveland Heights-based Motorcars Honda and Motorcars Toyota stores, as well as the Rainforest Car Wash chain, had the idea to open Daylight Donuts when they set out to relocate the collision center. The city requested that their new location include some retail space, and the Giles family saw this as an opportunity.

“Cleveland Heights doesn’t have a drive-through coffee shop, and it’s near the (Cleveland Heights Community Center), which we thought would be a natural fit,” said Trevor Gile.

Although the shop is required to use the company’s doughnut mix, it aims to source the coffee, soups and salads it sells locally.

Ideally, Daylight will act as a relaxing respite for Clevelanders needing car repairs, Gile said. So far, so good, as the location sold 50,000 doughnuts in its first month of operation.

“The dealership is open all day, while doughnuts are being made from 11 p.m. to 7 a.m.,” he said. “The shop is open all the time for our customers.”

Cleveland’s plethora of sweet tooth-satisfying hot spots have not saturated the market, noted Bonning of Bigmouth Donut Co. If anything, the city’s delicious ecosystem of imaginative pairings and specialty flavors has helped to highlight the growing food concept.

“If not for the other shops, we wouldn’t be getting the attention we have been,” Bonning said. “Cleveland can be a destination for people on the doughnut trail. We’re grateful our business has been driving demand and conversation.”

Specialty Fitness founder Chuck Herman believes owning his facility will offer his growing business flexibility. (Contributed photo)

Becoming a landlord takes heavy lifting Move gives Specialty Fitness flexibility

By BETH THOMAS HERTZ clbfreelancer@crain.com

Making the change last year from being a tenant to being a building owner and landlord has proven to be a good move for Specialty Fitness Equipment.

The provider of exercise equipment for fitness centers in venues such as apartment complexes, hotels and private gyms was started in 2013 by Chuck Herman, who previously worked in the fitness equipment industry for about 15 years. By 2014, things were going well enough that he signed a threeyear lease for office and warehouse space in Bedford Heights. With some renovations, the warehouse was converted into a showroom for the company’s products.

“It served the purpose,” Herman said of this location, but he always felt like owning his own space would give him more control over his business and could be a good investment.

When his building was put on the market, he tried to buy it. That deal didn’t work out but a cousin in real estate urged him to keep looking, as did his wife, Juli, who is his partner in the business.

“She helped me disconnect from my emotional attachment and really keep an open mind,” he said.

The search finally steered him to an 18,000-square-foot, multi-tenant building for sale on Renaissance Parkway in Warrensville Heights, near interstates 271 and 480. Three years earlier, they had looked at the facility as a possible location to rent but passed on it, in part, because it needed completely renovated. They decided not to pass on the location a second time, and in January 2017, agreed to a purchase price of $721,000 for the building. They jumped into the renovations, which Herman described as a “total gut and rebuild” over about six weeks at a cost of $150,000.

“It’s a lot of money, but we are going to be here for a long time and we look at it as an asset for our business, for our company and for our family,” he said.

A top priority was creating a showroom to display their cardiovascular and strength-training equipment.

Walls were reconfigured and spaces were opened up. Racking systems and high efficiency lighting and HVAC systems were installed. Signage was erected in front of the building and on nearby Emery Road. New office spac-

“It’s a lot of money, but we are going to be here for a long time and we look at it as an asset for our business, for our company and for our family.”

— Chuck Herman, Specialty Fitness Equipment owner

es were fashioned and new windows and doors were installed throughout the entire building, including the tenants’ space. This last phase enhanced the building’s energy efficiency as well as its curb appeal.

“Chuck is the type of person, much like many other business owners, that want results instantly,” said Abram M. Schwarz, Herman’s cousin and real estate agent, also a vice president of Lee & Associates in Cleveland. He said that Herman had expressed the desire to control his rent for his business and assist in his long-term plans to create wealth for his family.

The two decided to target the geographic area where Herman’s business had already been successful, Schwarz said. After finding a property with the right amount of vacancy for the business to occupy, the pair negotiated a market price and extended the two existing tenants’ leases, he added.

The two tenants each have about 3,500 square feet in the building. One is Moonlight Specialties, which produces promotional items for businesses. The other is Woodrich Furniture, which creates furniture for interior designers and provides upholstery services.

Woodrich Furniture’s owner, Fred Kramer, said he appreciates the improvements Herman has made after years of having vacant space adjacent to his business, which has been in that location for about 10 years. Like Herman, he does not have walk-in customers, so it wasn’t directly hurting his business, but “empty space just never looks good,” he said. Having the owner on site helps make sure things are done right, like snow removal, he added.

“Chuck wants things to be nice to benefit his business, and we benefit from that,” he said.

SEE FITNESS, PAGE 13

PA G E 12

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CRAIN’S CLEVELAND BUSINESS

SMALL BUSINESS

Cleveland antiquers are living their Googie dream

By NICOLE HENNESSY

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Margaret Daole and Dave Crider of Googie Style are hunters.

Clawing their way through garage sales, flea markets and estate sales, they find treasures with which to fill their galleries, carefully curated with vintage and mid-century furniture; art and unusual décor; as well as Crider’s handmade furniture.

In November, Googie moved from a small Madison Avenue storefront in Lakewood to a 2,500-square-foot warehouse space on West 33rd Street in Cleveland’s Clark-Fulton neighborhood on the city’s West Side.

Customers call first to wander their two galleries, accessible primarily by a smooth, wooden stairway worn from almost 130 years of foot traffic. On the third floor, jazz plays and light floods in windows where art deco chandeliers hang, framed by the houses and sprawling warehouses below, both functioning and in need of some love.

When Daole and Crider began looking to move from their cramped Lakewood shop, they envisioned a spacious warehouse in a community with plenty of room for growth. This is exactly what they’ve found in his-

items like art glass priced at $10 and worth $2,000.

“Can you teach me how to shop like that?” he asked. Recognizing his natural eye for finding unique items, she agreed.

About 40 years earlier, when Daole moved from Atlanta to Cleveland, she started shopping garage sales to fill her Lakewood apartment. She didn’t know anything about antiquing. One day, she saw a sign for a garage sale and stopped, only to find an elaborate set of china spread out on bed sheets all over the seller’s lawn.

With only paper plates at home, she negotiated a $30 price tag. A few days later, she had a friend over for dinner, an antique dealer named Frank Otebra, whom she’d met at the grocery store months earlier.

“Oh my god, where did you get all this stuff? Do you know what you have?” she remembers him gasping.

Her china, it turned out, was a desirable brand called Flow Blue, and Otebra estimated she had about $20,000 worth of it.

The two ate with plastic forks Daole would soon replace with high-end silverware, as Otebra — just one of the mentors who has come into her life — began teaching her his business.

“I’m going to show you how to shop,” he told her.

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toric Clark-Fulton, where MetroHealth — a community anchor — is investing almost $1 billion to remake its campus, and countless businesses, aware of the close proximity to economic powerhouses Ohio City, Tremont and Detroit Shoreway, are cropping up.

Googie initially launched as an online store. Even now, eBay sales remain a large part of their business, as do custom orders and shows like the Cleveland Flea, Avon Lake’s Summer Market and furniture design showcase F*SHO. “We have an international business,” said Daole, whose phone periodically mimics the sound of a cash register closing yet another online sale. “We happen to be in Cleveland, Ohio, on West 33rd Street, but on eBay, we’re open 24 hours a day, seven days a week all over the world.”

Daole and Crider are somewhat unlikely partners. The first time they met, they wandered the Cleveland Museum of Art. The two talked all day about the prospect of getting into the vintage business, Daole sharing stories of past finds.

“I was intrigued,” said Crider, who also has a workspace at Soulcraft Woodshop.

Soon, Daole began taking Crider to estate sales and flea markets. He watched, stunned, as she picked up

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With crowdfunding gaining traction as a viable method for small businesses to raise capital, the tax benefits of this upstart investment alternative make it worth a closer look.

Permitted by the Securities and Exchange Commission beginning in 2016, crowdfunding enables business owners to raise capital via the internet without many of the normal registration and reporting requirements associated with exchange listings. It allows individual investors to invest in startups without going through brokerage houses to purchase shares of stock.

Small business owners have long turned to bankers and venture capitalists as an alternative to or preliminary step before public listings, but in those cases an entrepreneur is looking to win over a few investors willing to invest significant amounts.

Crowdfunding enables a company to leverage the internet to find hundreds or even thousands of investors willing to invest smaller amounts.

Equity crowdfunding certainly is not without risk. In fact, the risk of failure for small start-up companies is always high, so investing in entities via crowdfunding is inherently risky.

Some would argue the risk is even greater in crowdfunding than in traditional initial public offerings because of the reduced registration and reporting requirements on companies.

The lure, of course, is the possibility of getting a big payoff if one of those startups becomes the next Amazon or Microsoft. Some early crowd-

DeMarco is senior tax adviser at Meaden & Moore, headquartered in Cleveland.

fund investors are counting up their returns after Facebook acquired a crowdfunded startup for $2 billion.

But what about the tax implications of capital gains or losses realized through crowdfunding? Tax law is still developing in this area, but investors are generally expected to follow the same basic rules as for stock purchases, although investors are not allowed to sell their shares within one year of their investments.

Once stock can be sold, investors must report capital gains and losses in their tax returns. They can deduct up to $3,000 in any capital losses against ordinary income, but they might also be eligible for more tax benefits.

First, any gain on the sale of stock might be eligible for preferential treatment if it is in a qualified small business, which essentially applies to stock in C corporations with gross assets below $50 million. Such preferential treatment could include the complete exclusion of the gain from income, up to a generous limit, which means an individual investor might not have to pay any capital gain tax at all.

It’s also possible for investors who have realized gains to reinvest those

proceeds into other qualified small businesses and defer the gain tax into the future.

If an investment leads to a loss rather than a gain, investors might catch a tax break there as well. Under many of the same, but not identical, criteria for what qualifies as a small business under the code, investors may be allowed to take the loss against ordinary income rather than capital gain. That means the loss can be used to offset other income, like wages and interest, which increases the potential tax benefit.

If the investment becomes completely worthless, that might also merit a tax break for investors. If the stock is deemed truly worthless, the loss can be treated as a capital loss or as an ordinary loss, so long as the stock qualifies as a small business.

While the Tax Cuts and Jobs Act ushered in plenty of changes to various areas of the tax code, it did not affect the tax implications associated with crowdfund investing.

Tax reform legislation is widely expected to fuel plenty of business growth opportunities, suggesting crowdfunding may only grow in the coming year, as it has each year since permitted by the SEC. In 2017, investors poured an estimated $2.5 billion into small businesses via equity crowdfund investing.

Business owners looking for ways to grow in 2018 might want to explore both the benefits and the risks for companies and investors alike when raising capital via crowdfunding.

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M A R C H 19 - 2 5 , 2 018

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PA G E 13

SMALL BUSINESS

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Margaret Daole and Dave Crider recently moved Googie to Clark-Fulton. (Nicole Hennessy for Crain’s)

A community for creatives David Petkovich, a 58-year old investor and film photographer, bought the West 33rd building in 2002 with a goal of creating a community for artists and creative businesses, like Googie and their neighbor Joe Davis Decorative Arts, as well as the photographers and other small businesses that thrive there. A similar community exists in the nearby Hildebrandt Building — formerly home to meat-packing company Hildebrandt Provisions Co. — where artists

and craft food companies, like Rising Star Coffee Roasters, have set up shop.

Petkovich, who was born and raised in Clark-Fulton — home to Ohio’s densest Hispanic enclave and originally settled by German, Slovakian, Czech, Polish and Italian immigrants in the early 1800s — also has a passion for preserving the area’s history.

Through historical documents he continuously digs up, he’s linked his building to its 1889 beginnings as Northern Ohio Woolen Company — the largest complex of its kind in the United States and one of the largest in

the world at the time of its operation.

Googie’s immaculate cedar ceilings, it turns out, were once functional; they kept moths out of the wool that was produced and then sent to the building across the street — the Northern Ohio Blanket Mill. This mill, which used the wool to make horse blankets then shipped all over the world, burned down in 1889, but was rebuilt a few years later. Petkovich’s building mostly escaped the fire and eventually began manufacturing torpedoes, earning it the nickname the Torpedo Factory.

Documentation can be murky, but one early name sticks out. Frederick Mulhauser, the Woolen Company’s proprietor, was a Bohemian immigrant who served as a drummer boy in the Civil War and went on to become a bodyguard for President Abraham Lincoln.

Googie is all about stories, whether it’s those of the building it’s housed in or the pieces found at the shop: a 1930s mechanic’s cabinet transformed into an updated chest featuring wooden cheese boxes for drawers and pulls made out of Remington shotgun shells; or huge stone lithograph theater posters from the early 1900s.

For Daole and Crider, the thrill of the hunt for unique pieces like these has become a passion and a way of life.

“Margaret is shameless,” Crider laughed, thinking back to a favorite memory in Detroit, when she sold a vintage Hawaiian shirt off of her back. She made $300 dollars and paid for their trip.

“You have to improvise,” she figured.

Daole and Crider are now on their annual shopping trip in St. Petersburg, Fla. — where Crider lived for 18 years. Of course, every time they go, they stay in 1950s beachfront motels, like The Sands and The Sea Captain.

Lounging on fold-out lawn chairs with big sunglasses and Hawaiian shirts, they are living their dream; a Googie Style dream — a name derived from a form of futurist architecture influenced by design-heavy cars, jets, the Space Age and the Atomic Age. “We’re trying to learn how to make a successful business and do our own thing,” Daole said. “I always tell people to try to follow your dream and learn how to make it work financially.”

FITNESS

CONTINUED FROM PAGE 11

Herman said that since he bought the property, he has had inquiries from other prospective tenants, which helps reassure him that the purchase and renovations were a good investment.

His staff is lean; it’s just himself and his wife and “a right-hand person,” plus several subcontractors who help with delivery, installation and service.

He is in the process of looking for some sales people, however, as the company continues to grow.

Herman said he’s learned a lot through this entrance into commercial real estate ownership, such as navigating city planning and zoning regulations, and overcoming hurdles such as easement issues, environmental approvals and bank financing rules — while still running his business.

“It’s a process to buy a building.

What did I know? It’s not like buying a home,” he said with a laugh. “It was a crash course for us.”

Since their first foray into owning commercial real estate has gone well, the Hermans are open to the idea of acquiring more property as an investment in the future.

“I’ve always been intrigued with commercial real estate, because a lot of our business is working with developers and corporations and I see them as mentors. I talked to a lot of them before making this move and not one person said it wasn’t a good idea, which was comforting when you are spending a lot of money,” he said.

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CRAIN’S CLEVELAND BUSINESS

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Small businesses are cr a more vibrant future for In recent years, Ohio’s economic growth rate has outpaced the nationAlmzaian is a al rate, with small businesses having senior vice a large stake in this growth. Nearly president and half of all businesses in Ohio are Ohio business small businesses, collectively embanking ploying more than 2 million people. market The 10-year job growth trajectory for manager at Cleveland is 33% and for Cuyahoga Citizens Bank.

County, predicted to be 34%. Small businesses will continue to have a investments now — be it real estate, critical role in shaping that future.

Greater Cleveland has been a equipment or technology. The latter strong contributor to the state’s eco- would be a smart place to put money nomic health in part thanks to an ac- to work for many reasons. Technolotive health care industry, an increas- gy can drive efficiencies, improve ingly competitive technology customer and employee experience, industry and advanced manufactur- and protect the business from ining. In recent years, many companies creasing fraud and data security — including small businesses — have challenges.

Across all industries — and all over either extended their footprint or put down roots here. For example, the world — companies of all sizes Northeast Ohio is home to more than likely identify greater efficiency as a 700 biotechnology and biomedical top five priority. It lowers costs and improves the speed of doing busicompanies.

Growth-minded businesses are ness, and for small businesses that wise to assess their investment plans may have fewer resources, it can deto identify solutions that will acceler- crease resource strain. Technology ate growth and keep the business has been called the great equalizer, competitive. Spring is a popular sea- and its ability to drive efficiencies is a son for making these investments, big reason that rings true.

With greater efficiency often and this year, tax reform has positioned businesses to realign their in- comes greater satisfaction. Employvestment plans and has generated ees feel better enabled to do their optimism among many in the small jobs, an underrated factor in recruiting and retaining top talent. For embusiness community.

Although the current rate environ- ployees who interact with customers ment still favors businesses and con- one-to-one, this will lead to better sumers, rising interest rates are creat- customer experience. Deploying are customer-facing a sense ofS urgency to make big technologies 03-07John Grimm.qxp 2/23/2016 10:43 AMthatPage 1

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“Now is the time to get off the sideline and focus on strengthening your business through investment, which in turn will help our communities and economy prosper.� ing is also a great area to invest in — improving access to and streamlining delivery of the business’ products or services and offering the convenience of interacting with the business where and when they choose.

Employee and customer experience is important to the business, of course, but possibly even more critical is protecting customer, employee and company data. Allowing vulnerability here opens the business up to financial and reputational losses. Increased vigilance and deployment of solutions that mitigate risk are imperatives for any business. Investment doesn’t necessarily have to involve deploying a security-specific technology. A product’s or solution’s security features should be top of mind during any due diligence process prior to investment.

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35th Anniversary 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. worked on many significant deals across ss Cleveland, including Flats East Bank, The The THAT AN AREA OF EXPERTISE? Metropolitan at the 9, Uptown in every University and Steelyard Commons, and rsity d has has ha s been be een proproro 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 who aren’t from here are often more excited xcited about it. When you move here from m somewhere som somew ewhere ere 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

O’KeefeI expect is not working or spending children, she can timeI work, with her husband and two child dre en, sh he c he an I definitely believe in leadingWhen by example. the people withding whom MANY OF THE PROJECTS YOU WORKED ON ARE MIXED-USE URBAN PROJECTS. IS be found volunteering on the very boards off nonprofit and watching college collle eg ge football. foo fo ottball. 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 differWHAT INSPIRES YOU ABOUT YOUR WORK? RK? ent. You can never get bored because there’s so much variety there, from tax hrough the time that I’ve been here, th here e’s o bviousus Just WHAT seeingWAS whatITCleveland has gone there’s obviousLIKE 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. e is extremely interesting because every deal deal is differdifferrYes, definitely. Real estate Flats 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. Š 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. d. For For me, me e, it’s all 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

skills s. She She has has an ha successfulInc. attorneys her exceptional people skills.

Reprinted with permission from the Crain's Cleveland Business. Š 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. Š 2015 Crain rain Communications nss IInc Inc. nc. nccc. All n Al Rights Rig rese reserved. rved d.

Further duplication without permission is prohibited. Visit www.crainscleveland.com. ww.crainscleveland. and.c nd d.ccom. o om. m #CC15040

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PA G E 15

SPONSORED CONTENT

March 19, 2018

ASK THE PROFESSIONALS

Leveraging the Power of Blockchain

Insights from a Business Law Firm’s Perspective

S

ean T. Peppard and Michael D. Stovsky are actively involved in Benesch’s initiatives surrounding blockchain, a decentralized digital ledger technology that has vast implications for how we transact business.

As a partner in Benesch’s Corporate & Securities Practice Group, Sean represents public companies, privately held businesses, and private equity and hedge funds. He has extensive experience in advising financial institutions and Peppard companies in the payment systems sector and regularly advises clients on financial technology — or Fintech — and other innovations in the financial services industry. “Blockchain has the potential to be a significant disrupter in the financial services industry, so I pay a lot of attention to its Fintech and payments applications,” Sean says.

How exactly does blockchain work?

SEAN PEPPARD: That is complicated because there is no one “blockchain.”

Blockchain is in some ways a concept — that a decentralized ledger can provide a secure and efficient way to engage in transaction between widely separated and/or anonymous parties. All blockchains do share common characteristics.

First, they use cryptography to authenticate the parties involved in a transaction. All participants have a public and private key that encrypts and decrypts communications and acts as a form of digital signature. Second,

transactions are peer to peer and avoid the use of an intermediary. Third, they are validated by an agreed-upon protocol by participants.

For example, if party A wants to send bitcoin (a digital currency) to party B, it will announce this intent by entering party B’s public key along with the amount of bitcoin to be transferred. Party B would enter its private key to decrypt and accept such transfer. The transfer would occur when a majority of outside validators agrees that the foregoing took place, and a new “block” is added to the chain to reflect the transaction.

Michael is a partner and chair of Benesch’s Innovations, Information Technology & Intellectual Property (3iP) Practice Group, helping clients negotiate and execute high-value, intellectual property and technology transactions. Mike evaluates blockchain use from the platform level, exploring how, for example, a system like Ethereum can be used to create smart contracts for 3D and 4D printing. He focuses on how the technology can help companies conduct business more efficiently by negotiating smart contracts and processing Stovsky transactions. “We work across a lot of industries,” Mike says. “Blockchain is a much better way to secure, authenticate and validate communications, IP and contracts with vendors all over the world.”

Crain Content Studio — Cleveland turned to the legal professionals for context on how businesses can harness blockchain’s use and capabilities.

The use of PKI, or Public Key Infrastructure, has been around for many years and ensures that communications have integrity (they have not been changed in transmission) and are authentic (they are from a specific participant). This adds certainty to a digital transaction in much the same manner as a notarized communication works in the paper world.

The manifestation of blockchain is just like any other digital tool — code that we can use to interact securely over the computer by use of software or a platform.

What makes it different from traditional transactions, and how are those differences beneficial?

SEAN PEPPARD: The biggest difference to me is that transactions are peer to peer. They avoid the use of intermediaries, such as Mastercard for the purchase of goods. Intermediaries cost money, take time to provide their services and provide a central location where sensitive data is at risk. By eliminating intermediaries, blockchain can be faster, more secure and less expensive than traditional transactions.

How are blockchain transactions validated?

SEAN PEPPARD: Again, this is complicated because there is no one blockchain. And validation for one type of blockchain — bitcoin, for example — may be very different than a blockchain that is used by two parties to enter into a contract or to post payment for performance of the contract. The validation process is generally similar in that participants “witness” the transaction and agree by consensus that the conditions to the transaction have been met and a new block should be added to the chain. All

SPONSORED CONTENT

March 19, 2018

ASK THE PROFESSIONALS

SEAN PEPPARD: The validation process is where I see the greatest weakness to blockchain. First, third-party validators need to be provided an incentive to validate transactions. As a result, blockchain is in some way limited to bigger transactions. For small transactions, there is simply insufficient incentive for the validators to dedicate the computing power to validate the transaction, or, if the incentive is paid, the transaction costs will be unreasonably high.

Second, the validation protocol is far from immediate. Thousands of credit and debit card transactions are processed every second worldwide.

At this time, blockchain is not capable of validating that type of transaction volume (although Fintech companies in Japan are working on this limitation).

Finally, as mentioned above, blocks in the chain are created by consensus.

With bitcoin, it is impossible for one “person” to control sufficient computer resources to control validation.

However, with more niche blockchain applications, particular attention will need to be paid to consensus and ensuring one party can’t control the blockchain. The encryption used in blockchain transactions is highly secure by today’s standards, and the blockchain has not, to date, been hacked (although several high-profile exchanges have been hacked and cryptocurrencies stolen from accounts). It is possible, as with any secure standard, that bad actors will eventually figure out a way to hack the blockchain, using faster and more robust computers and processors to do so.

What is the difference between cryptocurrencies like Bitcoin and Litecoin, and a blockchain platform like Ethereum?

MICHAEL STOVSKY: Cryptocurrencies are only one application that utilize blockchain technology. They are only

‘‘

How will blockchain-based platforms such as Ethereum change the way in which business is conducted?

MICHAEL STOVSKY: Platforms like Ethereum help companies that need to enter high volumes of contracts with multiple vendors or customers.

Imagine a manufacturing company that wants to use 3D printing vendors all over the world to manufacture thousands of highly engineered parts for it. Rather than the inefficiency of having face-to-face negotiations with hundreds or thousands of vendors, the parties can agree in an electronic environment on the specific contract terms.

They enter into the agreement and store the agreement in the secure, encrypted blockchain. The blockchain protects the intellectual property rights in the specifications, CAD-CAM renderings and other content transmitted to the vendor.

What do you think some of the major impacts of the use of blockchain-based platforms will be for Northeast Ohio?

MICHAEL STOVSKY: We believe that the use of blockchain-based platforms like Ethereum will revolutionize the manner in which large manufacturers, of which we have many in Northeast Ohio, do business in a world in which distributed and additive manufacturing methods (such as 3D and 4D printing) will become the norm.

Imagine a situation in which a large manufacturer can reduce its own capital expenditures by farming out manufacturing to 3D and 4D printers all over the world. These are companies that can manufacture precision parts to spec better, faster and cheaper — all while maintaining the integrity of the contracting process and the intellectual property rights of the company in the specifications and other materials provided to the vendors.

We also see the possibility for Northeast Ohio to redevelop underutilized warehouse and manufacturing space to create a 3D, 4D and additive man-

‘‘

We believe that the use of blockchain-based platforms like Ethereum will revolutionize the manner in which large manufacturers, of which we have many in Northeast Ohio, do business in a world in which distributed and additive manufacturing methods (such as 3D and 4D printing) will become the norm.

MICHAEL D. STOVSKY, Partner and Chair, Benesch’s Innovations, Information Technology & Intellectual Property (3iP) Practice Group

ufacturing zone. Establishing a center of 3D, 4D and additive manufacturing for the U.S. builds on the rich history of Northeast Ohio as a manufacturing powerhouse. Blockchain platforms like Ethereum could be central to this effort.

Where do you see blockchain having widespread application? What industries will it change?

SEAN PEPPARD: The answer most often given to this question is transportation and logistics, with good reason. First, it seems like a new transportation alliance, or pilot program, is announced every day, and there are big industry players backing these efforts. Second, there is a general consensus that paperless shipping management, standardized contracts and a more precise method of tracking the movement of goods

are needed. Blockchain is a potential solution for all of the foregoing. I think that transportation and logistics will be the first place where we see widespread use of the technology.

I also think we will see it used where the ownership of assets may be important, but in situations where it is has been harder to maintain adequate records. We are already seeing smart contracts being used to track oil and gas royalty rights and payments.

We see huge potential in basic manufacturing of heavily engineered parts that require the transmission of specifications in a manner that ensures integrity and authenticity. And as an offshoot to this, we see great potential for the real estate redevelopment industry to retrofit underutilized manufacturing spaces for 3D, 4D and additive manufacturing technologies and then to use blockchain-based platforms to drive sales.

WE’RE

GROWING FOR IT. MY BENESCH MY TEAM

What are some of blockchain’s weaknesses?

one basic embodiment of blockchain, much in the same way an individual computer app is one single embodiment of the computer programming language used to create the app.

Cryptocurrencies use blockchain technologies to execute financial transactions and to emulate traditional fiat currencies. Ethereum is much different.

Ethereum is a computing platform that uses blockchain-based technologies to create smart contracts. These are contracts that can be coded using a specific coding language and are self executing. That means that they can be used to enter into contractual agreements with third parties that are highly secure, have integrity and are fully authenticated (much like a contract with a handwritten signature that is notarized).

The beauty of blockchain platforms like Ethereum is that they can be used to allow companies to enter into high volumes of contracts with third parties all over the world without extensive negotiations. All of the relevant contract information on which the parties are agreeing is built into the smart contract and stored in the blockchain.

These smart contracts can also embed specifications and other intellectual property in a way that cannot be changed during transmission. Therefore, a company can be sure its vendors securely maintain the intellectual property that is required for the particular contract, and the digital rights in that content are protected.

‘‘

of this is coded into the transaction.

Sufficient computing power must be available to validate transactions. For this reason, most public blockchains provide incentives to validators. For bitcoin, the computer that actually creates the encrypted block that is added to the chain is rewarded with bitcoin and, in some instances, a transaction fee.

(Blockchain) transactions are peer to peer.

They avoid the use of intermediaries, such as Mastercard for the purchase of goods. Intermediaries cost money, take time to provide their services and provide a central location where sensitive data is at risk. By eliminating intermediaries, blockchain can be faster, more secure and less expensive than traditional transactions.

Benesch’s Innovations, Information Technology & Intellectual Property (3iP) Practice Group is taking its cue from our clients. They need to protect and benefit from an increasing portfolio of intellectual capital, and manage an array of IT-related related assets and issues. From patents, trademarks and copyrights to data security and privacy, technology licenses and usage agreements, and e-Commerce matters, our clients’ needs are growing—and so is our practice.

‘‘

www.beneschlaw.com

SEAN T. PEPPARD, Partner, Benesch’s Corporate & Securities Practice Group

Benesch_3ip_6x6_C.indd 1

3/13/18 9:41 AM

PA G E 18

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M A R C H 19 - 2 5 , 2 018 |

CRAIN’S CLEVELAND BUSINESS

THE LIST

Largest Ohio Mergers and Acquisitions Announced in 2017 Ranked by deal size

THIS DEAL VALUE COMPANY/ASSET SOLD; YEAR (MILLIONS) (1) LOCATION

BUYER; LOCATION

SELLER; LOCATION

DATE ANNOUNCED DESCRIPTION OF COMPANY/ASSET SOLD

$11,991.8 Closed

Worldpay Group plc London

Vantiv Inc. (now Worldpay Inc.) Symmes Township, Ohio

Various shareholders

7/5/2017

Worldpay Group provides payment processing technology and solutions that enable merchants to accept various forms of payment.

$8,100.0 Closed

MPLX Refining Logistics LLC, MPLX Fuels Distribution LLC United States

MPLX LP Findlay

MPLX GP LLC, MPLX Logistics Holdings LLC, MPLX Holdings Inc. Findlay

11/13/2017

MPLX Refining Logistics LLC engages in petroleum refining operations. MPLX Fuels Distribution LLC offers petroleum products scheduling and marketing services.

$6,059.1 Closed

Medtronic's Deep Vein Thrombosis and Nutritional Insufficiency business United States

Cardinal Health Inc. Dublin, Ohio

Medtronic plc Dublin, Ireland

4/18/2017

The acquired business makes compression systems and antiembolism stockings to reduce the incidence of deep vein thrombosis and pulmonary embolism.

$4,463.9 Closed

AdvancePierre Foods Holdings Inc. Blue Ash, Ohio

Tyson Foods Inc. Springdale, Ark.

Oaktree Capital Management L.P. Los Angeles

4/25/2017

AdvancePierre produces and distributes ready-to-eat sandwiches, sandwich components, and other entrŽes and snacks.

$2,750.0 Closed

70-plus medical office buildings, including eight in Ohio

Healthcare Trust of America Inc. Scottsdale, Ariz.

Duke Realty L.P., Duke Construction L.P. and subsidiaries; Indianapolis

4/29/2017

The medical office portfolio consists of 6.6 million square feet of medical office buildings.

$2,362.7 Closed

Straight Path Communications Inc. Glen Allen, Va.

Verizon Communications Inc. New York

IDT, Archer Capital, Ancora, Solus, Clutterbuck Capital; Newark, N.J.; New York; Mayfield Heights; New York; Cleveland

4/25/2017

Straight Path Communications holds, leases and markets commercial fixed and mobile wireless spectrum licenses in the United States.

7

$1,756.6 Closed

Bob Evans Farms Inc. New Albany, Ohio

Post Holdings Inc. St. Louis

Sandell Asset Management Corp.

New York

8/8/2017

Bob Evans Farms Inc. produces and distributes food products for grocery retailers in the United States.

8

$1,550.0 Announced (2)

10 regional shopping malls (48% stake) United States

QIC Ltd. Brisbane, Australia

Forest City Realty Trust Inc. Cleveland

10/2/2017

10 regional shopping malls in the United States.

9

$1,460.0 Closed

CoverMyMeds LLC Columbus

McKesson Corp.

San Francisco

Various shareholders, including JumpStart Inc. of Cleveland

1/24/2017

CoverMyMeds LLC provides electronic prior authorization solutions for hospitals, prescribers and pharmacists.

$1,353.3 Closed

Calgon Carbon Corp.

Moon Township, Pa.

Kuraray Holdings U.S.A. Inc. Houston

Various shareholders, including Victory Capital Management of Cleveland

9/21/2017

Calgon Carbon provides products and services to protect human health and the environment from harmful contaminants in water and air.

11

$1,341.3 Closed

Constantia Labels Gmbh Heilbad Heiligenstadt, Germany

Multi-Color Corp.

Batavia, Ohio

Constantia Flexibles Group GmbH Vienna, Austria

7/16/2017

Constantia Labels Gmbh produces plastic labels for drinks manufacturers.

12

$1,250.0 Closed

ASCO Power Technologies L.P. Florham Park, N.J.

Schneider Electric S.E. Rueil Malmaison, France

Vertiv Group Corp.

Columbus

7/27/2017

ASCO Power Technologies provides emergency and standby power transfer solutions.

$1,237.3 Closed

GCA Services Group Inc. Cleveland

ABM Industries Inc. New York

Goldman Sachs Group, Merchant Banking Division; Thomas H. Lee Partners L.P. New York, Boston

7/11/2017

GCA Services Group provides cleaning services, facility operations and other services in the United States and Puerto Rico.

14

$1,139.4 Closed

Phillips Edison L.P. Cincinnati

Phillips Edison Grocery Center REIT I Cincinnati

NA

5/18/2017

Phillips Edison LP owns real estate assets and a third party asset management business.

15

$1,088.1 Closed

Paroc Group Oy Helsinki, Finland

Owens Corning Toledo

CVC Capital Partners Ltd. London

10/27/2017

Paroc Group Oy manufactures and sells mineral wool insulation products.

16

$1,050.0 Closed

Four subsidiaries of Marathon Petroleum United States

MPLX LP Findlay

Marathon Petroleum Corp.

Findlay

9/1/2017

The subsidiaries contain the operations of Explorer Pipeline Inc., Lincoln Pipeline LLC, LOCAP LLC and MPL Louisiana Holdings.

17

$1,005.3 Announced

MainSource Financial Group Inc. Greensburg, Ind.

First Financial Bancorp Cincinnati

NA

7/25/2017

MainSource Financial Group Inc. is the bank holding company for MainSource Bank.

$1,000.0 Closed

Sterling Jewelers Inc., $1 billion primeonly credit quality portion Bermuda

Comenity Bank Columbus

Sterling Jewelers Inc. Akron

5/25/2017

This asset consists of a credit card portfolio totaling about $1 billion in receivables.

$1,000.0 Announced (3)

12 asset specialty retail portfolio New York and New Jersey

Madison International Realty LLC New York

Forest City Realty Trust Inc. Cleveland

2/27/2017

The portfolio consists of 12 properties totaling 2.1 million square feet of space.

$961.2 Closed

CoLucid Pharmaceuticals Inc. Cambridge, Mass.

Eli Lilly and Co. Indianapolis

Various investors, including Triathlon Medical Ventures of Cincinnati

1/17/2017

CoLucid develops small molecules for the acute treatment of migraines. Its lead product candidate is Lasmiditan, an oral tablet in a Phase III clinical trial.

$716.5 Closed

Vention's Advanced Technologies business United States

Nordson Corp.

Westlake

Vention Medical Inc. Denver

2/20/2017

This business makes minimally invasive delivery devices, catheters and advanced components for the medical technology market.

$688.0 Announced

Hawaiian Telcom Holdco Inc. Honolulu

Cincinnati Bell Inc. Cincinnati

Black Diamond Capital Management LLC, Twin Haven Capital Partners LLC Greenwich and Westport, Conn.

7/9/2017

Hawaiian Telcom provides communications services and products to residential and business customers in Hawaii.

23

$565.0 Closed

Bob Evans Farms LLC New Albany, Ohio

Golden Gate Capital San Francisco

Bob Evans Farms Inc. New Albany, Ohio

1/24/2017

Bob Evans Farms LLC consists of Bob Evans' restaurant business.

24

$560.0 Closed

Pittsburgh Corning Corp.

Pittsburgh

Owens Corning Toledo

NA

5/15/2017

Pittsburgh Corning develops, manufactures and supplies building materials in the United States and internationally.

$557.0 Closed

Cardinal Health (L) Co. Ltd. Labuan, Malaysia

Shanghai Pharma Century Global Ltd. Hong Kong

Cardinal Health Inc. Dublin, Ohio

11/14/2017

Cardinal Health (L) Co. Ltd. distributes pharmaceutical products, medical devices and specialty pharmaceuticals to pharmacies and hospitals.

$541.0 Closed

PPG Industries Fiber Glass Products and related IP, licenses and assets United States

Nippon Electric Glass America Inc. United States

PPG Industries Inc., PPG Industries Ohio Inc., PPG Industries Securities LLC Pittsburgh, Cleveland, Dover, Delaware

5/26/2017

The acquired business makes fiberglass reinforcements for manufacturing processes and resin systems. The I.P.and licenses pertain to manufacturing glass fiber.

27

$525.0 Closed

Corsair Components Inc. Fremont, Calif.

Various investors, including Hauser Private Equity of Cincinnati

Francisco Partners Management LLC San Francisco

7/26/2017

Corsair Components manufactures high-performance PC components and peripherals.

28

$500.0 Closed

Affordable housing business United States

Jonathan Rose Companies LLC New York

Forest City Realty Trust Inc. Cleveland

3/1/2017

This business unit consists of 48 housing communities.

29

$475.4 Closed

44 Montgomery St. office building San Francisco

Beacon Capital Partners LLC Boston

State Teachers Retirement System of Ohio Columbus

3/27/2017

This is an office building that contains a regional office for the State Teachers Retirement System of Ohio and other tenants.

$475.0 Closed

Clopay Plastic Products Company Inc. Mason, Ohio

Berry Global Group Inc. Evansville, Ind.

Clopay Ames True Temper Holding Co. Mason, Ohio

11/15/2017

Clopay Plastic Products Co. manufactures specialty films, extrusion coatings and custom-printing and engineered laminations.

$475.0 Closed

The Townsend Group LLC Cleveland

Aon plc London

Colony NorthStar Inc. Los Angeles

9/1/2017

The Townsend Group provides real estate investment solutions and advisory services to institutional investors worldwide.

1 2 3 4 5 6

10

13

18 18 20 21 22

25 26

30 30

RESEARCHED BY CHUCK SODER (CSODER@CRAIN.COM)

Want the full Excel version of this list Ñ and every Crain's list? Become a Data Member: CrainsCleveland.com/data The full list includes 50 deals. Crain's does not independently verify the information and there is no guarantee these listings are complete or accurate. Send questions, suggestions and corrections to Chuck Soder: csoder@crain.com. Source: S&P Global Market Intelligence, Marketintelligence.spglobal.com. The data excludes deals that were announced in 2016 but closed in 2017.

(1) Includes earn outs and other payments that occur only when certain conditions are met. (2) Four of these property sales had closed by the end of February. (3) Ten of these property sales closed in December.

CRAIN’S CLEVELAND BUSINESS

PHILIPS

CONTINUED FROM PAGE 1

He also reiterated that Philips plans to open a new R&D facility somewhere in the Cleveland area while investing in the Highland Heights facility “to optimize its learning environment for the thousands of Philips field service engineers and for customers from across the globe.”

But one thing is clear: Past FDA problems did at least lay the groundwork for Philips’ decision to cease local manufacturing. Those operations will move to plants in Haifa, Israel, and Suzhou, China. Philips built up capacity at those plants in recent years, while working to address quality control problems in Highland Heights — problems spotted in past FDA inspections.

One regulatory expert surmises that the latest inspection probably was “a contributing factor” in that decision.

Fixing all the problems laid out in the inspection report wouldn’t have been easy or cheap, said Stephanie Harrington, CEO of Matrix Medical Devices, a Hudson company that helps medical device companies with their quality control programs.

“This could’ve been warning letter level,” she said, referencing the letters that the FDA sends to companies for significant violations. “These are not small changes. This is basically still at the systemic level.” She was not involved in the investigation but was given the FDA Form 483 inspection report by Crain’s.

The report identified nine main “observations,” including a few problems the FDA pointed out in past inspections.

The first observation states that Philips closed 97% of the 133,845

complaints it received from July 2016 to July 2017 only because they were assigned low severity “hazard/harm” symptom codes because the problems did not cause serious injuries. It then notes that Philips mishandled 3,623 complaints received since January 2016. Those complaints were also assigned low severity hazard/ harm codes, but they were identified as high-risk complaints — meaning that the problems could potentially cause serious injuries or deaths.

Roughly half of those complaints were never forwarded to Philips’ Complaint Handling Unit, even though they should have been, based on Philips’ written procedures.

The other half were closed with “no documentation explaining the reason no investigation was necessary,” according to the report; 68% of the complaints without documentation were related to problems with the tables patients lay on as they are scanned.

“This data was not analyzed to determine whether further investigation is necessary or if potential corrective/preventative actions are necessary,” the report stated.

The other observations focus more on problems with the procedures the facility uses to handle complaints, ensure product quality and analyze risk.

Fante, the Philips spokesman, noted via email that the FDA’s observations “do not constitute a final Agency determination regarding compliance.”

Philips had a “constructive meeting with the FDA” in late 2017, he added. “In accordance with normal practice, Philips provides regular status reports to the FDA highlighting its progress in addressing these observations,” he wrote.

Philips temporarily shut down the Highland Heights facility in 2014, after a

previous inspection identified a long list of quality control problems. That was “a wakeup call,” Royal Philips CEO Frans van Houten said during a Jan. 30 conference call with stock analysts. He noted that it pushed the company to replace management, improve tracking systems and focus more on quality and regulatory compliance. He added that the Netherlands-based company has “a couple hundred inspections per year across the globe” and that “the trend line” on those inspections has been “very good.”

FDA problems have harmed all four of the biggest medical product makers in Northeast Ohio over the past decade, including Philips. One of them, Ben Venue Laboratories in Bedford, permanently closed its doors in 2013, though another company called Xellia Pharmaceuticals is now operating out of its Bedford complex. Steris closed a relatively small Mentor factory in 2014 but has been doing well on the stock market since then. Invacare significantly scaled back manufacturing in Elyria for more than four years before finally getting the FDA’s permission to ramp back up in July 2017.

Crain’s discussed that trend with local regulatory experts in 2014, and they disagreed as to whether the FDA was being too harsh. Around that time, Harrington asked an Ohio FDA inspector what could have caused so many problems in Northeast Ohio. The inspector, Harrington recalled, told her about one problem that could affect public companies having FDA issues: They might have trouble working on regulatory issues that take a long time to fix because they’re too focused on quarterly earnings. The inspector also told her that there are quality regulatory experts in Ohio, but they’re not always used properly, she recalled.

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CRAIN’S CLEVELAND BUSINESS

AKRON

Bounce lags on space, not on connections

By DAN SHINGLER dshingler@crain.com @DanShingler

Akron’s Bounce Innovation Hub is behind schedule in terms of its buildout, but it might be ahead of the game in terms of building a team that will be able to help local startups in its incubator space succeed — including by giving them access to potential investors.

Tenants, cheerleaders and investors all say they are happy that the city’s new initiative has a well-connected venture capitalist at the helm in the form of new Bounce CEO Douglas Weintraub.

“I’m very impressed with his background as an investor and a funder of innovative ideas,” said Ian Schwarber, co-founder of computer-training startup DriveIT, which plans to offer classes at Bounce, and former resource director of the University of Akron’s EXL Center.

“I’m extremely pleased that they brought in a heavy hitter, because we need a heavy hitter to steer this thing into the next phase for Akron,” he added.

Some of the occupants of Bounce — who are now Weintraub’s tenants and clients — share that enthusiasm.

“He was an investor in Movable back when I worked for (Northeast Ohio entrepreneur) Blake Squires,” said Bill Myers, who with his wife, Grace, founded virtual reality company New Territory in 2015. “We made wrist-worn activity monitors for kids, and Doug was an investor there. So, when he got put on as CEO at Bounce, I was very excited.”

Exposure to investors who are not afraid of early stage companies is extremely important to startups, Myers said. New Territory runs a virtual re-

Renovations at Akron’s Bounce Innovation Hub — which still displays remnants of what previously was housed in the space, the Akron Global Business Accelerator — have been delayed about six months.

(Dan Shingler for Crain’s)

ality arcade in Akron’s Northside Marketplace and has space at Bounce to do development and commercial work for clients. He said he’s already gotten help from an angel investor and thinks bringing more to visit the companies at Bounce is a great idea.

Weintraub is a founding father of the modern venture capital movement in Northeast Ohio. He was one of the organizers who started Cleveland-based JumpStart Inc., was a founding member of the North Coast Angel Fund and has advised a number of other local investors and funds — not to mention he founded and sold two startups himself.

Weintraub said he sees bringing investors into Bounce as a key part of his job and one that he began working on immediately after taking the helm on March 5.

“I was out meeting with two inves-

tor groups today,” Weintraub said during a March 14 telephone call.

That’s something he said he will continue to do regularly.

“I would hope that my relationships would carry forward. … I don’t mean to make it sound simplistic, like money is just going to appear.

But I’ve been with North Coast angel investors, I’ve been with JumpStart and also an angel investor on my own,” he said.

Weintraub also said it’s important to keep expectations in line with reality. Early stage capital, or “seed capital,” for new startups is the toughest money to raise because the risk is so high, he said. So it will still take a good idea, a good business plan and good management to attract capital.

“It’s not a slam dunk that if you have an office here you have funding,” Weintraub said.

But he said he’s convinced, after learning about Bounce’s roughly 60 tenants, that there are companies already in the space that will be worthy of investment. And he thinks there’s ample capital and an adequate community of startup investors to make that happen.

“It’s not just (capital) from the local area but also from the surrounding areas,” he said. “If you have a great idea and a good company, it will get funded.”

Some investors already like the idea of getting access to information about Bounce companies and of Weintraub at the helm.

“His background and relationship with JumpStart should help Bounce be the catalyst to pull together all sorts of resources and collaboration in this region,” said Bill Manby, founder and managing director of Akron-based Acquire Investments, which runs a fund focused on local investments.

“I also feel there is significant interest with investors,” Manby said, adding that Weintraub already has met with him about working with Bounce clients.

The city, too, expects Weintraub to work his connections in support of Bounce.

“Absolutely. That’s one of Doug’s assignments, to figure out how do we reach out to angel investors,” said Adele Dorfner Roth, the city’s deputy director of planning for economic development. “That’s always been a little bit of a problem in the Midwest.

Our investors are probably a little more risk adverse.”

Roth, however, has other concerns, not the least of which is getting physical improvements completed at Bounce, which is housed in a 250,000-square-foot former tire factory that needs major upgrades and

remodeling. The city has secured $2 million in state funding for the project and initially said it hoped to have that work done by July. Now it looks more like sometime around the end of the year, “to my great chagrin,” Roth said.

But no one is complaining. There was just more to do than organizers first thought, as with most construction projects, said Deborah Hoover, president and CEO of the Burton D. Morgan Foundation and chair of Bounce’s board of directors.

Hoover said the construction will be the first phase of the build-out and will focus on the ground floor of Bounce’s eight-story building. It will include co-working spaces, a new café and meeting area, conference rooms, an esports lab for projects with the University of Akron and “maker spaces” for startups working with things like 3D printing.

“By the time the construction project starts, it will be spring … and that will take a number of months. I’m sure it will last the rest of this year to get that space built out as we see it,” Hoover said.

But the real work needed to make Bounce succeed has more to do with people and communities than it does physical spaces, so Hoover is thankful that enthusiasm for the project appears to be growing.

“Bounce is not merely real estate.

Bounce needs to be out in the community beyond its four walls,” Hoover said.

That community will be needed for further fundraising and support, Hoover said, noting that Bounce will have more build-out to complete after its first phase and must continually update itself.

“This will be a work in progress for some time. Frankly, it should never stay static,” Hoover said.

Olympian’s gym to put focus on safe training

By BETH THOMAS HERTZ clbfreelancer@crain.com

U.S. Olympic gold medalist Dominique Moceanu is bringing her longtime vision for a gymnastics and yoga center that emphasizes the safe, positive development of young athletes to life in Medina.

Moceanu, a current Hinckley resident who was part of the U.S. women’s gymnastics team that won gold at the Summer Olympics in Atlanta in 1996, said her dreams for such a center turned into reality earlier this year when she and her husband, also a former gymnast, went looking for land to purchase as an investment and as a possible future site for a gym. When they saw a 12,000-square-foot facility for sale at 734 North Progress Drive, about a mile northwest of Medina’s historic downtown square, they knew “the stars had aligned,” she said.

“Finding a facility with a pre-engineered industrial warehouse building was exactly what I needed to cut down about a year of just construction (to open a gym),” she said, adding the site should be open in May. The property, which had been on the market for over a year, was the perfect size to become the Dominique Moceanu Gymnastics Center. Medina County records show that the purchase price was $422,400.

Dominque Moceanu works with a gymnast during one of the former Olympian’s summer camps. (Wish Photography)

Moceanu has given private lessons at local gyms in recent years and started offering summer day camps last year, but her offerings were limited by the scheduling needs of the school from which she was renting space.

In addition to the camps, the facility

will let her offer yoga and instructional gymnastics classes for youth and adults, birthday parties, special clinics and more.

“I am super pumped up about the idea of combining all of those worlds under one roof, which has not really been done before in this way,” she said.

Youth sports is a big business: WinterGreen Research last August estimated the industry is a $15.3 billion market, according to a recent Crain’s story.

One thing that deviates from Moceanu’s background: Her gym will not have a competitive team. Moceanu said such a team would take a lot of resources away from other areas of the gym’s business and from her family.

“This business model helps us cast a wider net, spreading gymnastics and yoga to the masses,” she said.

Renovations planned at the site include creating in-ground foam pits and trampolines. Work also includes a rock wall, a yoga studio, an internet café, offices, a cubby area, bathrooms and a pro shop.

She declined to reveal the cost of the renovations, which will take about two months.

“They’re definitely a pretty penny, but it’s worth the investment to make sure we do it right,” she said.

With the recent sentencing of USA Gymnastics national team doctor Larry Nassar on sexual abuse charges, the sport has attracted a lot of headlines

lately in terms of athlete welfare.

Moceanu has long been a vocal advocate for improved protections, and her facility will reflect that, she said.

At her gym, safety will be a top priority, she said. All coaches will be required to complete training on how to help athletes have positive, healthy experiences, and the facility will include personal safety measures as well, such as locked entryways. Members will have a fob that gives them access, but visitors will need to be let in by a staff member. Security cameras will be installed as well.

“We are in the industry of children, and we have to make sure our children are in the greatest care possible when they are with us,” Moceanu said.

“Adding that extra layer of security at the front door is something a lot of gymnastics facilities don’t do, and I want to set that industry standard.”

Shellie Pfohl, CEO of the U.S. Center for SafeSport, said that Moceanu’s emphasis on safety mirrors that being seen in an increasing number of youth sports organizations today, as athlete well-being becomes an integral part of their culture. For example, it is considered a best practice to have two adults present with minors at all times and hold classes in “observable and interruptible” spaces.

Gymnastics is probably more aware of these concepts than other sports right now because of the Nassar inci-

dents, but all youth teams and clubs should be following them, she said.

And those ideas come from the top, she added.

“Having all employees and volunteers know that the owner of the organization takes this very seriously is really important to creating that culture of ‘safety first,’ ” Pfohl said.

The center will open with about 10 gymnastics instructors and another seven to 10 yoga instructors, plus additional employees for the summer camps, pro shop and birthday parties.

Moceanu expects those numbers to grow as enrollment increases. Every instructor must go through a background check, and gymnastics staff will have USA Gymnastics safety certification and SafeSport training in order to coach on the floor, she said. The gym will also be one of the first private businesses to receive lockdown training from Ohio company Faster Saves Lives, which primarily works with school districts.

Moceanu herself will be one of the instructors and will teach gymnastics and yoga classes, in addition to running the center. Her husband, Michael Canales, a foot and ankle surgeon who competed with Ohio State University’s gymnastics team in the 1990s, will teach, too, and will mentor the coaches.

“I kind of roped him into it,” Moceanu said with a laugh.

CRAIN’S CLEVELAND BUSINESS

HOPKINS

CONTINUED FROM PAGE 1

Still, while major gaps in service still exist beyond the mainland Europe service, Robert Kennedy gets high marks from the area’s business community for his first year as Cleveland’s director of port control, the official title of the city’s airports director.

Four domestic airlines — Allegiant, Frontier, Southwest and Spirit — added flights on 21 routes in 2017, and WOW and Icelandic will be adding flights that connect to the European mainland via Iceland in May. In total, airlines added nearly 1.3 million available seats on flights from Hopkins in 2017, bringing the total seats available to 11.5 million.

Kennedy, who joined the city of Cleveland in February 2017 as director of port control, the official title of the city’s airports director, said there is more to come in 2018 and beyond. He told Cleveland City Council earlier this year that he is forecasting 500,000 additional passengers in 2018.

“And when we look ahead to 2019, we’re forecasting that we’ll welcome 10 million passengers through Cleveland Hopkins,” he told council’s transportation committee.

Hopkins hasn’t topped 10 million passengers a year since 2008, before the recession took its toll on air travel, but it's on the rise.

“I think director Kennedy is doing a great job at Port Control, and he truly understands the issues and constraints facing Cleveland and the industry as a whole,” said Mark Zannoni, a Cleveland resident and research director for Smart Cities and Transportation at IDC, a Boston-based consultancy. “My biggest concerns on the Cleveland aviation front revolve around air service.”

In an email, Zannoni said the city lacks good service to a handful of important destinations.

“Domestically, Seattle, Portland, San Diego, Austin and Kansas City — in that order — are major markets by passenger demand for Cleveland, but for each city there is either no nonstop service, or at best, less-than-daily service on these routes. On the international front, the city still lacks nonstop service to one or more major European hubs, including London, Paris, Amsterdam, and Frankfurt, which is critical for the city’s economic and population growth.”

The airport has been struggling to

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PA G E 21

for most improved airport in North America.

Among the major upgrades are a new luggage handling system and a beefed up snow removal operation.

Under the old system, passengers had to run their luggage through baggage screening equipment used by the federal Transportation Security Administration (TSA) that cluttered the ticketing concourse.

“With completion of the new south end system, passengers no longer need to take baggage to a second location,” Kennedy said. “This project is a big win for our airport guests as it streamlines the baggage check-in process. We are effectively going back to the more efficient way passengers handed off their baggage to airline personnel in the past.”

TSA picked up 90% of the cost of the $26 million project.

The airport also completed (in time for the winter season) an upgraded snow removal operation. The Federal Aviation Administration has been critical of the airport’s ability to keep runways clear for several years and, in 2015, it fined the airport $200,000 for not having runways cleaned and properly deiced. With Fraport USA, which operates the retail and food and beverage operations at Hopkins, is upgrading its the help of an $18 million grant from offerings, including local names such as Bar Symon. (David Kordalski) the FAA, the airport now has 113 provide the service that business though most of the flights cut were cost air carriers like Frontier and pieces of snow removal equipment, travelers want. on small, regional jets that shuttled Sprint airlines to start service to Hop- many of them new, and a new buildFirst came the recession that sent between Cleveland and cities like Al- kins returning nonstop service to ing to keep them ready for work.

Fraport USA, which operates the repassenger traffic plunging below 10 bany, N.Y.; Madison, Wis.; and Okla- several cities.

Low-cost travel, though, doesn’t tail and food and beverage operations at million passengers annually. Then homa City.

Hopkins, also is upgrading its offerings. the airport took a further hit in May Passenger traffic in 2017 is up 9.1% suit all business travelers.

The company, formerly Airmall, “It’s good that we’ve been able to 2014, when United Airlines ceased over 2016, according to data reported using Cleveland Hopkins as a trans- to the U.S. Department of Transpor- attract other carriers to increase their took over the operation in 2008 and fer hub for passengers coming from tation. Since the end of the United service out of Cleveland to fill the doubled the amount of concession one airport and changing planes for hub in 2014, the passenger count has gaps; (business) people are heavily space, adding local names like Great increased 21.4%. And since much of accustomed to being able to travel to Lakes Brewing Company, Bar Sythe passenger decline after 2014 many more destinations nonstop,” mon, Inca Tea and the Rock & Roll “When we look ahead came from travelers who simply said Rob Turk, president of Profes- Hall of Fame Museum Store to offerto 2019, we’re changed planes, the current traffic sional Travel Inc., a North Olmsted ings at the airport.

In December, Fraport signed a forecasting that we’ll count represents more Northeast travel agency and business travel five-year contract extension that will Ohioans choosing Hopkins over Ak- management firm. welcome 10 million “But there is a segmentation in the keep the company at Hopkins until ron-Canton Airport or even Pittsbusiness traveler base, so we still see January 2024. burgh International Airport. passengers through Tina LaForte, Fraport USA’s local The boost also likely reflects more a high concentration of our business Cleveland Hopkins.” people traveling because of lower travelers working through the major vice president, said more new offerfares, since the cost of a ticket to or carriers like Delta, United and Amer- ings are on the way, beyond a Sides to — Robert Kennedy, Cleveland’s from Hopkins is down significantly. ican airlines, even though it may re- Go! BBQ, a Macedonia-based restaudirector of port control The average airfare for flights from quire a transfer, because it plays into rant, on concourse C, which was anHopkins during the third quarter of the services they want as a business nounced last fall. But she was mum the next airport, lowering the air- 2017, the latest available from the traveler, such as business class and on just what would be opening.

“We have another at least eight port’s passenger count but, more im- DOT, was $287.04. That’s down 37.5% loyalty programs,” he said.

Still, the airport is getting better. projects for this year that I can’t talk portantly for travelers, ending many from an inflation-adjusted $458.91.

The drop is a happy consequence Indeed, the Airports Council Interna- about yet because we’re waiting for flights to smaller communities.

At the time, the number of United of the end of United’s hub operation. tional, which calls itself the voice of leases to be signed,” she said. “But we destinations out of Cleveland Hop- The opening left by the loss of United the world’s airports, gave Cleveland have some great stuff that we’ll be to announce soon.”

QualityCLEVELAND award able kins dropped from 58 daily to 50, flights to many cities attracted low- Hopkins its Air Service CRAIN'S BUSINESS μ MARCH 19, 2018 μ PAGE 21

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M A R C H 19 - 2 5 , 2 018 |

CRAIN’S CLEVELAND BUSINESS

ADVERTISING SECTION

MBA

WEATHERHEAD SCHOOL OF MANAGEMENT

www.crainscleveland.com/onthemove

To place your listing or for more information, please call Laura Warren at (773)-814-3898 or email lwarren@crain.com

HEALTH CARE

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FINANCIAL SERVICES

FINANCIAL SERVICES Connie WicksReiter Vice President, Client Operations

Ancora

Trevor Capiccioni

Ayesha Kauffmann

Ashley Hegler

President

Vice President of Sales, Northern Ohio UnitedHealthcare

Vice President of Account Management, Northern Ohio UnitedHealthcare

UnitedHealthcare

UnitedHealthcare

Kauffmann is the vice president of sales for UnitedHealthcare’s Northern Ohio health plan. She is responsible for health plan strategic initiatives and business operations including sales, marketing, product innovation and community engagement. Her main focus is developing business strategies while creating a consistent, affordable experience for customers and broker partners. Ayesha began working with UnitedHealthcare in 1996 as an administrative assistant and quickly ascended into key roles.

Ashley began her career with UnitedHealthcare in 2004 and has held various roles throughout her career. In 2008, Ashley was named regional service director providing sales and account management teams across much of the country with operational knowledge and expertise. She most recently re-joined the Northern Ohio health plan in August of 2011 as senior strategic account executive for major and public accounts handling many of Cleveland’s most strategically challenging accounts.

REAL ESTATE

REAL ESTATE

Patriot Surgical Trevor Capiccioni has launched a medical device and capital equipment distribution company called Patriot Surgical. He has forged partnerships with OsteoMed, OSS DSIGN, Migali Scientific, Blickman, and HealthLOGIC Pharmacy.

The company has 3 sales reps in Ohio, and is expanding more across Ohio and into Michigan. Its core business resides in the Neurosurgical, CranioMaxilloFacial, Plastics, Pharmacy, and Clinical Laboratory specialties. You can find Patriot Surgical at: www.patriotsurgical.com.

HOSPITALITY & TOURISM

Mark Strippy Vice President of Operations

Ahola Human Capital Management Mark brings over 25 years of Payroll/Human Capital Management executive leadership experience to Ahola. Mark has led service and sales teams in the Payroll/HCM space that focused on supporting small businesses, mid-market clients and large enterprise employers. Mark has held leadership positions at the Federal Reserve Bank of Cleveland, KeyBank, was the founder and President of Heartland Payroll, COO at BenefitMall in Dallas, and Senior Director of Manage Service at Ultimate Software.

REAL ESTATE

Ancora is happy to welcome Ms. Wicks-Reiter to the firm as a Vice President of Client Operations.

Connie brings her experience in various financial positions to Ancora’s satellite office in Michigan where she will provide operational and administrative support.

Her role will include account documentation, client support and office management. We are pleased to have Connie join our team and wish her much success in her new role.

FINANCE Anne E Bingham VP, Director Private Banking Services

First Federal Lakewood Anne E. Bingham has been named Vice President, Director of Private Banking Services with more than 30 years of experience in the financial services industry spanning relationship management, business development and private banking. In her new leadership role, she will be responsible for growing the Private Banking team in addition to helping customers reach their financial goals. Anne also serves on the board of CMSD.

REAL ESTATE

Skip McGary

Toney Morton

Brendan Riley

Jack Zeman

Sarah Coakley

Executive Vice President, Commercial Services

Vice President of Finance

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Culture Officer

Redwood Living, Inc.

Redwood Living, Inc.

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TravelCenters of America LLC A 36-year veteran of TA, Mr. McGary was recently promoted to Executive Vice President of Commercial Services, leading the company’s Truck Service, Commercial Tire Network, National Call Center, and Fleet Sales divisions.

Previously, he served as Senior Vice President, Truck Service Marketing and Operations. Prior to that, he held the roles of Senior Vice President, Retail Marketing and Operations; Regional Vice President; District Manager; and General Manager.

Toney Morton has joined Redwood and will work collaboratively with the Finance team maintaining existing lending relationships and attracting new banking and investor relationships.

Prior to Redwood, Toney spent the last 10+ years in M&A advisory. Most recently, Toney was a Director at Asenti Diligence Partners based in Arlington, VA, where he advised on over 45 transactions in the last three years alone.

Redwood welcomes Brendan Riley as Vice President of Marketing. Brendan will oversee all of Redwood’s external marketing initiatives as well as internal corporate communications. He brings more than 20 years of marketing and brand building experience to the role. Prior to Redwood, he worked for advertising agencies in Chicago and Cleveland where he developed impactful integrated marketing campaigns for clients including Red Lobster, Oscar Mayer, Illinois Tourism and McDonald’s.

Jack Zeman comes to Redwood as the Vice President of Accounting. With over 35 years of accounting and finance experience his role will be to oversee the financial and operation accounting at Redwood. Jack started his career in public accounting at Cohen & Co. and Deloitte, then moved on to a variety of controller, consultant and CFO roles. Jack was the Vice President of Spirit Rent-A-Car when they won The Weatherhead 100 award. Jack has a BBA in Accounting from Cleveland State University.

Redwood Living, Inc. Redwood welcomes Sarah Coakley in a new position as Redwood’s Culture Officer. Sarah will focus on continuity, sustainable communication channels and alignment on core company values. Sarah brings years of experience in the Culture and Employee Engagement space including 12 years as the steward of Hyland Software’s well-recognized culture.

KNOW SOMEONE ON THE MOVE? For more information or questions regarding advertising in this section, please call Laura Warren at (773)-814-3898 or email: lwarren@crain.com

CRAIN’S CLEVELAND BUSINESS

Source Lunch

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PA G E 2 3

Teri Agosta

GM, Hilton Cleveland Downtown One of many roles that Teri Agosta plays in running the 600room hotel that Cuyahoga County built next to the Huntington Cleveland Convention Center is selling the city.

Like many transplants, she finds more to like here than many natives. She is also exuberant about downtown’s features and growth. Overseeing a staff of 300, she relishes how much out-of-town recruits for managerial jobs enjoy the region and, once they get here, want to stay. Agosta is a selfdescribed foodie and uses her travels to find locally popular foods for the hotel’s restaurants. Of course, she’s moved a lot for opportunities in the hotel business. However, when transferred to a Washington, D.C., Hilton from Baltimore, she commuted 60 miles each way daily for three years. “I had a nice house,” she said. She is also sharing her expertise as a member of the board of the Gordon Square Arts District and Destination Cleveland. She’s aggressive. Asked what superhero she would like to be, she says, “Catwoman. She kicks Batman’s butt.” — Stan Bullard

Five things First job Dishwasher at my uncle’s Fern Hill golf course and restaurant in Clinton Township, Mich. I was glad to have it.

Drive-time listen?

The Chill on Sirius. It’s electronic music and more.

Relax I do yoga three times a week.

What do you read?

I’ve read a lot of Anthony Robbins and Napoleon Hill. Each month, I read five magazines, including “Fast Company” and “Architecture Digest.”

If you weren’t a hotel manager, what would you be doing professionally?

I’d like to own and run a garden shop.

What was your first reaction to Cleveland?

When I got here from Arizona, it was winter. I stayed in the Bingham and froze walking back and forth to my office. It got better as the weather changed and we got closer to opening the hotel in 2016.

How do you feel about Cleveland now?

It’s amazing! Cleveland is hot. The restaurants are terrific. The arts scene here is great.

Where did you make your home in Cleveland and why did you land there?

I’m in a townhouse in the Gordon Square neighborhood. It has a view of Lake Erie. I wanted to be close to work. Since the hotel is a public project, I felt I should live in the city. I like the restaurant and arts scene in Detroit-Shoreway. It’s also not too populated. I believe Ohio City is congested. I’m excited to see Hingetown taking shape to connect Ohio City and Detroit-Shoreway. Both neighborhoods need to be connected to grow. It’s all about curb appeal. I’m excited about the changes I’ve seen since I’ve been here.

Do you do artwork?

I just buy it, especially at West 78th Street Studios.

Lunch spot The Burnham 100 E. Lakeside Ave., Cleveland 216-413-5120 www.theburnhamrestaurant.com

The meal One had chicken paprikash, the other a salad with salmon. Desserts were sweet potato cheesecake and a spiced caramel pumpkin tart.

The vibe A lovely view of downtown Cleveland’s mall, whose designer is the namesake for the busy restaurant you wouldn’t think is part of a convention center hotel.

The bill $83.16, plus tip

How many cities and hotels have you been in with Hilton?

I’ve been with Hilton 25 years. I like to say I grew up with Hilton. I started with the company after getting a degree in marketing. I’ve worked at a total of six hotels, in Baltimore; Washington, D.C.; Philadelphia; Phoenix and Cleveland. I started out in sales, became a sales manager, then sales director and general manager.

There seem to be few female general managers, especially at huge downtown hotels. Is there a backstory there?

There are not that many. There need to be more. I posted four times for general manager jobs in three years and got beat out by guys, some of whom I was more qualified than. You need a mentor, someone who believes in you. You’ve got to keep trying. Most general managers come out of rooms or hospitality, not sales.

I believe that to be a good leader at a hotel you also must be able to sell.

There are more and more hotels coming on stream or proposed, in the city and especially in the suburbs. Occupancy has not kept up with the supply. Should the pipeline be shut down?

Cleveland needs more hotel rooms.

We have about 1,500 downtown now.

We need 2,500. We need more rooms to get larger groups. I think the key for Cleveland is to have lots of groups and sports events. It’s going to be tough for suburban hotels now, but we’re going to fill up. We’re going to start scheduling things out to ’18, ’19 and ’20. As we get more events, we’ll get compression and downtown will send guests to the suburbs.

Where are the opportunities in your industry in our region?

We all need people. That’s why Edwins Leadership & Institute and Cuyahoga Community College are so important. The industry has expanded so much, so fast (that) we all need the mid-level managers and chefs.

What does Cleveland need? What should we do next to keep up the momentum?

We need to focus on the airport and a sense of arrival. It’s our front door.

We need a greater sense of place.

And downtown — there is no retail.

If a guest forgets something, where do we send him or her? Where do you go for socks or a tie? Suppose I was a guest and wanted to buy a blouse for a special occasion. Where would I go? The only drugstores are on East Ninth Street, although you can get some of the basics at Constantino’s.

What do you tell young people about finding success?

You’ve got to find ways to keep adding value and reinventing yourself.

Is there anything you’ve changed since the hotel opened?

We are changing our prices at Bar 32 to bring them in line with the market.

For example, a domestic beer will be $5. It was $8. We’re adding more food and a DJ on Saturday nights for our local customers. We’re also looking forward to the Rock and Roll Hall of Fame Induction Ceremony. We’re going to have rock inspired food and drinks with names like “The Moody Blues” cheeseburger, “Living on a Prayer” cocktail and “Just What I Needed” loaded fries.

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113 Phone: 216-522-1383; www.crainscleveland.com Reprints: Laura Picariello ; (732) 723-0569 Customer service and subscriptions: 877-824-9373

Volume 39, Number 12 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly at 700 West St. Clair Ave., Suite 310, Cleveland, OH 441131230. Copyright © 2018 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00.

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