Upsize Minnesota November/December 2023

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CONTENTS November • December 2023 • Vol. 22 No. 6 • www.upsizemag.com

PAGE 14

Cover story

Many pandemic-driven pivots companies made in 2020 and 2021 were born of desperation. Some of them have paid off in long-term changes for the better. Three companies share how they pulled off coming through COVID stronger than they entered it

BY ANDREW TELLIJOHN Cover photograph by Tom Dunn PAGE 4

Founder’s Forum:

Upsize Founding Editor Beth Ewen talks with mother-daughter tandem, Tasha Harris and Kobi Gregory, about starting candle-making Kobi Co. PAGE 4

Staff list:

Who’s who at Upsize magazine and how to reach us.

Upsize Minnesota (USPS 024-029) is published bi-monthly by Broad Axe Media, 2908 W 71 1/2 St., Richfield, MN 55423. Periodicals postage paid at St. Paul, MN and additional mailing offices.

Postmaster: Send address changes to Upsize Minnesota, PO Box 23238, Richfield, MN 55423-0238

BUSINESS BUILDERS

PAGE 14

PAGE 6

MERGERS AND ACQUISITIONS

Tips for managing cash flow in real time, a challenging task for small businesses

by Lindsey Day, Lathrop GPM

BANKING

by Kaylyn Houston, US Bank

PAGE 8

DATA

Data breaches are becoming more targeted.

Here’s what to do if someone breaches your systems

by Jessica Klander, Bassford Remele

PAGE 10

HUMAN RESOURCES Consider offering a self-directed 401(k) as part of your employee benefits program

by Ric Lager, Lager & Co

PAGE 12

LAW

The state has all but eliminated non-compete agreements. Do this instead

by Leonard Segal, Segal, Duffek Moen PLLC

Earnouts are becoming more common. Here’s how they work and what to watch for

COLUMNS PAGE 22

CATCHING UP

CEO David Kristal rejoined the family business to help save Embers, the restaurant chain his father Henry co-founded. Embers is no more, but Augeo, founded as Foodstreet Plus, is now a technology loyalty and engagement giant

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Our experts can help make sure you have the right U.S. Bank credit card to meet your business’s spending needs.

Start earning more without doing more.

Scan the QR code or visit usbank.com/bankerconnect to request your complimentary analysis and consultation.

The creditor and issuer of these cards is U.S. Bank National Association, pursuant to a license from Visa U.S.A. Inc. or Mastercard International Incorporated, and the card is available to United States residents only. Mastercard is a registered trademark and the circles design is a trademark of Mastercard International Incorporated. ©2023 U.S. Bank

Kobi Co.’s advice: Take control of your future FOUNDING PUBLISHER Wes Bergstrom

EDITOR AND PUBLISHER Andrew Tellijohn atellijohn@upsizemag.com

FOUNDING EDITOR Beth Ewen bewen@upsizemag.com

DESIGN DIRECTOR Jonathan Hankin jhankin@upsizemag.com

CHIEF FINANCIAL OFFICER Dan O’Connell dano@upsizemag.com

PHOTOGRAPHER Tom Dunn tom@tomdunnphoto.com

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4

A

fter 28 years at a banking and investment firm, Tasha Harris found herself on the wrong side of yet another management change.

“I very quickly went from the golden child to the black sheep,” she recalls. “It became toxic for me. I had to medicate myself to get to work.”

So, she walked off the job in October 2019, leaving a six-figure salary and her corporate wardrobe behind. “I was young, Black and a woman in a white man’s world of investments,” she says about her threedecade rise and then abrupt exit. “They had to mail me my stuff.”

Five months later the world shut down, both for Harris (right in photo) and her daughter, Kobi Gregory (left).

Then a junior in high school, Kobi began making candles to handle her anxiety amid the pandemic. “Pouring candles was her self-care ritual,” Harris says, but it soon became much more.

A friend offered space at her farmer’s market table and Kobi’s candles, infused with signature scents and festooned with hand-placed gems along with a curated playlist on each label, became a hit. Kobi Co. was born, with daughter Kobi as CEO and mother Tasha as president and “mom-ager in chief.”

Harris turned her former corporate energy onto their own project, rattling off a list of opportunities she sought to work on the business, not in it, as all the experts advise. Target marketing executives worked with the mother-daughter pair in a pro bono rebranding project.

Next came a mentor from the Minority Business Growth Alliance, who gave them advice and office space in downtown Minneapolis. Kobi Co. negotiated a lease next door for a storefront and warehouse within months.

UPSIZE NOVEMBER • DECEMBER 2023

Harris took part in the Ascend program with the Metropolitan Economic Development Association and met other local women-run companies like Moltron Builders, Nature’s Syrup Beauty and Planting People Growing Justice.

When I met her in late September, she had just returned from the orientation for Goldman Sachs’ 12-week accelerator program called One Million Black Women. “We were selected out of 2,000 applicants. We were 150 Black women in cohort four,” she said. “We’re starting to make data-driven decisions” to run the business. "This is a game-changer.”

From $55,000 in sales their first full year to six figures last year— she won’t say which six—Kobi Co. is on its way. And are they paying themselves? “Hell yeah,” she exclaims, not to her corporate level but there’s a plan to move salaries up as revenue grows.

On a crisp October day at the MartinPatrick3 store in the North Loop—the hottest retailer in town—I saw Kobi and Tasha in action, selling their candles at an event to showcase the makers behind the brands. Kobi was rocking three-foot-long braids and jewels of the constellation Libra on her face. Tasha worked the crowd in a camouflage jacket with empowering slogans, gold chains and a leather fanny pack.

Says Kobi, “I’m doing something I love for a bigger purpose. It’s really a blessing to be young and have this lifelong career.”

Tasha had told me earlier, “I feel validated and empowered by this thing we’re doing. I want to pass that on. Take control of your future.” There’s an idea worth following, and an inspiring mother-daughter pair showing the way.

—Beth Ewen founding editor bewen@upsizemag.com

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A client-first and conflict-free philosophy: that’s how JNBA Financial Advisors has operated since our founding days over 40 years ago. Since we began tracking in 2001, we have been fortunate to maintain a client-retention rate of 97 percent. And, Barron’s* has ranked JNBA and CEO Richard S. Brown on its Top 100 Independent Advisors list in the country for eight consecutive years.

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banking

BUSINESS BUILDERS

Step Manage up your your cash flow in a Kaylyn fewHouston simple by steps

by Craig Veurink

TIPS 1.

Set a realistic goal for when you want to break even. This will help TIPS you to focus your efforts and provide a numerical benchmark 1. If foryou projecting have multiple your cash loans, flow in the consider near future consolidating them into 2. one.

Put cash Making flowa before single payment profits. Itcan lower mightyour seemmonthly counterintuitive, expenses but and free if you uparen’t cash.organizing your cash 2. If flow, youyou’ll aren’t run using intoaproblems businessthat credit a profitable card, quarter you maymight not have not be established able to fix any business credit.

3. You’ll Secure need credit to establish ahead ofatime. creditMost history small business if you need owners to goshould through the secure process as much of getting creditaasloan. possible.

3. Pay Thisbills is thewith bestyour waycredit to be card. prepared It can for the allow unexpected you to keep cash in your 4. accounts Consider for using up to a payroll 30 or 45 service. days longer Havingthan the professionals paying by check take orcare making of collecting electronic payroll payments. taxes saves 4. Rewards them an enormous add up. Find amount a credit of card time, helpspays streamline flow that rewardstheir and cash reap the 5. benefits Scheduleeven yoursmall payments.

Don’t payments can go delinquent but do divide your help reap. payments into categories such as 5. A trusted banking relationship can “must bepay,” important, “important as they to pay” may be and able “flexible to find payment ways toterms.” improve This how can you helpmanage keep sufficient money.cash on hand.

6

Small businesses are usually founded by entrepreneurs who have a unique vision and a passion that drives them to work late hours, take chances and believe in what they’re doing. But, just as Thomas Edison once said that genius is 1 percent inspiration and 99 percent perspiration, successfully running a small business requires rolling Cash up yourflow sleeves canand make putting or break in signifia company. cant time Mismanagement on more mundane, often day-toleads to daybusiness matters.failures and cash flow visibility You— can the beability driven, toimpassioned track and moniand tor have it aingreat real time idea — to fill canabe niche a major or serve concern customers forinmany newsmall ways,businesses. but if you So what don’tchallenges attend to the are details companies of the facing? business,how youcan canthey create for yourself a heap And improve their cash flow? of problems.

Here’s what I’ve learned.

Here, we’ll look at one of the most Cash important flowofaffects these business the big details: picture managing cash flow. Especially for early startups, knowing At its most basic level,how cashmuch flow cash is coming in and going out, refers to the amount of money coming and accurately forecasting sales That’s and into and going out of a business. expenses, is key to maintaining your certainly important for day-to-day company’ssuch health. functions as making payroll and No matter where you important, are in yourin paying vendors.

It’s also business, keep these things top ofbig two ways, for being able to afford opportunities. mind: The most obvious is that if you have money on when hand, you may be break able to 1. Know you will afford new equipment, an expansion or even other improvements to help your busiEvery small business owner keeps at ness grow.of their mind the question: the front

UPSIZE NOVEMBER • DECEMBER 2023 2022

“When do I start to turn a profit?”

Rather than wonder, set a realistic goal for when you want to break even. This will help you to focus your efforts and provide a numerical benchmark for projecting your cash flow in the near future.

2. Put cash-flow management The other way relates to credit. If before profits a lender sees your company has This mightthat seem counterintuitive, healthy cash flow, they aresurvive. more likely since profits are how you to approve a loan or line of credit. your However, if you aren’t organizing cash flow, you’ll run into problems Inflation is affecting cash not flow that a profitable quarter might be Inflation is a big concern for small able to fix. Keep things organized and businesses right no for well managed sonow, you which can beisready surprise.

When goods cost more, that whatever success comes your way. impacts the bottom line. As a result, some businesses are ahead overextending 3. Secure credit of time themselves.

Some are runningowners cash Too often, small business flow wait too untillow they andneed becoming it to secure too reliant credit. on This loans. can cause And with a lothigh of unnecessary interest rates, some stress,companies or worse. Talk are trying to experienced to pay loans off business sooner,owners which in is draining your areatheir and cash flow. industry Theahead COVID-19 of time pandemic to knowishow still affecting some companies, as well. much revenue you’ll need up front.

They’re experiencing delays receiving Take a realistic look at the situation international payments. and plan. You might have sufficient cash reserves or a rich uncle who is Three relatively easysmall financial only a call away, but most busimoves can improve cash flow ness owners should secure as much Knowing how to best manage credit as possible. This is the best way incoming and outgoing money is esto be prepared for the unexpected.

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sential for any small business. Many business owners have extensive expertise in their area of business, but not necessarily in their business finances. That’s why having a trusted banker makes sense. They can take a close look at your business and uncover specific ways to improve how you manage money.

While there are certainly more than three ways to improve cash flow, I want to focus on what I see from a banker’s perspective, not on business goals like increasing sales and strengthening profit margins. Here are three moves that can often help.

1.

2.

3.

Consolidate loans. If you have loans, consolidating them into a single payment can lower your monthly expenses and free up cash flow.

Get a line of credit. There’s a good chance you want to grow your business and that may require getting a loan or line of credit in the future. Even if you don’t anticipate needing it anytime soon, having a revolving line of credit can give you peace of mind and a cushion in case cash flow gets tight.

If you aren’t using a business credit card, you may not have established any business credit, which is something you’ll need in the loan approval process. Look for a credit card that reports to the business credit bureaus. This protects business owners by separating their personal finances from their business finances.

Pay with credit. If you’re paying with check, debit or ACH, you’re missing an opportunity to keep cash in your account longer. Using a credit card delays payment for 30 to 45 days, and

unlike a line of credit, it doesn’t require you to pay interest if you meet the monthly due date.

With every purchase you make, you can earn rewards—money you could use to keep up with rising shipping costs, payroll or new equipment you need to grow your company. Yet while most businesses have a credit card on hand for large purchases, many don’t use it for everyday purchases. Why not earn rewards on those small expenses you pay every month?

As you’re thinking about other purchases that you could switch over to credit card payments, consider utilities such as electricity, phone, internet and water. Software and other subscriptions are also easy payments to transition. Check with your vendors. You might be surprised how many are willing to accept credit card payments.

One example: A company wanted to find a way to treat their employees with a holiday party. We scrubbed their vendor list to determine which vendors would accept credit card payments and helped them switch to credit card payments for everyday expenses. The company discovered it could fund the entire party with the rewards they had earned.

With cash flow having such a significant impact on business, it’s worth prioritizing these steps. With more purchasing power, companies have the strength to weather challenging times — and grow in strategic ways.

“ With cash flow having such a significant impact on business, it’s worth prioritizing these steps. With more purchasing power, companies have the strength to weather challenging times — and grow in strategic ways.”

Kaylyn Houston U.S. Bank

Contact: Kaylyn Houston is assistant vice president and business development manager at U.S. Bank: 513.341.7156; kaylyn.houston@usbank.com; www. usbank.com; in/kaylynhouston

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NOVEMBER • DECEMBER 2023 UPSIZE

7



data banking

BUSINESS BUILDERS

The Manage basics: your Why cash data flow in security a few simple matters steps by Jessica Klander

by Craig Veurink

TIPS 1.

Set a realistic goal for when you want to break even. This will help you to focus your efforts and provide a numerical benchmark for projecting your cash flow in the near future 2. Put cash flow before profits. It might seem counterintuitive, but TIPS if you aren’t organizing your cash flow, you’ll run into problems that 1. This a profitable area ofquarter law is changing might not be rapidly. able to fix Stay abreast of changes.

2.

3. Any Secure company credit ahead that collects of time.data Most is subject small business to data privacy owners standards should and secure must as be much aware credit of what as possible. laws govern This is the them. best way to be prepared 3. Encrypt for the unexpected sensitive data during 4. transmission Consider using and a payroll implement service. strict access Havingcontrols the professionals limiting who takecan care access of collecting sensitive payroll data.taxes saves 4. Conduct them an enormous regular security amount of time, helps streamline their cash flow penetration tests, system 5. monitoring, Schedule your payments.

Don’t audits and go delinquent but do divide your assessments to identify payments into categories such as vulnerabilities and areas for “must pay,” “important to pay” and improvement. “flexible payment terms.”

This can 5. Train employees on data security help keep and sufficient cashtoon hand. protocols practices reduce the risk of human error.

8 6

In today’s digital age, the personal and sensitive consumer information organizations store is the single greatest target for bad actors. Breaches can financially cripple unprepared small businesses. Business leaders must understand the contour of data privacy laws and best practices to safeguard this information.

The importance of data privacy “Data privacy” describes the protection of personal and sensitive information from unauthorized access, use or disclosure. This includes social security numbers, financial records, health information and other details that could identify or harm individuals.

Safeguarding such information is vital.

A data breach may trigger legal consequences reporting obligations which Small and businesses are usually could divert internal resources and founded by entrepreneurs who have a cause financial losses uniquesignificant vision and a passion thatincluddrives ing fines, legal fees and compensatory them to work late hours, take chances restitution nonmonetary damages, and believeand in what they’re doing.

But, including reputational harm. just as Thomas Edison once said that genius is 1 percent inspiration and 99 Laws regulations percentand perspiration, successfully rungoverning data privacy ning a small business requires rolling state, andininterupNumerous your sleeves andfederal putting signifinational cant time laws on govern more mundane, data privacy day-toand security. day matters.

These laws are rapidly evolving and You broadly can be applied driven, toimpassioned large and small and have a greatBecause idea to of fillthis, a niche or serve businesses. it is imporcustomers new ways, if you tant to stay in abreast of newbut laws.

Some don’t attend to the details of the businotable ones include: ness, you can create for yourself a heap • California Consumer Privacy of problems.

Act (CCPA) applies to entities doHere, we’ll lookinatCalifornia one of the most ing business that meet important theserevenue business details: certainofgross requirements managing cash flow. for and who buy, sellEspecially or share personal earlyinformation startups, knowing howormuch of 100,000 more cash California is coming residents. in and going Theout, CCPA and accurately forecasting salescertain and grants California residents expenses, is key to maintaining your rights and controls over the use of company’s health. information. their personal No matter where you Portabilare in your • Health Insurance business, keep these things of& ity and Accountabilitytop Act mind:Health Information Technology for Economic and Clinical 1. Know when you will break Health (HIPAA/HITECH) safeevenguards patients’ protected health Every small business ownercovered keeps at information by requiring the front of their mindbusiness the question: entities and their associ-

UPSIZE NOVEMBER • DECEMBER 2023 2022

ates to comply with certain health record security standards and sets out health information use and disclosure requirements.

• The Safeguards Rule of the Gramm-Leach-Bliley Act (GLBA) requires companies that offer consumers financial products or services such as loans, financial or investment advice or other consumer-facing financial products to explain their information-sharing practices and to implement specific security practices to safeguard sensitive information.

Do these laws apply to my business?

Data privacy laws and regulations ap“When do I startthat to turn a profit?” ply to businesses collect, maintain Rather than wonder, set ainformation. realistic goal or use sensitive consumer forbusinesses when you want break even.data This All shouldtounderstand will help you to standards focus yourand efforts privacy industry whatand provide numericalmay benchmark for laws andaregulations govern their projecting your and cashprocedures flow in thefor near internal policies future. safeguarding such information.

2. Putpractices cash-flow Best formanagement a small before profits business?

This might seem counterintuitive, There is no single approach to implesince profits are how you menting a data privacy andsurvive. security However, if you aren’t organizing your management system.

The appropriate cash flow, you’ll run intothe problems safeguards depend upon size of the that a profitable quarter might not be organization, the kind of information able to fix.

Keep things organized and gathered and used, and the laws appliwell managed so you can be ready cable to your organization.

With thatfor in whatever comes your way. mind, heresuccess are a few key concepts: • Encryption: Encrypt sensitive 3. Secure credit ahead of data during transmission andtime storToo often, small unauthorized business owners age to prevent access. wait until they need itImplement to secure credit.

• Access control: strict This access can cause a lot of unnecessary controls to limit who can stress, or worse.

Talkdata to experienced access sensitive and regularly business owners in your area and update these permissions. industry of time knowConhow • Test,ahead monitor andtoaudit: muchduct revenue you’ll need up front. regular security penetration Taketests, a realistic the situation auditslook and at assessments to and plan.

Youareas might sufficient identify forhave improvement. cash reserves or a rich uncle who is • Data minimization: Collect only only the a call away, but most small busidata necessary for business ness purposes owners should secure asno much and delete data longer creditneeded. as possible.

This isdata thedestrucbest way Implement to betion prepared forand theensure unexpected. policies that data is

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retained consistent with business needs and applicable law.

• Employee training: Train employees on data security protocols and practices to reduce human error.

• Incident response plan: Develop a clear and comprehensive incident response plan to address data breaches promptly and effectively.

Biggest threats to my business’ data security?

• Cyberattacks: These encompass phishing, malware, ransomware and distributed denial of service attacks.

• Third-party vulnerabilities: Vendors, outsourcing agencies and other third-parties can introduce vulnerabilities to your systems and customers. Review vendor contracts to ensure there are contractually obligated security standards and notification requirements.

Watch for indemnity provisions attempting to shift the financial burden of a breach to your business!

• Human error: Negligence, such as misconfigured cloud storage or accidentally sharing information, remains common.

• Advanced persistent threats: These are long-term, targeted attacks aimed at stealing sensitive data or disrupting operations.

What should I do if my business is breached? A wellprepared response is generally required and can mitigate financial losses to your customers and your business. When a breach is discovered, be prepared to take these steps: • Activate your incident response plan: The longer you wait, the larger your potential consequences.

• Secure your operations: Isolate and secure your systems from further access and fix vulnerabilities that may have caused the breach.

Do not destroy evidence that may assist in locating the bad actor or mitigating the damage. If you don’t have the internal expertise to secure and mitigate the data breach, contact an area expert to do so.

• Contact an attorney. Contacting an attorney with knowledge of cybersecurity laws will ensure you follow the appropriate and necessary processes required when responding to a breach.

• Contact law enforcement. The more quickly you contact law enforcement, the more likely you are to locate the bad actor and potentially recover any financial losses.

• Investigate the breach: After you have secured the data and stopped the breach, investigate the scope and cause of the breach.

• Mitigate damage: Take steps to rectify vulnerabilities and prevent future breaches.

• Notify affected parties: Depending on the nature of the breach and relevant laws, you may want or be required to notify individual consumers affected by the breach.

• Communicate transparently: Keep stakeholders informed about the situation and actions taken to address it.

• Improve security measures: After you have contained and responded to the breach, improve security protocols and update policies and procedures based on what you learned.

“ All businesses should understand data privacy industry standards and what laws and regulations may govern their internal policies and procedures for safeguarding such information.”

Jessica Klander Bassford Remele

Attorney Bryce Riddle contributed to this article.

Contact: Jessica Klander is a shareholder with Bassford Remele: 612.376.1660; jklander@bassford.com; www.bassford.com; in/Jessica-klander-15aab07. Bryce Riddle is a business litigation attorney with Bassford Remele: 612.376.1624; briddle@bassford.com; www.bassford.com; bryce-riddle-5383b137

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NOVEMBER • DECEMBER 2023 UPSIZE

9

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human bankingresources benefits

BUSINESS BUILDERS

Consider Manage your offering cash flowa in 401(k) a few simple SDBA for steps participant balance

by Craig Veurinkand control

by Ric Lager

TIPS TIPS 1. Set a realistic goal for when you 1.

2.

2.

3.

3.

4.

4.

5.

5.

10 6

want to break even. This will help Employees you to focuswant your efforts more control and over provide their a numerical retirementbenchmark investments.

Small for projecting companies yourmay cashwant flow in to the check near future with plan recordkeepers about Put cash offering flow before self-directed profits. It 401(k) might seem accounts. counterintuitive, but SDBAs if you aren’t allow organizing participants your to cash invest flow, you’ll in stocks, run into bonds problems and that exchange-traded a profitable quarter funds, mightwith not be fewer able torestrictions, fix and include lower-cost Secure credit investments. ahead of time. Most Consider small business discussing ownersyour should 401(k) plan secure menu as much withcredit a third-party as possible. fiduciary This is theinvestment best way toadviser be prepared who can for the help unexpected maximize your plans’ options.

Consider using a payroll service.

There Havingare therisks. professionals Individual take care investors of collecting tend payroll to overestimate taxes saves their themdegree an enormous of investment amount of time, helps streamline their cashplans flow knowledge.

Self-directed Schedule your payments.

Don’t can increase the potential for principal go delinquent loss. but do divide your SDBA payments 401(k)s into categories don’t materially such as add “must costs pay,”to“important employerstobut pay” and can “flexible increase payment annual terms.” costsThis for can participants. help keep sufficient cash on hand.

Small business owners that offer 401(k) retirement plans to their employees might want to take a look at some new, more flexible products that Small offerbusinesses participants more are usually options and founded flexibility by entrepreneurs while not tremendously who have a impacting unique vision theand overall a passion employer that cost. drives them American to workworkers late hours, are take participating chances in andthe believe stockinmarket what they’re at historic doing. rates, But, with just asthe Thomas majority Edison of their oncemoney said that invested genius is 1through percenttheir inspiration employerand 99 offered percent 401(k) perspiration, account. successfully You couldrunguess ning a the small inevitable. business requires More employees rolling want up your increased sleeves and investment putting in flexibility signifiin cant how time they on invest more mundane, their retirement day-toaccounts. day matters.

Small companies been quick You can be driven,have impassioned and to respond to employee demands. have a great idea to fill a niche or serve More of them are ways, offering selfcustomers in new butthe if you directed brokerage account (SDBA), don’t attend to the details of the busiwhich ness, you is sometimes can create for referred yourself to aasheap the “brokerage window option.” of problems.

Here, we’ll look at one of the most Why SBDAs? important of these business details: Small to check managingcompanies cash flow. need Especially for with early their startups, current knowing retirement how much plan sponsor cash is coming and their in and current goingrecordout, keeper and accurately to see about forecasting addingsales the and expenses, is key to maintaining your self-directed account to their default company’s health.

401(k) menu.

No matter are in your The SDBA where allowsyou 401(k) particibusiness, keep these things top of pants to establish a personal brokerage mind: account within their employer’s defined contribution retirement plan 1. Know when you will break account. even SDBAs also provide retirement Every small business keeps at plan participants with owner more investthe front of their mind thesecurities question: ment options, including

UPSIZE NOVEMBER • DECEMBER 2023 2022

outside of their company retirement plan’s core mutual fund lineup. They also allow participants to invest in stocks, bonds and exchange-traded “Whenwith do I start turn a profit?” funds, fewertorestrictions, and Rather thanlower-cost wonder, setinvestment a realistic goal it includes for when you want to break even. This options. will help you focusretirement your effortsplan and SDBAs alsotoallow provide a numerical for investors to choose benchmark specific stock projecting your cash flow in the market sectors.

Think gold, oil near and future. real estate investment options or specific stocks, like Google, Micro2. Put management soft andcash-flow Apple. before profits This might seem counterintuitive, What are the benefits? since profits are brokerage how you survive.

Self-directed accounts However, you aren’t your have beenifavailable fororganizing many years cash flow, you’ll run into within plans directed at problems professional that a profitable quarter might not service firms, such as doctors, lawbe able toconsultants, fix. Keep things organized and and firms, accountants well managed so you can be ready for Fortune 500 companies. whatever success comes yourseeing way.

Small companies are now increased demand for these plans 3. Secure credit ahead ofwant time from their participants.

They Too often, smalldiverse business access to a more setowners of inwait until they need it to secure credit. vestment options.

This can cause a lot of in unnecessary The SDBA account the company stress, or worse.

Talk to retirement plan is at theexperienced top of the business ownerswant in your andto list.

Employees to area be able industry ahead of time to know how target their investments in ways that much revenue you’ll need up front. fit their values, such as in environTake a realistic lookgovernance at the situation mental, social and (ESG) and plan. You might have sufficient investment options, faith-based cash reservesand or a investments rich uncle who is investments that only a call away, but most small busiinvolve clean energy companies. ness owners should secure as much Retirement plan participants credit as to possible.

This is the best struggle find investments thatway reto be their prepared forand the unexpected. flect values beliefs. Access

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to an SDBA in their retirement plan solves the problem.

They’re a bit harder to find, but even participants seeking to invest in the boom of artificial intelligence companies popping up nowadays can find what they are looking for in exchange-traded funds and individual stocks.

Alone or with an adviser A final benefit of the SDBA 401(k) brokerage account option: It is a great tool for a 401(k) participant with an existing investment adviser relationship. He or she can provide investment adviser access to the SDBA account.

Or a SDBA 401(k) account can help establish a new investment-adviser relationship, providing an open door to investment advice for small company retirement plan participants.

A third-party fiduciary investment adviser analyzes the company 401(k) retirement plan menu as part of the plan participant’s financial planning strategy. The investment adviser can help make the most of the company retirement plan options.

Many small company retirement plan participants would welcome the opportunity to have a relationship with someone who can provide 401(k) investment advice to help establish a disciplined investment management strategy for their retirement account.

Individual options come with risk There are risks involved in providing the SDBA option in a small company 401(k) menu. The first is emotional. The second is financial.

Individual investors tend to overestimate their degree of investment knowledge and their tolerance for

stock market risk. The SDBA 401(k) brokerage account option increases the potential for 401(k) principal loss.

The 401(k) plan sponsors might consider placing certain guardrails around SDBA investment options to mitigate some of those risks. Plan sponsors can place limits on the investments available through the SDBA. The SDBA 401(k) can increase annual costs for a retirement plan participant. Annual account maintenance fees may apply. Trading costs apply to buy and sell securities, whether done online or through an automated telephone system.

But the SDBA option does not add more cost to the small business retirement plan sponsor.

Always check your plan’s fee disclosure documents and with your company’s retirement plan provider and recordkeeper to make sure you understand all costs associated with an SDBA account.

Duties as fiduciary A final concern for the small business retirement plan sponsor: As a fiduciary, the sponsor selects investment options in their retirement plan menu.

The rules and regulations are clear, explained to me many times by my legal profession clients and volumes of Department of Labor and ERISA articles and opinions.

The company retirement plan sponsor is a fiduciary, obligated to select the provider of the brokerage window and the default menu of designated mutual funds options. The company is not, however, obligated for the underlying investments made by individual retirement plan participants.

“ Retirement plan participants struggle to find investments that reflect their values and beliefs.

Access to an SDBA in their retirement plan solves the problem.”

Ric Lager

Lager & Company

Contact: Ric Lager owns Lager & Company, Inc.: 763.377.2006; lagerandco@comcast.net; www.lagerco.com; in/riclager

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

law banking

BUSINESS BUILDERS

Minnesota Manage your bans cash flow mostin non-compete a few simple agreements steps

by Leonard Craig Veurink Segal

TIPS 1.

Minnesota passed a new law banning non-competition TIPS agreements as of July 1, 2023.

2. Several agreements not 1. covered Set a realistic in thegoal newfor law when include you nondisclosure want to break even. agreements, This will help agreements you to focus your designed efforts toand protect trade provide secrets a numerical or confidential benchmark information, for projectingnonsolicitation your cash flow in the agreements near future or agreements 2. restricting Put cash flow thebefore ability profits. to use client It or might contact seemlists. counterintuitive, but 3. Narrow if you aren’t exceptions organizing to your the cash new flow,law you’ll include run into allowing problems that non-competition a profitable quarter agreements, might not be ifable reasonable to fix in length and 3. geographic Secure credit area, ahead as part of time. of a Most sale smallofbusiness a business owners or if should agreed upon secureinasanticipation much creditofasbusiness possible. dissolution.

This is the best way to be prepared 4. Non-competition for the unexpectedagreements also under the 4. are Consider usingscrutiny a payrollatservice. federal level.

Business owners Having the professionals take care should keep payroll an eye taxes out for of collecting saves changes. them an enormous amount of time, 5. Consider, helps streamline instead, their cash flow 5. nonsolicitation Schedule your payments. agreements Don’t and agreements go delinquentrestricting but do divide former your payments into categories suchoras employees from using client “must pay,” “important to pay” and contact lists. Do so narrowly, “flexible payment terms.”

This however, so they don’t violatecan the help keep sufficient new Minnesota law.cash on hand.

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Small businesses are usually founded by entrepreneurs who have a unique vision and a passion that drives them to work late hours, take chances and believe in what they’re doing. But, just as Thomas Edison once said that genius is 1 percent inspiration and 99 percent perspiration, successfully runOn ningMay a small 24, business 2023,requires Gov. Tim rolling Walz up your signed sleeves legislation and putting intoinlaw signifiprohibiting cant time onemployers more mundane, from day-toentering day matters. into non-competition agreements You can bewith driven, both impassioned employeesand and haveindependent a great idea tocontractors. fill a niche orThis serve new customers law took in new effect ways, on but Julyif1,you 2023, and don’tapplies attend to to agreements the details ofentered the business,on youorcan create yourself a heap into after thatfor date. ofAproblems. non-competition provision in violation Here, we’ll of the looknew at one lawof is the void most and important unenforceable, of these business according details: to Minnesota managing cash statute flow.181.988.

Especially If part for of startups, knowing aearly larger agreement, thehow factmuch the noncash is coming in and going compete is void would not out, render and remainder accurately forecasting sales and the of the agreement expenses, is key to maintaining your void. In addition to other remedies, company’s health. a court may award reasonable No matter where you are in your attorneys’ fees to an employee who business, keep these things top ofthe is enforcing their rights under new mind:law.

As defined in the new law, covenants not toyou compete are 1. Know when will break agreements that prevent an even employee (including Every small businessindependent owner keeps at contractors), after termination of the front of their mind the question:

UPSIZE NOVEMBER • DECEMBER 2023 2022

“When do I start to turn a profit?”

Rather than wonder, set a realistic goal for when you want to break even. This will help you to focus your efforts and provide a numerical benchmark for projecting your cash flow in the near future. the employment relationship, from: 2. Put cash-flow management (i) working for another employer before profits forThis a period time, (ii) working mightof seem counterintuitive, in a specified geographical area, or since profits are how you survive. (iii) working for another employer However, if you aren’t organizing your in a similar capacity to the work the cash flow, you’ll run into problems employee did for the employer that that a profitable quarter might not be is party to the agreement. able to fix. Keep things organized and Under the statute, several well managed so you can be ready for agreements are not considered whatever success comes your way. covenants not to compete. These include: a nondisclosure agreement, 3. Secure credit ahead of time anToo agreement designed to often, small business protect owners trade wait until secrets theyor need confidential it to secure credit. information, This can causea anonsolicitation lot of unnecessary agreement, stress, or worse. an agreement Talk to experienced restricting the business ability owners to useinclient your area or contact and lists and ahead an agreement to solicit industry of time tonot know how customers of the employer. much revenue you’ll need up front.

There are two narrow Take a realistic look at theexceptions situation to the prohibition on non-compete and plan. You might have sufficient agreements, to the cash reservesaccording or a rich uncle who is statute: (1) In the sale of a business, only a call away, but most small businon-competition are ness owners shouldagreements secure as much allowed long asThis theyisare credit as as possible. thefor best way atoreasonable length of time and be prepared for the unexpected.

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within a reasonable geographic area; and (2) a non-compete agreement is allowed if it is agreed upon in anticipation of the dissolution of a business.

Parties cannot enter into an agreement in an attempt to make an end run around the new Minnesota law. Specifically, an employer cannot require that an employee who primarily resides and works in Minnesota agree to a provision that would: (i) require the employee to adjudicate a claim arising in Minnesota in a jurisdiction outside the state, or (ii) deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota. Any such provision is voidable by the employee and if a provision is rendered void at the request of an employee, any legal action must be brought in Minnesota and will be governed by Minnesota law.

Developments at the federal level In addition to the new Minnesota law and actions taken in other states, non-competition agreements are also in jeopardy at the federal level. The Federal Trade Commission has proposed a rule that would ban non-compete agreements nationwide.

If that becomes a final rule in its current form, then unlike the new Minnesota law, it will be retroactive and likely would ban nonsolicitation agreements as well. More recently, the National Labor Relations Board has stated that it believes most noncompetition agreements infringe upon non-management/supervisor employee rights under Section 7 of the National Labor Relations Act.

Considerations for employers The new Minnesota non-compete ban is a substantial development in Minnesota law. Employers should take steps now to protect their business and ensure they are not in violation of the new law. For example:

• Review current agreements

for prohibited noncompetition provisions. As noted, the new law is not retroactive, but employers should be careful not to continue to use such agreements going forward.

• For agreements entered into since July 1, 2023, do not include prohibited covenants not to compete.

• Consider using nonsolicitation agreements and agreements restricting a former employee from using client or contact lists. In so doing, however, do not make such agreements so broad that they effectively become covenants not to compete in violation of Minnesota law.

• Review and update confidentiality and trade secret protections. Be sure confidential information is treated as such (e.g., limit access to such information, label such information as confidential and take other reasonable steps to preserve confidentiality).

• Keep an eye out for further developments at the federal level.

“ The new Minnesota non-compete ban is a substantial development in Minnesota law.

Employers should take steps now to protect their business and ensure they are not in violation of the new law.”

Leonard Segal

Segal Duffek Moen

Contact: Leonard Segal is a partner with Segal Duffek Moen PLLC: 952.358.7400; lsegal@sdmlawyers.com; www.sdmlawyers.com; in/leonardsegal

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

mergers banking & acquisitions

BUSINESS BUILDERS

Earnouts: Manage your A seller’s cash flow primer in a Lindsey few Day simple by steps

by Craig Veurink

TIPS 1.

Set a realistic goal for when you want to break even. This will help you to focus your efforts and TIPS provide a numerical benchmark for projecting your cash flow in the 1. In near some future cases, an earnout is used 2. ifPut thecash buyer flow and before sellerprofits. are unable It to might agree seem upon counterintuitive, a valuation of but the target if you aren’t and thus organizing a fixed your purchase cash price. flow, you’ll run into problems that 2. Earnouts a profitablecome quarter with might risk,not be particularly able to fix to sellers, including 3. post-closing Secure creditdisputes ahead ofcentering time. Most around small business the metrics owners driving should the earnout secure aspayment. much credit as possible.

3. Financial-based This is the best way milestones to be prepared are more for thecommon unexpected than performance4. based Consider milestones, using a payroll with revenue, service. net Having income the professionals and EBITDA take beingcare most of collecting widely payroll used. taxes saves 4. Earnouts them an enormous should beamount of limited of time, helps streamline their cash flow duration, with current trends 5. running Schedulethree youryears payments. or less.Don’t The go delinquent but do divide the your longer the earnout period, payments greater theinto risk.categories such as “must pay,” “important to pay” and 5. It’s vital to have a mechanism in place “flexible forpayment resolvingterms.” disputes Thisthat can arise help keep between sufficient parties. cash on hand.

14 6

Earnouts, a form of contingent payment payable upon completion of a post-closing financial and/or performance-based milestone, are a relatively common feature in business transactions and their usage is becoming more widespread.

The circumstances under which earnouts are utilized vary from transaction-to-transaction. In some cases, an earnout is used to bridge a valuation gap; for example, if the buyer and seller are unable to agree upon a valuation of the target and thus a fixed purchase price.

This may be the case if the target Small businesses are usually is operating a new business line, and founded by entrepreneurs who have a a historical basis for the valuation is unique vision and a passion that drives lacking, or if economic trends and them to work late hours, take chances market conditions are particularly and believe in what they’re doing. But, uncertain, and buyers are being just as Thomas Edison once said that conservative in offering prices. genius is 1 percent inspiration and 99 Additionally, earnouts may be used if percent perspiration, successfully runan employee or group of employees is ning a small business requires rolling crucial for the target’s success. up your sleeves and putting in signifiIn the SRS Acquiom 2023 M&A study cant time on more mundane, day-toof deal terms, the financial transaction day matters. manager analyzed more than 400 You can be driven, impassioned and private-target M&A transactions that have a great idea to fill a niche or serve closed in 2022 and found that 21 percent customers in new ways, but if you (excluding life sciences transactions) don’t attend to the details of the busicontained an earnout. In 85 percent of ness, you can create for yourself a heap the transactions, the earnout period was of problems. three years or less.

Here, we’ll look at one of the most Earnouts are not without risk, important of these business details: particularly to sellers. One such risk is managing cash flow. Especially for post-closing disputes between buyer early startups, knowing how much and seller, which often center around cash is coming in and going out, the calculation of the metric(s) driving and accurately forecasting sales and the earnout payment. Furthermore, expenses, is key to maintaining your following closing, buyer and seller company’s health. are still relatively unfamiliar with the No matter where you are in your other’s management style. A seller may business, keep these things top of thus be skeptical as to how its business mind: will be managed by buyer after closing, including whether it will be managed in 1. Know when you will break a way that might reduce the likelihood of even the earnout being achieved.

Every small business owner keeps at With all of this in mind, how might the front of their mind the question: a seller approach the negotiation of an

UPSIZE NOVEMBER • DECEMBER 2023 2022

earnout? Matters for sellers to consider include:

• Type and reasonableness of

milestones. Financial-based milestones are more common than performance-based milestones.

Of the different types of financialbased milestones, revenue, net income and EBITDA are the most widely used.

While net income links the earnout to profitability, it poses greater risks to a seller because the buyer is more easily able to control and/or “When do I start to turn a profit?” manipulate the treatment of interest, Rather than wonder, set a realistic goal taxes, depreciation and amortization for when you want to break even. This in its calculations. For that reason, will help you to focus your efforts and sellers frequently prefer EBITDA provide a numerical benchmark for milestones. Whatever milestone(s) is projecting your cash flow in the near utilized, it should not be so aggressive future. as to be entirely unachievable. Buyers may be overly ambitious in proposing 2. Put cash-flow management milestones to reduce the likelihood of before profits them being attained.

This might seem counterintuitive, since profits are how you survive.

• Length and termination of However, if you aren’t organizing your earnout. An earnout should be of cash flow, you’ll run into problems limited duration. As noted, current that a profitable quarter might not be trends reflect earnout periods of able to fix. Keep things organized and three years or less. Generally, the well managed so you can be ready for longer the earnout period, the whatever success comes your way. greater the risks. There are metrics other than time, however, such as 3. Secure credit ahead of time the occurrence of a specific event, Too often, small business owners an option by buyer, and/or a sale of wait until they need it to secure credit. the target, that may trigger and/or This can cause a lot of unnecessary terminate an earnout. stress, or worse. Talk to experienced business owners in your area and Of these metrics, the ability of buyer industry ahead of time to know how to terminate an earnout in exchange for much revenue you’ll need up front. a predetermined payment is generally Take a realistic look at the situation least preferred by sellers because such and plan. You might have sufficient payment is generally lower than what cash reserves or a rich uncle who is might otherwise be achievable. only a call away, but most small business owners should secure as much • Accounting matters. Seller credit as possible. This is the best way should ensure that the same to be prepared for the unexpected. accounting treatment (i.e., www.upsizemag.com

methods, policies, principles, practices, and procedures) is applied in calculating the milestone(s) following closing as what seller applied prior to closing.

Frequently, this is U.S. generally accepted accounting principles or the methodology utilized in preparing seller’s financial statements. This treatment should be described in the definitive agreement, together with any items seller believes warrant unique treatment and/or exclusion from any calculation (i.e., overhead allocations and intercompany fees such as management, general and administrative, and accounting) in order to maintain consistent treatment.

• Post-closing operations. A seller may seek to define parameters as to how the target must be operated after closing. For example, seller might provide that the target be operated as an independent subsidiary of buyer, subject to the reasonable direction of a board of directors of which certain seller representatives are members.

Additionally, seller might provide that key executives of seller continue in their roles, with the authority to operate target with financial resources that will allow it an opportunity to grow.

To the extent there are intercompany transactions, a provision that pricing for such transactions is on an arm’s-length basis may be considered.

These are provisions, however, on which it may be challenging for a seller to prevail. Alternatives may include requiring the target to be operated on a reasonable basis post-closing to achieve the earnout or that buyer operate the target after closing in accordance with seller’s past practices.

• Dispute mechanism. Because

of the risks associated with earnouts, a mechanism for resolving disputes between the parties is essential. Such dispute resolution procedures frequently mirror those set forth in the purchase agreement with respect to purchase price (i.e., working capital) adjustments. Seller should be given a reasonable period, such as 30 to 45 days, in which to review buyer’s calculation of the earnout and be granted reasonable access to the target’s books and records during this time.

Seller will want an opportunity to submit an objection notice to buyer with respect to any item(s) of the earnout calculation disputed by seller.

After a good faith negotiation period between buyer and seller, any remaining disputed item(s) should be submitted to an independent accountant for resolution. Frequently, the fees and expenses of such independent accountant are borne by buyer and seller in such proportion as their respective calculations of the earnout differ from that as finally determined by the independent accountant.

The foregoing is merely an overview of certain attributes of earnouts and considerations for sellers with respect thereto. Earnouts can be extremely complicated and fraught with nuances.

Thus, if you find yourself privy to a transaction in which an earnout is being contemplated, involve your attorney and accountant as early as possible in the process. They can assist you in negotiating and structuring the earnout to better increase the likelihood it’s realized.

“ Because of the risks associated with earnouts, a mechanism for resolving disputes between the parties is essential.”

Lindsey Day Lathrop GPM

Contact: Lindsey Day co-chairs the Closely Held and Family Business Team at Lathrop GPM: 612.632.3361; lindsey.day@lathropgpm.com; www.lathropgpm.com; in/lindsey-day-54b4b16

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PANDEMIC pivots Quick, decisive changes created long-term results

P

rior to COVID, translation and interpretive services provider INGCO International did nearly all of its work in person. The company flew interpreters all over the world, paid them a per diem, sent equipment and a project manager onsite.

“It was a big expensive cost,” says Ingrid Christensen, president and founder.

And then, all of a sudden, it wasn’t. Just as a contracted Japanese interpreter was getting on a plane to fly to a corporate conference, the client called Christensen to let her know the meeting was canceled.

“We called her and said, ‘can you get off the plane now,’” Christensen says. “She said ‘yeah, they haven’t closed the doors.’ I would be lying if I didn’t say that sparked a moment of panic.”

INGCO was not alone. Media accounts indicate around a year into COVID that between one-third and nearly 40 percent of small businesses closed, at least temporarily, during the pandemic. And, yet many pivoted in ways that

not only got them through the difficulties of 2020-22, but also created lasting improvements.

Adapting quickly For INGCO, after a short time of worry, clients started calling in a panic indicating they still needed to find ways to meet and talk.

“That gave me a moment of pause,” Christensen says.

“I’m like, ‘Well, yeah, we can do that.’”

In truth, she wasn’t sure the company could do that, but the demand and the technology were there. With the help of her teenage son Oscar Sanchez-Christensen, INGCO figured out how to deliver its services digitally. “He was, of course, home and he heard me on Zoom saying, ‘How the heck are we going to figure this out,’” Christensen says.

“He came up with a whole solution.”

“It was so important for language access and equitable access to language that we just did,” she says. When you’re in the thick of things you just go. You do.”

by Andrew Tellijohn photographs by Tom Dunn

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Ingrid Christensen, founder and president at INGCO International, had some moments of panic as the pandemic hit, but quickly moved forward with adding digital interpretive and captioning services that have stuck even as in-person meetings have returned.

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COVER STORY

“When the market shifts or when a client asks you to do something, my intuition is to say yes and figure it out.”

— Ingrid Christensen “It was because of our immediate overnight response and our ability to pivot,” Christensen says. “Nobody knew how to do it. Because we were a global company prior to COVID and, essentially, we’ve always been a remote company, it wasn’t that hard for us.”

Sometimes when a client says they need something you just say yes and figure out how to do it, says Ingrid Christensen, president of INGCO.

Ultimately, after several months of 15-hour days, INGCO ended up increasing revenue by 46 percent that first year of the pandemic because it was able to meet the demands of clients looking for online translations and captioning. And much of the company’s business today remains online, though top-line growth has slowed into the mid-20s.

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EOS advantage One factor in making such a quick change, Christensen added, was her gut instinct to try to please her clients.

“When the market shifts or when a client asks you to do something, my intuition is to say yes and figure it out,” she says.

Another was its adherence to the Entrepreneurial Operating System, or EOS, for INGCO’s ability to adapt.

“We’ve always been open to new ideas and to innovation,” she says. “We really were able to put that into practice.”

That makes perfect sense to Tamara Prato, a business growth adviser, EOS implementor and CEO of Connect The Dots LLC. The sweet spot for EOS is companies with 10 to 50 employees and the whole premise of the system, she says, is that it is about harmonizing human energy and getting everyone on the same page.

It gets leadership on the same page, as they are to agree on the top three to seven most important priorities, Prato says, and then creates discipline and keeps everybody away from “other shiny objects” for the next few months.

“It’s getting everybody on the same page, going in the same direction,” Prato says. “It creates clarity about where we’re going, how we’re going to get there, why we’re doing it. It helps from a prioritization standpoint.”

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COVER STORY Most of MetroConnections’ work has returned to inperson, but internal changes, including the elimination of siloed business units, have paid benefits as business has returned to normal.

And it keeps staff on track, with weekly 90-minute L10 meetings where everyone checks in on the important metrics. “I think it’s just that general cadence that helps companies stay on track,” she says. “It takes discipline and accountability as a leadership team to do it. It isn’t just like a magic wand.”

Adoption of EOS actually increased during COVID as companies had to make difficult decisions to ensure their survival.

“They had to get down to brass tacks,” Prato says. “They had to be like ‘We need to look at everything we do and does this fit in with what our core focus is? Or do we actually have to pivot?’”

MetroConnections tears down silos A similar shift to virtual events took place at metroConnections, a 35-year-old leader in producing large-scale events and conferences.

While 2019 remains the best year the company ever had, 2023 is coming close. “We’re happy to be back,” says Tom McCulloch, chief marketing officer and co-owner. But back in March 2020, that was no sure thing. Much like with INGCO, clients shut down events almost immediately.

“There were definitely a few weeks of ‘Oh my God, what are we going to do’ panic,” says CEO David Graves. “But we got to work pretty quickly with leadership, our team, to devise the plan to survive this and to pivot to virtual quickly and use the resources and the people. We did it very quickly and we got up and running to be able to offer a solution to clients.”

Back then, the company had four distinct business divisions: a conference services division that did meeting management, name badges, online registration and other services; an event division that focused on large networking events and related pieces like décor, furniture and centerpieces; a transportation division that picked people up at airports, got them to hotels and brought them to offsite events; and then there was the fast-growing production division focused on general stage production and speaker management.

“What COVID taught us was we had a lot of walls in

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NOVEMBER • DECEMBER 2023 UPSIZE

19

COVER STORY these divisions and it was rare that you could tap into resources within a particular division for another division that seasonally might have a little more volume,” McCulloch says.

The company had already been producing and streaming some events for live audiences, but not in a mass way. When metroConnections does an event, it assigns a show producer and a technical director. The company had several people who could do that but had downsized staff when in-person events closed down.

With multiple virtual shows per day and week, it needed both equipment and more managers to support the shows.

The company dropped all divisions and it became all hands-on deck. “Could we teach them and make them

EOS Implementor Tamara Prato, CEO of Connect The Dots LLC, says EOS can help companies pivot effectively by ensuring leaders are on the same page and communicating effectively.

adapt to this environment?” McCulloch says. “We had event people and transportation people who were now technically supporting virtual speakers behind the scenes.”

The company invested in equipment, stripped out offices, turned them into studios and did whatever it took to keep customers happy.

The virtual shows, with the help of its VEX Pro tool that creates realistic virtual offerings and exhibits, kept the company going and, due to declines in travel and other costs associated with in-person shows, actually made bet20

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ter margins during COVID. Since conferences and events have largely returned to in-person meetings, metroConnections’ new expertise in digital events is only a small part of the company’s current revenue stream.

But some of the improvements that went into making that happen — such as the breaking down of the barriers between business units — have definitely made the company more efficient and collaborative today.

“Now, we still have people that specialize in online registration or events, or transportation,” McCulloch says, “but, from a people management perspective, we restructured in a way that allowed our management team to tap into resources when we’re heavy in one area versus another.”

Employee loyalty helped There were many low points as the transition kicked off, the worst of which, says David Graves, was realizing COVID was not going to be a 90-day event.

“We all thought that’s what it was going to be,” he says.

“The thing that got us through that was our pace of new business on the virtual side.”

And what got metroConnections through that transition, they say, were a lot of long-term, bought in employees who, even upon hearing that many colleagues were furloughed, plowed forward into new roles and long days of meeting clients’ needs.

Ownership had just implemented an Employee Stock Option Plan (ESOP) and the Graves brothers and McCulloch all say that played a significant role in keeping the company afloat in order to make the pivot.

“I really think it helped us get them to buy into this new direction and roll up their sleeves and say, ‘whatever you need me to do,’” says Mike Graves, chief financial officer.

“People had to change career paths and, in some cases, completely shifted to doing something else. I think the fact that they were employee owners, they took that to heart, saw the business and said, ‘We’ve got to make this work.’”

New customer base meets old values Belo Cipriani, blind since 2007 after an attack while living in San Francisco, owns Oleb Media, a company that helps businesses make sure their websites, apps and other technology are accessible to those with disabilities.

Before the pandemic, Oleb Media focused on performing these audits for the hospitality industry, particularly hotels and resorts.

“During the pandemic, that went away, so we had

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COVER STORY CONTACT: INGRID CHRISTENSEN is president of INGCO International: 612.605.8006; hello@ingcointernational.com; www.ingcointernational.com; in/ingridbchristensen BELO CIPRIANO owns Oleb Media: 612.568.1013; info@olebmedia.com; www.olebmedia.com; in/belo-miguel-cipriani DAVID GRAVES is president and CEO at MetroConnections: dgraves@metroconnections.com; www.metroconnections.com; in/David-graves-9b309634 MIKE GRAVES is chief operations officer and chief financial officer at MetroConnections: mgraves@ metroconnections.com; www.metroconnections.com; in/mike-graves-91250886 TOM MCCULLOCH is chief marketing officer at MetroConnections: tmcculloch@metroconnections.com; www.metroconnections.com; in/thomasmcculloch TAMARA PRATO is CEO and founder of Connect the Dots LLC: 651.955.7372; connect@tamaraprato.com; www.tamaraprato.com; in/tamaraprato

to reinvent ourselves.” says Cipriani, adding that such companies were among the first sectors to try to become accessible to those with disabilities. “They had to retrofit their hotel rooms and lobbies and everything to make things accessible to wheelchairs and so on. So, when I approached them and said, ‘Is your website accessible,’ they said ‘No, please help us.’ It was an easy way for us to set up our company in 2018.”

When the pandemic hit, Oleb began working with educational companies, who suddenly had to refine their online presence for Zoom and other online meetings. It also brought Cipriani back to his roots as a teacher — he has a doctorate in education.

So, where most of the hospitality companies wanted Oleb Media to simply do the work for them, the vast majority of his clients now are looking to be taught how to do the work themselves.

I feel like I really found my spot,” he says. “Now, the clients we are serving really match my value system.”

www.upsizemag.com

About 80 percent of his clients are now in education and most of the rest are nonprofits, largely in the arts, where much of his training revolves around helping them with the educational components of their displays.

Cipriani says an upside of being forced to change during the pandemic was being forced out of his comfort zone and into getting creative about diversifying revenue streams. He has created an online academy that launches in December where he’ll constantly be designing new products spinning forward what’s next.

“I want a dedicated time and space where I am looking at what’s next,” he says.

NOVEMBER • DECEMBER 2023 UPSIZE

21

catching up

by Andrew Tellijohn

Kristal ball Long-time restaurant family exited Embers to build customer loyalty giant

B

ack when Upsize last visited with David Kristal in 2004, he was helping retool Embers, the restaurant chain his father, Henry, co-founded in 1956.

The family had also gotten into franchising Joey’s Only Seafood and Grill restaurants, a Canadian chain, as its U.S. franchisors, and had started Foodstreet Plus, a St. Paul-based loyalty marketing company started to help provide purchasing power to restaurants and to counter cash flow burn at Embers.

Ultimately, the Kristals moved on from the restaurants, with the last Embers closing in 2021.

But Foodstreet, now Augeo Affinity Marketing … has gone gangbusters.

In the beginning, Foodstreet developed and managed group-buying programs for food and restaurant expenses, such as payroll processing, insurance coverage and office supplies.

“We took all the buying power we had in Embers across our entire expense base, from payroll processing services to trash removal services to credit card processing services,” says David Kristal, CEO. “We brought that set of services to independent restaurants, packaged it up and delivered it out through one of the largest food service distributors in David Kristal, left in bottom photo, and his father Henry Kristal, co-starred in several ads while trying to revive the Embers restaurants, which Henry co-founded in 1956.

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the United States as a loyalty solution for them.”

The idea caught on quickly. Businessman Lyle Berman, who financed and led Rainforest Cafe early on, among other ventures, was an original investor and he remains on the board of what really took off when David Kristal had the epiphany that the company did not need to remain solely within the confines of small food service businesses.

“As Foodstreet took form, we started getting inquiries from companies outside of the restaurant industry and that’s ultimately when we changed our name to Augeo,” he says.

Major moment One of the first meetings was with Kinko’s, which had a significant customer base of small business owners. Kristal was invited to meet with the company but quickly needed to come up with a new name.

“All the names we liked were taken,” he says. “We ended up falling back on Augeo. Augeo is Latin for augment and we augment relationships between distinctive companies and their constituencies, customers, employees.”

Evolution Augeo ultimately didn’t catch on with Kinko’s because the copy and office supply chain was bought out by FedEx, but the seed was sown and the rest, as they say, is history.

After growing initially through loyalty solutions for several brands and their small business customers, Augeo won its first employee recognition contract with another large food distributor.

“We built a solution around that,” he says. “It was a very data-driven solution around sales force recognition.”

Then, through a relationship with a home improvement retailer, Augeo won a large piece of business around revital-

izing a struggling loyalty solution called NASCAR Race Points.

That program, Kristal says, involved an affinity credit card loyalty program.

Through that, Augeo gained experience in the bank card loyalty space.

“It gave us footing and understanding to develop what ended up being significant businesses in each of those sectors, the employee recognition sector and the financial services loyalty sector,” Kristal says.

Behind the scenes While the company has grown significantly, the name isn’t as well known as, say, Embers was in the early days. That’s because its work is done “behind the scenes, behind the mask of the brand that we represent,” Kristal says.

But the company is booming. It has annual revenue now of about $450 million. In 2018, it sold its financial institution loyalty business to Lightyear Capital

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Owner of Ruff Manufacturing & MidCountry Bank Customer

We build relationships so you can build your business.

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23

Augeo

Description: Provider of loyalty and engagement technologies Headquarters: St. Paul Founded: 1999 CEO: David Kristal Employees: Nearly 500 Website: www.augeomarketing.com

LLC, a New York-based private equity firm that invests in financial services companies.

Then, in 2022, it sold Figg, a subsidiary fintech company that allowed consumers to receive savings at participating merchants after enrolling credit or debit cards, to JP Morgan Chase & Co. The company has used proceeds of those sales to continue growing and evolving. Today, Augeo has a large workplace engagement practice representing many of the world’s largest companies as they focus on employee community and connection.

“We’re very global in that business,” he says.

Augeo’s membership and consumer loyalty solutions practices constitute another large segment.

“That’s probably the hardest of our businesses right now because consumer loyalty is very broadly defined and it’s a little murky at times,” says Kristal, “meaning we as consumers are a bit finicky and we’re influenced by forces that we’re aware of and, certainly at times, by things we don’t see coming.”

Consumers are unpredictable and have different expectations for how they define value.

“That’s sort of a moving target right now,” he adds. “It’s economic, it’s experiential, it’s emotional, it’s immediate, and that’s very difficult. We love our practice, love our business in that area, but it’s also one of our harder businesses.”

Then Augeo has a couple business

segments that are earlier stage but growing quickly. One is in social activation, which includes influencer marketing and the creation of content by employees and fans of a brand voluntarily posting in their social media.

“This is very different than paying an influencer to post,” he says. “This is all organic, volunteer-based. We have an [artificial intelligence] technology that ensures that the content is brand safe before it gets pushed out.”

“What we’ve developed, more broadly stated, is a real specialty in helping brands manage and optimize all of their activities in social media across all platforms,” he says.

Furthering that, the company has also created some AI-based tools that allow for brand optimization, Kristal says, which involves media buying against content that seems to be resonating with an audience.

Finally, a spinoff company, cryptocurrency loyalty company Kigo, recently combined with Thred, an NFT (non-fungible token) engagement platform, to create a

CEO David Kristal has built Augeo into a mid-nine-figure company building tech-based loyalty and engagement programs.

new open-loyalty program defined by shared experience, ownable digital assets and cross-brand collaborations.

“We’re leveraging blockchain technologies to either advance or accentuate current loyalty solutions or actually build entirely new ones,” Kristal says.

“It includes the idea that rewards can be shareable. We’re creating a whole new category so you can redeem for gift cards and travel and merchandise, all these experiences.”

And, in the digital world, rewards become not only shareable, but trackable, as well.

“The reason, I think, we have the privilege of representing so many extraordinary organizations globally — and leaders in their respective sectors — is because we’ve become so tech-

Contact: : David Kristal is CEO of Augeo: 651.867.6131; info@augeomarketing.com; www.augeomarketing.com; in/david-kristal-47490a 24

UPSIZE NOVEMBER • DECEMBER 2023

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catching up enabled, tech-driven,” he says. “Metrics are everything.”

Behind the scenes While Augeo is getting huge, don’t feel bad if you haven’t heard of the company.

The engagement technology platform, as Kristal terms it, has built a customer base of nearly 100 Fortune 500 companies, but its work is largely behind the scenes.

“What we’re trying to do in the world of engagement technology is support, bolster and foster the brands of the client that we represent,” he says. “Our name is not nearly as relevant as that of the clients that we have the privilege of representing.”

And, while the company primarily at this point works with enterprise companies, it’s launching a new product that will bring it back to its original roots, working with smaller employers, in an effort to bring the benefits of these

programs to them, as well.

So, in Augeo, Kristal has come a long way from the days when he and his father, Henry Kristal, who passed away in 2007, were cutting expenses to slow a cash flow burn that threatened Embers’ very existence.

The pivot born out of desperation to keep that business alive became the foundation of a mega-business.

“I firmly believe there isn’t a recipe for success for entrepreneurs,” he says.

“Those that are most successful have to be the chefs of their own destiny.”

“You have to stay educated, stay knowledgeable about what’s available in the market, whether it’s financing options, marketing options, expense management options, product ideas and innovations,” Kristal says. “The more your cupboard is full with these sorts of ingredients … the more successful you will be and the more recipe driven you are as an entrepreneur.”

“ I firmly believe there isn’t a recipe for success for entrepreneurs.

Those that are most successful have to be the chefs of their own destiny.”

David Kristal Augeo

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25

UPSIZE RESOURCE DIRECTORY BANK

BANK

Crown Bank

MidCountry Bank

6600 France Avenue South, Suite 125 Edina, Minnesota 55435 Ph: (952) 285-5800 www.crown-bank.com • Jeff Wessels, President & COO

7825 Washington Ave So, Suite 120, Bloomington, MN 55439 Phone (952) 698-6274

At Crown Bank, we want to be partners in your possibilities. Because possibilities are what the future is made of. From something as personal as growing your savings, to something as big as growing your business, our bankers and staff have the expertise and energy to partner with you to make that happen.

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We specialize in business owner exits, business valuations, and acquisition services in the lower middle market. If you are considering exiting your company, contact our team today.

BUSINESS BROKER Sunbelt Business Advisors Peggy DeMuse, pdemuse@sunbeltmidwest.com 651-288-1627 Lisa Meyer, lmeyer@sunbeltmidwest.com 612-361-4918 www.sunbeltmidwest.com Thinking about buying or selling a business? Sunbelt is the world’s largest seller of private companies. We work with business owners to help them understand the current value of their business and how to maximize their net proceeds at the time of sale. Sunbelt will provide business owners with a completely confidential, no-obligation value range.

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At U.S. Bank, we help you earn more without asking you to do more. That means more money, more purchasing power and more expertise, so you can focus on running your business. Let us find the best business credit card for you and turn your hard work into easy money.

We offer a full range of bookkeeping, Payroll and accounting services, such as entering and paying bills, invoicing, recording deposits, reconciliation and updating vendors and customers. We’re your outsourced CFO, affordable to retain with no loss of quality.

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ADVERTISING SECTION

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UPSIZE RESOURCE DIRECTORY COMMERCIAL PHOTOGRAPHER

LEADERSHIP DEVELOPMENT

EXIT STRATEGIES

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Exit Planning Strategies, LLC, a firm dedicated to offering business owners objective, fee based, financial consulting in the development of intentional ownership transition plans. We direct an inter-disciplinary process to explore planning options, map realistic exit strategies and to develop an Action Checklist, to accomplish an owner’s unique objectives.

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Bassford Remele is in the business of meeting legal challenges. Our trial lawyers solve disputes for corporate clients in Minnesota and across the nation and we have a depth of experience in many industry areas. When businesses seek solutions, from the conference room to the courtroom, they seek Bassford Remele.

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From people strategies to operations and tactics, we work along side you as an extension of your team. Take the HR hat off your head and let us help you win with better results through people.

Leadership is lonely. We build your tribe. Coalition9 memberships provide peer advisory groups with an emphasis on personal and professional growth. As a member, you will experience interactive learning while connecting to the resources and people that will help you be your best. Our vision: Changing business nine leaders at a time™.

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Our leadership development engagements and cohort-based leadership programs – Prouty L3 and Prouty i•will – link behavior to team performance in your workplace through the lenses of Leading Self, Leading Others and Leading the Business.

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NOVEMBER • DECEMBER 2023 UPSIZE

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UPSIZE RESOURCE DIRECTORY PUBLIC RELATIONS

TRANSITION PLANNING

WEALTH MANAGEMENT

Bellmont Partners

KeyeStrategies

JNBA Financial Advisors

3300 Edinborough Way, Suite 700 Edina, MN 55435 Brian Bellmont, President 612-255-1111, info@bellmontpartners.com www.bellmontpartners.com

Minneapolis, MN Keyestrategies.com 763-350-5563 Julie Keyes, Founder/CEPA

8500 Normandale Lake Blvd., Suite 450 Minneapolis, MN 55437 952.844.0995 www.jnba.com Cärin Viertel, Director of Client Services

Bellmont Partners helps growth-focused Minnesota organizations solve complex challenges. Our experienced communications strategists generate results that build brands, drive engagement and support business objectives.

“KeyeStrategies LLC advises business owners in Transition and Exit Planning. Julie Keyes is both a Certified Exit Planning Adviser (CEPA) and Value Growth Adviser. She is also a faculty member for the Exit Planning Institute’s Global organization and President of its local Chapter.”

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Being a small business we understand the needs of small business owners. And with 40+ years of experience in providing conflict-free advice, our proactive and integrated approach allows our multi-generational teams to put clients first when delivering customized financial life planning and investment strategies to help maximize their resources.

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UPSIZE NOVEMBER • DECEMBER 2023

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DO YOU NEED

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Have you considered exiting your business?

We recently sold a business like yours and STILL have many buyers interested in your industry.

Please call us right away if you are considering the sale of your business.

Contact our Sunbelt Business Advisor team:

Lisa Meyer

Peggy Demuse

Cell: 612-801-2299 Direct number: 612-361-4918 Email: lmeyer@sunbeltmidwest.com

Cell: 612-730-8921 Direct number: 651-288-1627 Email: pdemuse@sunbeltmidwest.com

Business Broker

Business Broker

Minnesota’s Largest Seller of Companies Office Address: 1300 Godward St. NE, Suite 6000 | Minneapolis, MN 55413