Upsize Minnesota September/October 2018 by Upsize Minnesota

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CONTENTS September • October 2018 • Vol. 17 No. 5 • www.upsizemag.com

PAGE 14

Cover story

Expanding your business with data: The right data can help improve the performance of underperforming stores, identify marketing efforts that are working or not and, in some cases, take a business idea and turn it into an altogether better one. Here’s how. BY ANDREW TELLIJOHN Cover photograph by Tom Dunn

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Bb BUSINESS BUILDERS

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Editor Beth Ewen says it’s time to stop badmouthing millenials and start learning from them.

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A panel of experts talked about traditional and non-traditional sources of capital available to small business owners.

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by Abir Sen, Gravie

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

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From the editor:

Staff list:

Upsize Minnesota (USPS 024-029) is published bi-monthly for $20 by Upsize Minnesota, 3033 Excelsior Blvd, Suite 10, Minneapolis, MN 55416. Periodicals postage rates at Minneapolis, MN and additional mailing offices. Postmaster: Send address changes to Upsize Minnesota, 3033 Excelsior Blvd., Suite 10, Minneapolis, MN 55416

INSURANCE Consider changing up your insurance plans in 2019.

SUCCESSION Prepare for both expected and unexpected transitions. by Christy Morrell-Stinson, Vision One Performance

WORKSHOP:

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GROWTH CHALLENGE: NoSweat Co. receives advice from a panel of experts assembled to offer insight as it prepares to take its sweatabsorbing headwear liners into the construction market.

PAGE 28 PAGE 10

TRANSITION Review your buy-sell agreements often to ensure healthy handoffs. by Dyanne Ross-Hanson, Exit Planning Strategies LLC

BACK PAGE: The St. Paul SCORE chapter shares details on its new online client guide.

Planning now means peace of mind later.

What happens if… THE ECONOMY WEAKENS

RETIREMENT LOOKS VERY TEMPTING…

A DIVORCE OCCURS IN THE FAMILY

YOU DESIRE A CHANGE IN LIFESTYLE

YOUR KID DOESN’T WANT TO RUN THE BUSINESS

THERE’S AN UNEXPECTED HEALTH ISSUE

YOUR BUSINESS PARTNER WANTS TO SELL

CK&Co. can help you proactively prepare your transition with our 4-step action plan. Visit us at lp.ckco-cpa.com/upsize to learn more.

Download our free Succession Planning Guide Online lp.ckco-cpa.com/upsize

tax • audit • accounting business consulting (952) 345-2500 www.ckco-cpa.com

Member of

Knock it off

Wes Bergstrom wbergstrom@upsizemag.com

EDITOR

Beth Ewen bewen@upsizemag.com

MANAGING EDITOR Andrew Tellijohn atellijohn@upsizemag.com

DESIGN DIRECTOR Jonathan Hankin jhankin@upsizemag.com

CIRCULATION MANAGER Georgene Bergstrom gbergstrom@upsizemag.com

PHOTOGRAPHER

Tom Dunn tom@tomdunnphoto.com

HOW TO REACH US To subscribe email Georgene Bergstrom, gbergstrom@upsizemag.com or visit www.upsizemag.com With story ideas email Andrew Tellijohn, atellijohn@upsizemag.com To advertise email Wes Bergstrom, wbergstrom@upsizemag.com To order reprints email Georgene Bergstrom, gbergstrom@upsizemag.com To order extra or back issues email Georgene Bergstrom, gbergstrom@upsizemag.com To suggest Web resource links, links@upsizemag.com

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UPSIZE SEPTEMBER • OCTOBER 2018

hear a lot, that there’s a work ethic thing.” She strives to ask each person about what they could learn from her, whether they work at Taco John’s for a short time or a long time. “I start by asking young people as young as 15 years old, what do you want to be when you grow up? Certainly, they say they want to be paid to put things on YouTube,” she said with a laugh. “I say that’s awesome, who’s going to be your accountant? I say, ‘let me help you with how to handle money, so somebody won’t steal your money from you.’ “I’ve always found with our young workforce, we teach the three things they need to do anything: how to manage money, how to manage people and how to manage inventory.” I think her attitude is right on point. You get out of your workforce what you put in. If you’re still not convinced it’s time to drop the millennial-bashing act, how about this: An audience member at the event cited Nielsen data released in July indicating that Gen-Z, those born between 1997 and 2015, who are coming of age at this moment, are now 26 percent of the population and the largest single segment. Time to quit bashing and start teaching, and even perhaps learning. Beth Ewen Editor and co-founder Upsize Minnesota bewen@upsizemag.com

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PHOTO BY JONATHAN HANKIN

PUBLISHER

have a challenge for my fellow baby boomers: Quit maligning the millennial generation. It seems to be a favorite pastime but it’s both unattractive and short-sighted. It happened again on a panel I attended recently at Faegre Baker Daniels law firm in Minneapolis, where Steve Hockett, CEO of Great Clips, offered this variation of the petard: “Yeah, the world’s changing. Some of these millennials drive me nuts. Just work harder. But generational change is here as well as ethnicity change.” Here is a Minnesota-based chain of 4,300 franchise haircut salons, which depends heavily on hundreds and hundreds of stylists who must be drawn from—wait for it—the millennial generation. It’s not smart to hold such a condescending attitude, much less express it. But I hear this type of thing over and over again. At the same time, I hear those same executives lamenting the labor shortage, and how horribly difficult it is to attract and retain staff members. These two things have got to be related. Chuck Runyon, co-founder of Minnesota-based Anytime Fitness, the 24-hour gym with more than 4,000 units, offered a lovely counterpoint and one that aligns very closely with how I feel, as a big fan of younger people on my staff and elsewhere. Runyon, though, expresses the idea much more elegantly than I could. “I love the millennials and Gen Z, they make up our club staff. They’re going to be better leaders than us; they have to be. They have more interest in stakeholder value creation than shareholder value creation,” he said. But the real prize should go to Tam Kennedy, who owns eight Taco John’s stores in Minnesota and Iowa, and actually tears up when she talks about the care and training she puts into her frontline staff — most of whom are unskilled teenagers. “Tacos won’t make themselves, and I’ve seen the hamburger-making robot and I get all of that,” she said on a panel about managing through conflict. “Our higher purpose would be to put people to work, so we’ve got to get past this thing that I

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insurance

BUSINESS BUILDERS

Strategizing for your health insurance open enrollment by Abir Sen

TIPS 1. During the past five years, healthcare costs for small businesses have increased by two or three times both inflation and GDP growth, depending on where in the U.S. you live. That’s unsustainable for small businesses long-term. 2. Some businesses are trying a defined contribution approach, under which employers provide a fixed amount of money for buying benefits rather than choosing a specific health plan. 3. Association Health Plans allow small businesses that partake in an association to offer health insurance as a single, large-risk pool, thereby providing enhanced purchasing power. 4. The insurance market can change dramatically from year to year and, with it, plan options and prices can vary greatly. So, shop around for the best deal for your company. 5. Commission structures sometimes incentivize brokers to prefer one insurance carrier over another, so make sure you understand how your advisers are getting paid.

IT’S THAT TIME OF THE YEAR AGAIN. As summer turns into fall, small business owners across the country will set aside many aspects of running their businesses for a few weeks and delve into the intricacies of deductibles, premiums and copays. Insurance brokers will show up to employers’ doors armed with detailed spreadsheets that purport to show what this year’s best health insurance strategy may be. And consumers will be left wondering if their insurance will change, yet again, this year, and, if so, what they need to do about it. Yes, it’s health insurance open enrollment season. However, choosing the best health insurance for your employees does not have to be an annual exercise in masochism. Here are some strategies to make it easy on yourself: Status quo may not be a long-term option For many businesses, staying with the health insurance provider you had in 2018 may seem like the easiest option. And that may well be the case for 2019. But consider this: over the past five years, healthcare costs for small businesses have increased by two or three times both inflation and GDP growth, depending on the part of the country in which you live. That is simply unsustainable over the long-term. Businesses are finding that a significant portion of their operating profits are being eaten up by the increase in the costs of providing benefits. While embracing the status quo may be possible in the nearterm, businesses will be well-served by carefully planning for the future.

UPSIZE SEPTEMBER • OCTOBER 2018

Consider a defined contribution approach Under this approach, instead of choosing a specific health plan for your employees, you simply give them a fixed amount of money (a “defined contribution”) with which to buy benefits. Employees then go to a benefits “marketplace,” operated by your defined contribution vendor, where they can get personal advice and choose the health plan that makes the most sense for them. Your role as an employer under this arrangement becomes strictly that of a co-financier of your employees’ benefits. In effect, you outsource all the administrative hassle to the vendor. At the same time, your employees get a lot more choice, and are able to customize their benefits. They may choose options that are inexpensive and maybe even free to them (because your contribution may cover 100 percent of their costs), or they may want to buy something richer than offered in the past. The beauty is that they get to choose. And not surprisingly, when people choose their own benefits, they tend to be more satisfied. Defined contribution health insurance has been around for a while. However, a law passed in December 2016 (the 21st Century Cures Act) made these arrangements a lot more attractive to both employers and employees, essentially by making the defined contribution tax-free to employees of eligible employers. Explore association health plans For decades, large companies have enjoyed the benefits of bulk

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purchasing for health insurance. It stands to reason that an employer with 10,000 employees will be able to buy health insurance more efficiently and affordably than an employer with just 10. There is, however, good news for small businesses on this front. A new regulation taking effect in 2019 will allow many small businesses to enjoy these same benefits of scale, through what are known as Association Health Plans (AHP). Put simply, an AHP allows small businesses that are part of an association to offer health insurance as a single, large-risk pool, thereby providing enhanced purchasing power. You could, for instance, have an association with 1,000 employers, each with an average of 10 employees, that can now enjoy scale advantages similar to the aforementioned 10,000-employee company. AHPs could potentially also offer employees a broader choice of plan designs, along with better networks of medical providers, as compared to small group and individual market plans. Any existing association can take advantage of these AHP regulations as long as the association has a common purpose for its members aside from participating in the health plan. There are some additional technical requirements to make all this possible, so if you are interested you should seek out expert advice.

may not necessarily be the most cost effective this year. And remember, commission structures sometimes incentivize brokers to prefer one insurance carrier over another (for instance through production bonuses, where carriers give brokers higher commission rates if they sell more of their product). While the vast majority of insurance agents are ethical business people, it is prudent practice to fully understand how your advisers get paid. Talk to your insurance adviser Ideally, your insurance broker is already talking to you about the options presented here (if not, seek out a broker who will). Consult with them to determine your business’s best course of action for the upcoming year. If your broker is still recommending a traditional “one-size-fits-all” plan at an increasingly higher cost, it may be time to start exploring some of the more innovative insurance vendors in the market. When it comes to employee benefits, especially at this particular point in time, a little careful planning will go a very long way.

Shop around The insurance market can change dramatically from year to year and, with it, plan options and prices can vary greatly. Even if you stick to offering the same type of health plan you offered last year, savvy business owners should explore options from all the insurance providers. The carrier that was the best option last year

“The insurance market can change dramatically from year to year and, with it, plan options and prices can vary greatly … The carrier that was the best option last year may not necessarily be the most cost effective this year.” Abir Sen, Gravie

Abir Sen is CEO and co-founder of Gravie, a health care benefits company: 844.540.8701; asen@gravie.com; www.gravie.com.

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SEPTEMBER • OCTOBER 2018 UPSIZE

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succession

BUSINESS BUILDERS

Preparing for unexpected transitions by Christy Morrell-Stinson

TIPS 1. About half of business transitions are driven by unexpected events. Business owners should prepare for the unexpected. 2. Make building a transition plan part of your annual business planning — and always have a Plan B. 3. Don’t discount the dangers associated with the five Ds — Divorce, death, disability, departure or disagreement — and the effect they could have on your business or employees. 4. Consider the implications of losing a key employee or suffering a family loss. Make sure that you have written processes and strong enough “bench strength” to withstand crisis situations. 5. Transition plans should consider your legacy desires, your wealth needs and a plan for succession of leadership.

ABOUT HALF OF ALL BUSINESS transitions take place as a result of unexpected events, forcing decisions driven by circumstances — stuff that happens to us, sometimes rather suddenly! — rather than legacy vision and goals. Business owners should ask: “How can we be ready for the unexpected?” Consider the importance of building a comprehensive transition plan. How important is it that you have a plan in place to deal with contingencies? What might happen if you don’t plan ahead? What happens if you’re not ready for what life throws at you? What could happen? Think ahead about what is most likely to happen, but also what could happen, even if it feels unlikely or uncomfortable, across the next three to five years. Think beyond the short-term and contemplate what circumstances might be like in a decade or more. Consider essential factors like your age, now and what it will be then, and what might be important to you in the future that might not be now. Think about possible changes to your family dynamics, the rise of new generational dynamics, technology changes, shifting market dynamics, and how those and other factors will affect you and your business. Tips for contingency planning: • Build your transition plan to prepare for different scenarios. • Always have a “Plan B” • Make this part of your company’s annual strategic planning routine. Five “Ds” that disrupt your business Nobody wants to think about the “Five Ds.” But the five unexpected life events identified by exit planning expert Peter Christman are common and they can reduce your enterprise value and derail your plans. Divorce, death, disability, departure or disagreement might not just affect you, but your employees, as well. The threat of unexpected circumstanc-

UPSIZE SEPTEMBER • OCTOBER 2018

es calls us to plan ahead. Acknowledging the possibility of the five “Ds” will help you think through what to put in place for the scenarios you hope will never happen. Doing so builds resiliency into your transition plan. Could your business survive the loss of a key employee? What could happen if you lost one of your key employees? An even better question: how deep is the “bench strength” on your team? How might you improve in this area and how will that affect the value of your business? Consider the key roles and functions within your business. Are there documented processes to follow in order for your company to function properly if any employee was suddenly unavailable? Not only will solid documentation protect your company against the loss of a key employee, it may increase the value of your company in the eyes of a potential buyer — now or down the road. Or a personal family loss? What if you suddenly lost a family member? What if you lost someone close to you, like a child or a spouse? This really hits home for our team. Our founder and CEO, Michelle Bonahoom, endured the sudden loss of her husband last fall, to a tragic heart attack. Michelle has helped dozens of business owners prepare for critical transitions and has been teaching on preparing for unexpected circumstances for many years. Going through this herself has given her a very personal perspective, and a deep passion for the discipline of preparation and contingency planning. Three dimensions of a solid transition plan Transition planning incorporates three critical dimensions. Ask yourself: 1. Legacy plan “What do I really want for my personal legacy? What is most important to me?”

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One facet of legacy is the brand you’ve built, your company reputation, the community or communities your business is located in, your employees, your product line(s) and how your customers are impacted, or other qualitative aspects of your company that may be important to you, to endure into the future. Another facet is what do you want your “life after business” to look like? 2. Succession plan “Who will be my business successors? When and how will they be ready to lead my company?” Your company will require a next generation of leadership. Who do you see taking over? What kind of development do you need to invest in the next generation team? How prepared are your successors to manage the business? Can they lead your company to the next level? Is there someone with the visionary capacity to lead your company into the future? Good managers can be so focused on administration and maintenance that they miss the strategic thinking and vision to keep the company energized. Do you need to continue to play a mentorship role to transfer your vision adequately? 3. Wealth plan “What kind of personal income do I need to maintain from my business or achieve from a transaction upfront versus over time? What matters to me in terms of setting aside wealth for my heirs or in terms of impact investing or charitable giving?” Plan in advance for how any type of transition you may face (or that you intentionally go for) will impact your personal income and therefore your accumulation of wealth. There are many ways to structure a transaction if you decide to sell your

business or if you decide to acquire someone else’s business. There are various financial instruments to consider that can be part of your wealth plan. A thorough planning and review process, with the right experts who have experience with the type of transition you are planning for, is critical. This three-dimensional plan will guide you in the process of preparing for the critical transitions that are sure to come — those you plan for, and those that just happen, like it or not! An advisory team can help with your goals Bring together a Transition Advisory Team you can trust to collectively walk beside you, working together to protect your interests and ready you, your family and your company for a variety of transitions, whether planned or unexpected. This team should consider and mitigate risk while maximizing enterprise value. You probably have people you have come to rely on, such as a CPA or attorney you trust. Include them on your team if – and only if – they are willing to work together with other advisors who may have specific expertise needed for the different aspects of business transition. Execute your transition plan step by step. Your Transition Advisory Team will need a leader who can coordinate and facilitate this work. It’s never too soon to begin your transition planning process. High performing organizations include transition planning into their annual strategic planning routine. Forward thinking owners start succession planning at least three years in advance of an exit timeframe – and even 10 years in advance of a family succession. Preparation begins with the right conversation. Who should you be in conversation with?

“It’s never too soon to begin your transition planning process. High performing organizations include transition planning into their annual strategic planning routine.” Christy Morrell-Stinson, Vision One Performance

Christy Morrell-Stinson, senior consultant with Vision One Performance: 612.321.8390; christy@visiononeperformance.com; www.visiononeperformance.com. www.upsizemag.com

SEPTEMBER • OCTOBER 2018 UPSIZE

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transitions

BUSINESS BUILDERS

Pitfalls to avoid in your buy-sell agreements by Dyanne Ross-Hanson

TIPS 1. Buy-sell agreements provide for an orderly succession plan for the ownership and management of the business if an owner wants or needs out. 2. They can create more problems than they solve, if they are not drafted correctly or reviewed regularly. 3. Buy-sell agreements often overlook common living events that trigger ownership transfers, such as retirements, divorces, terminations, insolvencies, illegal acts or disputes. 4. After agreeing on buyout terms, business owners still must address payment and how it might affect the future viability of the business. 5. Not having a buy-sell agreement can force remaining shareholders and the corporation to negotiate under adverse circumstances after the interests of the parties have diverged. Such talks often lead to litigation.

A BUY-SELL AGREEMENT should exist in every private company with multiple owners, including family businesses. In fact, many professional advisers argue that it’s likely the single most important legal document an owner will sign. Basically, it establishes the “exit rules” when a co-owner chooses — or is forced — to leave the business. It is a legally binding contract between shareholders and/or partners (owners) of a business that restricts the transfer of their ownership interest to unintended parties. A buy-sell agreement specifies who is allowed or required to buy the departing owner’s shares, which events will trigger a buyout and what price will be paid for the outgoing owner’s interest. It also provides for an orderly succession plan for the ownership and management of the business if an owner wants or needs out. As important as buy-sell agreements are to the business’s continuity, they can simultaneously create more problems than they solve, if they are not drafted correctly or reviewed regularly. (A note of disclosure seems appropriate here: While I’m not a licensed attorney, my work with business owners over the last 25 years has afforded me the privilege of reviewing numerous buy-sell agreements and consulting with numerous qualified business attorneys.) Let’s presume your attorney has drafted your buy sell agreement, you and your business partner(s) have even signed the agreement and you have deftly “filed” it away in a dustproof drawer for safekeeping. All is well, right? Leave it to a “triggering event” to occur, and all interested parties (along with their legal counsel) now scour the document to reference its provisions.

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What could possibly go wrong? Below are some of the most common pitfalls. Failure to include ALL potential “triggering” events Triggers are those events that initiate one party’s right or obligation to buy the stock of another party, under the agreement. The most common triggering events found in buy-sell agreements, are death or disability of an owner. What is often overlooked are the more likely “living” events that trigger ownership transfer. These can include retirement, divorce, termination (voluntary or involuntary), declaration of insolvency, illegal act and, of course, disputes. Yes, the latter do occur. The more inclusive the triggering events, the less likelihood of misinterpretation, or worse yet, litigation. Inflexible, cookie cutter valuation Valuation can be a major source of contention in every buy-sell. One of the most troublesome provisions is tying the valuation to some agreement between owners to be made in the future or according to a schedule (i.e. annually). Owners may not be the best judge of value. In addition, the agreed upon price is often not kept current. Formula valuations (i.e. book value) may not be tied to the reality of the business, as it grows. Valuation tied to an appraisal may be best, but careful consideration of who chooses the appraiser is important. Outdated document Buy-sell agreements should have “sell-by” dates, just like the groceries in our cupboards. When they lie at the bottom of dark drawers, collecting dust,

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unreviewed, they can yield some ugly surprises, when the light of day shines upon them. Changing business circumstances, owner objectives or worse yet, owner identities, can cause huge problems if not regularly reviewed and updated. Improper life insurance structure After agreeing upon whether the buyout shall be mandatory or optional, partial or full and even on how to value the interest, business owners still must address payment. How will the seller be paid? How might this affect the future viability of the business? In the event of a death-triggering event, life insurance can offer an immediate, tax free receipt of cash, at precisely the time needed. Is it an option? Is it adequate? Does it last long enough? Is it properly structured? Care must be given to make sure the insurance benefit, policy owner, beneficiaries and premium payers are all properly aligned. Accessibility and unintended tax consequences can result when the life insurance is not properly structured and reviewed. Improper selection of buy-sell strategy Buy-sell agreements essentially take three forms. Redemption, where the entity purchases the interest. Crosspurchases, where one or more persons buy the entity interest. And hybrids, which mix the two. When funded with life insurance, cost basis adjustment (or lack thereof), potential Alternative Minimum Tax (AMT) exposure on death proceeds, premium costs and the number of policies needed, are all impacted by the chosen design. Inexperienced owners and advisers, beware. Failure to consider related properties or entities It is one thing to provide for sale of

ownership interests and quite another to consider related property. Related property can include interests in affiliated entities, or interest in land or other property co-owned by some or all the remaining owners (such as property where the business operates), or life insurance policies on the life of a selling owner. It can also include intellectual property, leases or other contractual rights or obligations. While the buy-sell agreement may/should not address all these issues, reference to them might offer a “fall back” if shareholders cannot negotiate an agreeable remedy. Failure to coordinate Many times, business owners think seriously about buy-sell agreements only after they’ve already entered into other agreements that can impact the effectiveness of the buy-sell. Examples include articles of incorporation/organization or partnership agreement, bylaws/operating agreements, loans or security agreements, franchise agreements and leases. Buy-sell agreements must be coordinated with these other agreements. In conclusion, buy-sell agreements are designed to provide objective means of transferring ownership in controlled and pre-determined ways under specified circumstances that may be difficult. In the absence of a workable agreement, the remaining shareholders and the corporation may be placed in the unenviable position of negotiating under adverse circumstances with former friends, their families, or their estates. Such negotiations, which would occur after the interests of the parties have diverged, are difficult, fraught with uncertainty, and often lead to litigation. Review, update and revise your buysell agreements to avoid the potential pitfalls enumerated above.

“In the absence of a workable agreement, the remaining shareholders and the corporation may be placed in the unenviable position of negotiating under adverse circumstances with former friends, their families, or their estates.” Dyanne Ross-Hanson, Exit Planning Strategies, LLC

Dyanne Ross-Hanson is president and CEO of Exit Planning Strategies, LLC., which assists business owners in developing ownership transition plans: 651.426.0848; drh@exitplanstrategies.com; www.exitplanstrategies.com. www.upsizemag.com

SEPTEMBER • OCTOBER 2018 UPSIZE

Tuesday, November 27th

A Luncheon Workshop at the Minneapolis Club

MERGERS & ACQUISITIONS

A successful exit is a success that lasts. Attend this workshop to improve your chances for success when selling your business, Discussion topics will include what businesses are worth, due diligence, the most common mistakes made by sellers, and much more. The workshop will address all facets of the sale process, and introduce you to experts who can serve as trusted resources. Panel of experts: UPSIZE and CLUB E will assemble a panel of experts — people who make their living serving and advising growing companies — to present helpful information and answer questions from the audience. Who should attend: Entrepreneurs, CEOs, presidents, small-business owners and executive managers. Questions from the audience will be encouraged.

Cost: $34.00, which includes the program, lunch and parking during the event. Location: The workshop will be held at the Minneapolis Club: 729 Second Ave. So. — in downtown Minneapolis — at the corner of 8th Street (one way headed east) and 2nd Ave. Enter the parking ramp from the 8th Street side, on the south side of the building.

SPACE IS LIMITED! REGISTER NOW, go to bit.ly/2tpfodj For questions, please contact the Front Desk team of The Minneapolis Club 612.332.2292 or concierge@mplsclub.org

SCHEDULE: 11:00 – 11:30 — Registration & Networking | 11:30 – 1:00 — Introductions, Lunch & Workshop | After 1:00 — Networking

UPSIZE SEPTEMBER • OCTOBER 2017

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The focus will be on two companies, each with a challenge entrepreneurs can relate to — NoSweat Co. manufactures disposable liners for anyone who sweats in a hat, helmet, visor or hard hat. Foreverence makes customized urns for those whose final wishes include cremation. Both companies have reached the break-even point. Both are trying to figure out what’s next — • “Should we continue our growth in all of the areas we’re in or focus on a niche?” • “How do we get the word out about our goals for expansion?” • “What kind of financing should we seek in order to reach those next growth goals?” Join us October 22nd at the Minneapolis Club when a panel of Twin Cities business experts shares some advice with these companies aimed at helping them figure out how to proceed. Questions from the audience are encouraged. You’ll LEARN how our two winners are meeting their growth challenge. You’ll BENEFIT from the advice from local experts. You’ll NETWORK with people who can help you convert challenges into growth opportunities. When: Monday, October 22, 2018 (11 a.m. – 1 p.m.) Where: The Minneapolis Club (729 Second Ave. So. — in downtown Minneapolis) Cost: $34, which includes the program, lunch and parking during the event (at the Minneapolis Club). RSVP to attend this luncheon workshop and prepay online at bit.ly/2zppBew For questions, contact the Front Desk at the Minneapolis Club 612-332-2292 or concierge@mplsclub.org.

DATA DIVE

Readily available analytics changing business plans, driving growth

hen Richfield-based NearestYou was just starting out, Ryan Furness and his thenbusiness partner decided they just wanted to help people figure out their local

dining options. “We wanted to build this great website so you could discover all these local products,” Furness says. “We were just building a directory. We wanted to build an app. We wanted to do something that would just support local food and beverage companies.” But as they got into the business, they discovered that with the right data they could turn their idea into something considerably bigger. “We needed the data for us to be able to thrive,” he says. “We needed to understand the data to better serve our customers. ... As we started to grow we started to realize that data is where it’s at. We needed the data in order to thrive and we needed to understand the data in order to better serve our customers.” In the time since, NearestYou has started evolving into a multi-purpose business serving multiple clients. First, it’s a traditional store locator software service. It creates and manages the maps for a client list that includes local breweries like Sociable Cider Werks, Burning Brothers Brewing, Lake Monster Brewing, Lakes & Legends Brewing Co. and others. “If you want to find those companies’ products outside their taprooms and brewpubs, go to their websites and click on their locator map,” Furness says, adding that such pages are rarely updated and often out of date. “You can go to their

site and click on the map and find where they are in restaurants, liquor stores and bars. We’re the ones that create that and then we manage it for those companies. We take in their data from their wholesale account lists and make sure it’s up to date.” Secondarily, NearestYou is aggregating the brewery, distillery and cider clients it works with onto a single directory website where consumers can go find local brands in their local area. “You, as a consumer, can go and say ‘I want to find craft beer, I want to find craft spirits, near where I am right now. What brands are there in the area and where can I go to test them out?’” he says. “It’s a discovery platform for people who want to try craft beverages.”

Understanding the data and providing insights

Furness’s partner has moved on from the company. For the last year, NearestYou has worked with Dennis Still, founder of Bigfoot Analytics. Still reached out to Furness and helped him become more skilled in its handling of data The move helped deepen the store locator information. Now, for example, when there are clicks on one of its client’s maps, there also is tracking information that allows NearestYou to provide real-time information back to them. It also can do more nuanced research for clients on a granular level. For example, the company launched a beer finder for one local company’s seasonal beer. We will track how consumers are using that locator and provide that insight back to the client.

by Andrew Tellijohn

PHOTOGRAPHS BY TOM DUNN

UPSIZE SEPTEMBER • OCTOBER 2018

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Ryan Furness, CEO and founder of NearestYou, says a simple website came to life when the company started working with data.

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COVER STORY “You had 50 clicks on this liquor store in south Minneapolis, I bet your beer is sold out over there,” Furness says. “Sure enough, the following week they followed up and the beer was out of stock. So, they got their distributor over there and saved some sales. That’s a way the data went from ‘we don’t know exactly how people are using this to let’s track all this stuff, let’s make sure we know how people are using the locator and provide the insights back to the brands.’”

Quality over quantity

Still grew up in Montana and his grandmother had a local store. It showed him early the importance of understanding customers. To this day, he says, he likes working with small businesses to help them figure out their needs and the best strategies for getting there. “Even if they are using free tools like Google Analytics, they are willing to listen,” he says, adding that they realize “if we are going to grow bigger, we have to look at what this is going to look like two years down the road.” The technology has gotten fairly straightforward, at least at the low level. Google Analytics is on probably around 95 percent of websites to collect user data, he says. Stepping it up a notch, some companies use different strategies for collecting customer information to help them analyze what their consumers are seeking. A customer relationship management program like Salesforce is among the more sophisticated tools for capturing that data, but as long as the data is analyzed properly, simple old-school strategies like surveys can help. Outside of information businesses create themselves, he adds, U.S. Census data centered around zip code research is readily available and can potentially be used to advance a company’s decision-making. Still and other industry experts say other data can be mined from social media interactions and many other sources. “Anywhere you can find places to collect information about customers is really valuable,” Still says.

CONTACTS RYAN FURNESS, Nearest You: 612.314.6327; ryan@nearestyou.com; www.nearestyou.com. DAVE MATHIAS, Beyond the Data: 612.432.3789; dave@beyondthedata.com; www.beyondthedata.com. DENNIS STILL, Bigfoot Analytics: 651.333.9249; dennis@bigfootanalytics.com; www.bigfootanalytics.com. HILARY LEBON, digital marketing consultant: 202.487.8509; hilary@hilarylebon.com; www.hilarylebon.com. 16

UPSIZE SEPTEMBER • OCTOBER 2018

Still, he says, it doesn’t matter the size, businesses have been struggling with misusing or incorrectly collecting data as long as it has existed. He’s worked with sophisticated large companies that have had to virtually start over after years of mistakes. “Their data has been so bad for so long,” he says, “Once it starts to compound, you lose the ability to make sense of data. You have a whole bunch of bad data versus small amounts of good data.” Still cautions, however, against blindly collecting data just for the sake of doing so. “The balance of this data and analytics is, it should be trying to help answer questions you have about your business, “If you are spending all your time running it, it’s hard to think about what those questions are.” So, start small. Google Analytics or, Still recommends, Google Tag Manager as a good place to start. Figure out a handful of things you want to track that will help run the business. “Think about the metrics you need that would help the business grow,” he says. “The reality is a lot of businesses don’t need big data when they start.”

Start simple, don’t overreach

Digital marketing consultant Hilary LeBon suggests starting small. When she first meets a client they typically talk about business objectives, opportunities and challenges. They’ll then start with a test campaign, aimed at making sure the proper tracking is taking place on a small scale. Then they’ll expand. That’s a more calculated approach than that taken by firms who collect data for the sake of doing so or that they don’t know how to interpret. “I think a lot of people have a lot of data they don’t know what to do with and don’t know how to look at it and don’t know how to use it or how to get insights from the data they already have,” she says. They also have set up campaigns without carefully setting up objectives and tracking to measure the things that are important “you may get some data, but it may not be relevant to what you are trying to accomplish with a campaign,” she says. When collected and used correctly, data can be hugely valuable. She worked with one restaurant chain to use sales data to identify 10 locations that were underperforming during the lunch rush. Using the data, the company bought banner and social media advertisements, timing them to reach a targeted market in the mid-morning before lunch. In the days ahead, those underperforming locations “saw a lift in business,” she says. There are countless examples like that one. “The challenge is connecting the dots,” she says.

www.upsizemag.com

COVER STORY

We needed the data in order to thrive and we needed to understand the data in order to better serve our customers.” — Ryan Furness,

CEO and founder of NearestYou

Trust the data, trust yourself

Dave Mathias, CEO and founder of Beyond the Data, is also a data fluency coach. He works with for-profits and nonprofits, large companies and small. “Every business could be using data,” he says. “I don’t care if it’s business, nonprofit, government, small or large. The question becomes in what capacity to use the data.” And most are, though they often need some coaching on how to do it right. Instead of thinking big right off the bat, he agrees they should focus on figuring out exactly what problem you are trying to solve. For restaurants, it could be optimizing their menu items. One nonprofit he works with narrowed it down to finding modern ways to use the data so it could better serve its constituents, from its board to its donors and volunteers. “Understand the problem you’re trying to solve. What’s your pain point? And then say ‘how do I use data to make a better decision,’” he says. “That’s what data is for.” Some businesses seem to find the concept intimidating. Often they’ll hire a consultant. There are times that might make sense, but Mathias says often it’s not necessary. “The first instinct is ‘I can’t do this because I have no skills in this area,’” he says. “Often times, you know your business well. Some of these things aren’t as hard as they make them out to be.” One caveat: If businesses are going to go to the work of collecting the data, they also need to trust their findings and realize practices they’ve employed for years might not be the best ones. “They have so much experience in how it’s been done in the past,” he says. “Do you really want to use data to better inform your decisions. Are you willing to look at things differently?”

www.upsizemag.com

Mathias does less implementing of data strategies with companies than he does educating organizations on how they can better do the data research themselves. If a company is trying to create a complex pricing model, sure, he says. Hire a consultant. “But that doesn’t mean,” he says, “they wouldn’t want to do a lot of other things in house.” A lot of times businesses have one or two younger, curious staff members who might be interested in exploring some of the data analytics research as part of their role. If not, Mathias says, there are a lot of networking groups in the Twin Cities where entrepreneurs can get in touch with people who can help them figure out how to work with data themselves. “I see more small business owners doing this,” he says. “There are a lot of ways to get that knowledge.”

Big picture for Nearest You

NearestYou’s future took off upon its realization that data was the key to its future. The company is still tweaking its product. It’s a self-funded entity with Furness and a handful of workers currently on contract. The company is still working to add as many craft beverage and food companies as clients, fine-tuning what analytics reports and services it will offer and how much to charge. Over the long haul, he sees a huge market that spans the country’s 1,500 craft distilleries, 7,000 breweries and 600 cideries. If Furness and his team can convince a portion of them to give NearestYou a shot, he thinks there’s significant growth in the future. “It’s an unsexy thing,” he says of what the majority of potential clients have right now. “It’s bland, it’s blah, it’s not informing their business decisions in any meaningful way. We’re trying to change that.”

SEPTEMBER • OCTOBER 2018 UPSIZE

WORKSHOP: Raising capital

Finding financing

Lots of alternatives exist between equity and debt By Andrew Tellijohn Photographs by Tom Dunn

aising capital ranks among the most daunting challenges faced by small businesses. Not only do entrepreneurs have to make the case for deserving the investment, but they often aren’t aware of all the available sources. A session co-sponsored by Upsize and Rick Brimacomb’s Club Entrepreneur at the Minneapolis Club in late August provided information on several. The basics are covered here.

Traditional debt & equity Angel financing:

Dave Harig, founder of mystride Angel financing comes from private investors or affluent individuals who provide capital in exchange for debt or ownership equity. It typically has long terms because entrepreneurs often seek such investment early. “There’s far more things they don’t know about their business than they do know,” says Harig, who currently is in planning to create a mobile platform for the equestrian industry. That can make seeking angel financing hard. But company owners can improve their chances by selling the value they are creating rather than being seen as buying value. The caveman chiseling out the first wheel “didn’t sit around and say ‘well, if I find angel investors, I’ll hire a granitesmith to chisel this out,’” Harig says. “He picked up a rock and stone and started making it happen. That’s the mentality you need.”

Angel groups:

John Francis, founder and president of Next Level Franchise Twin Cities Angels, Gopher Angels and the Sofia Angel Fund are among metro-area investors organized as clubs. Francis’s group, Sagis Club, invites four presenters to each of three events per year. The group is looking at the concept, the entrepreneur’s history, the product and the processes. They meet in a group, but members with interest invest individually. Each club is different, but “what we look for is … deals that are already going. Not true start-ups, not true concepts, but businesses where guys have done some work, have got some revenue and are looking for growth or expansion capital.” 18

UPSIZE SEPTEMBER • OCTOBER 2018

Venture capital and early-stage financing:

Chris Reedy, venture partner with Royal Street Ventures Venture capitalists raise money into a series of funds and then invest that money into a variety of companies. Most venture capitalists are specific in the stage and type of companies they want their money invested in, Reedy says. Royal Street, for example, typically looks to do seed and Series A investments of between $250,000 and $1 million. It invests in high-growth digital businesses that are not terribly capital intensive. It avoids medical technology. “We don’t invest in anything that touches the FDA,” he adds. Other funds are different, but Reedy says Royal Street invests in companies with several proof points in the market and strong management teams. “If you are a passionate founder working alone … think about who are the other people you might be able to sell early on to join your team.”

Growth capital and recapitalizations:

Gary Kohler, board member with Air T Kohler, last year, sold his small-cap growth portfolio of public companies to Air T, a publicly-traded holding company, that looks at deals in a multitude of spaces. Air T offers growth capital to companies past the start-up phase that aren’t good candidates for other types of financing “We don’t pigeonhole anything,” he says. Most are debt-related deals. And the company will look at assets, such as intellectual property or real estate, that typically won’t interest banks. The company’s sweet spot is between $2 million and $10 million, but “we’re very flexible,” Kohler says. Finding companies like Air T can be hard. “You have to bang on a lot of doors ... to see if someone will do a transaction of the nature that we do,” he says. “We’re not the only ones that do it but it’s not an organized group.”

Mezzanine growth capital:

Patrick Donohue, president and CEO of Hill Capital Corp. When banks are unable to lend based on an applicant’s asset structure and VC firms are uninterested because they require a high return, entrepreneurs aren’t always out of luck. “People believe there is bank financing and then there is pure equity,” Donohue says. “There is a massive space in between.” Hill Capital Corp. fills some of that space. The company has www.upsizemag.com

WORKSHOP: Raising capital a collection of private investors. It’ll do debt or equity deals, depending on the need. Deals most often range from $500,000 to $1 million, with companies that have $5 million or more in annual revenue. But Hill Capital does avoid start-ups. “You don’t need to be the next Google,” Donohue says. “You can have a nice business that is small, that is doing 5 percent to 10 percent growth and you have capital beyond what you can get from an SBA loan or the bank.”

Banking:

Troy Rosenbrook, president of Highland Bank Highland Bank offers straightforward debt financing for businesses looking to acquire or expand real estate holdings, purchase equipment, improve working capital conditions or grow through acquisition, Rosenbrook says. Bankers want to see predictable earnings and cash flow, but also industry, management and financial experience. “It’s not just about the numbers,” he says. Highland offers fixed- or floating-rate options. Borrowers will have financial covenants around cash flow and tangible net worth. There will be standard reporting at least annually. Rosenbrook noted that Highland also often partners with firms that engage in equity or mezzanine deals. Often, several kinds of financing make up a transaction and deals over about $9 million actually require partners. “This conversation is not about picking one or the other,” he says. “Many of them we work with on a fairly regular basis.”

SBA:

Kim Storey, senior vice president and SBA lending manager at Highland Bank Minnesota is one of the top SBA lending states in the country. Banks use SBA loans when looking at companies needing a longer maturity for their loan or with thinner collateral. That might be start-ups, she says. “Having an SBA guarantee provides that additional degree of protection a lender is going to want,” Storey says. There are three main SBA loan programs: 7A, which is mainly used for equipment purchases, acquisitions, long-term capital and real estate. It’s up to $5 million. The 504-loan program is for major fixed assets, such as commercial real estate. An express loan program offers up to $350,000 for lines of credit. “It’s a great option for companies that are between venture capital stage and conventional financing,” she says.

Accounts receivable/inventory financing:

Cathy Sedacca, director of sales and marketing for Sage Business Credit Young, fast-growing companies with financing needs that have tapped out banks have options with loans based on accounts receivable or inventory financing. “Banks tend to look at the rear-view mirror at historical performance when making lending decisions,” Sedacca says. www.upsizemag.com

Business owners learned about many financing alternatives during a Club Entrepreneur/Upsize workshop at the Minneapolis Club in September.

SEPTEMBER • OCTOBER 2018 UPSIZE

WORKSHOP: Raising capital “Asset-based lenders look at the future.” These lenders will want to understand what your product and market, but if convinced, they might advance between 70 percent to 90 percent of accounts receivable or 60 percent of inventory, when paired with an AR loan. “The bottom line is ‘did you deliver what your customer asked for and are they willing to pay for it,’” Sedacca says. These loans are more expensive than traditional bank financing, but less than online loans with no requirement of giving up equity. Spotless credit history not required. “Asset-based lending facilities allow you to get the most cash out of your business,” she says. “And they are scalable.”

CONTACT THE EXPERTS BECKY AISTRUP, managing partner, BBC Entrepreneurial Training and Consulting: 734.930.9741; becky@bbcetc.com; www.bbcetc.com. PETER BIRKELAND, chief financial officer, Secured2 Corp.: 612.756.7084; pete.birkeland@secured2.com; www.secured2.com. SCOTT CLASEN, director of marketing, TimeSolv: 800.715.1284; scott.clasen@timesolv.com; www.timesolv.com. PATRICK DONOHUE, president and CEO, Hill Capital Corp.: 651.452.8448; pd@HillCapitalCorp.com; www.HillCapitalCorp.com. BRIAN EDSTROM, shareholder, Avisen Legal P.A.: 612.584.3407; bedstrom@avisenlegal.com; www.avisenlegal.com. JOHN FRANCIS, founder and president, Next Level Franchise: 612.868.0745; JohnFrancisMN@gmail.com; www.JohnWFrancis.com. CRIS GASTNER, senior vice president, Community and Economic Development Assoc.: 507.867.3164; cris.gastner@cedusa.com; www.cedusa.com. DAVE HARIG, founder and CEO, MyStride.com: www.mystride.com. GARY KOHLER, Air T: www.webcongact@airt.net; www.airt.net. CHRIS REEDY, venture partner with Royal Street Ventures: chris@royalstreet.vc; www.royalstreet.vc. TROY ROSENBROOK, president, Highland Bank: 952.858.4810; troy.rosenbrook@highlandbanks.com; www.highlandbanks.com. CATHY SEDACCA, director of sales and marketing, Sage Business Credit: 952.314.7072; csedacca@sagebusinesscredit.com; www.sagebusinesscredit.com. KIM STOREY, senior vice president and SBA lending manager, Highland Bank: 952.858.4590; kim.storey@highlandbanks.com; www.highlandbanks.com GARRICK VILLAUME, chief technology officer, NetZro LLC: www.netzro.org..

UPSIZE SEPTEMBER • OCTOBER 2018

Alternate sources of financing Customers:

Scott Clasen, director of marketing, TimeSolv Corp. TimeSolv is a web-based company that sells subscriptions for time-billing software to lawyers and other professional service organizations that track time for invoices. Customers pay the Thomson Reuters spin-off every month to gain software access. Since two top executives invested when it spun off in 2006, TimeSolv has been 100 percent funded by customer revenue. Several factors have helped, including the use of remote employees, both here and in Pakistan. And TimeSolv’s subscription model, ensures cash flow. “That means even if I don’t have a sale at all this month, I still have revenue coming in,” Clasen says. That allowed TimeSolv time to perfect the product. Now it is growing faster, both incrementally and by acquisition. “If this was the race between the turtle and the hare, we’re definitely the turtle,” he says. “It’s been low and slow but it is sustainable.”

Crowdfunding:

Brian Edstrom, shareholder with Avisen Legal P.A. Indiegogo and Kickstarter aren’t the only sites for crowdfunding anymore. Securities crowdfunding allows businesses to approach accredited or non-accredited investors online to sell debt or equity offerings through a registered portal. A federal law passed in 2017 allows businesses to raise a maximum of $1.07 million through crowdfunding in a 12-month period. MNvest enabled online crowdfunding in Minnesota of up to $2 million from Minnesota residents. About half-dozen MNvest offerings successfully reached at least the minimum target necessary for raising the desired funds. Until that minimum is met, the money is held in escrow and it’s returned to investors if it is not met. Edstrom suggested connecting with a community that may support the business first and then driving them to the portal. “The most successful crowdfunding offerings are where the business brings its own crowd,” he says. “It’s unlikely that you can just post something online and expect people to stumble on it.”

Contest/prizes:

Garrick Villaume, chief technology officer with NetZro Contests that come with varying levels of prizes are a great way to compete for money, but also to learn, gain exposure and work with people and gain exposure for your business. “Why not do that in a way that gives you the most learning, the greatest fun and puts you in touch with wonderful people,” he says. There are several contests locally, from the Clean Tech Open to the Minnesota Cup. You may win some cash, “though I wouldn’t put that into your funding plan,” Villaume quipped. www.upsizemag.com

WORKSHOP: Raising capital The competitions can be as fast as a few weeks or as long as several months. The investments and prizes vary. But, he adds, they are an opportunity to meet some potential mentors. “These are great people who are committed to your success.”

Economic development:

Cris Gastner, senior vice president of Community and Economic Development Assoc. Local economic development organization may have more to offer than tax abatement or tax-increment financing. Gap financing may be possible, Gastner says. Agenices may be able to cover the difference between a lender’s cap and your need. “In a lot of cases, economic development organizations are trying to get creative to get these deals done for their communities,” he says. Community and Economic Development Assoc. works in rural areas with populations under 10,000 but the concept is not unique. “The message when it comes to economic development is ‘get creative.’ Look in places maybe you wouldn’t have traditionally looked to find dollars to help your deals.”

Small Business Innovation Research program:

Becky Aistrup, managing partner, BBC Entrepreneurial Training & Consulting If you are researching or developing technology, whether it’s medical, software, military, education or other areas, the government may have grants available. The SBIR program is an early-stage program aimed at technology commercialization in the U.S. The U.S. Small Business Administration oversees the program and 11 federal government agencies participate. “This will not require you to pay anything back,” Aistrup says. “It will not require any equity to be given up in your firm and you own the intellectual property you develop as a result.”

Franchise:

John Francis, founder and president of Next Level Franchise Franchising allows business owners to grow through licensing a concept to other operators. It can be tremendously successful, but it has some barriers. It’s regulated by the Federal Trade Commission. The necessary paperwork includes audited financial statements and legal registrations. The process of getting certified can cost between $25,000 and $50,000, Francis notes. “Build more units and prove your model before you really want to franchise,” he says. “You only want to franchise it when you know it is going to be successful for a franchisee.” If it does work, it can be a tremendous strategy. “Owners who own and operate those units, they spend their time, their money, their energy,” Francis says. “It’s their business. They’re following your model ... and paying you a fee and a royalty.” Not everything should be franchised, he adds. But if the concept is right, “franchising is a great way to grow.” www.upsizemag.com

Club Entrepreneur and Upsize partner on a half-dozen events annually aimed at providing small businesses with actionable information. This panel covered the basics of finding financing.

Intellectual property-secured debt:

Pete Birkeland, chief financial officer with Secured2 Corp. Secured2 is a data security company that creates products that indemnify and secure data. The company needed capital to grow sales, marketing and product support when it was approached by a fund interested in investing a convertible-term note secured by intellectual property. Secured2 has seven patents with another 17 in process. “It was a good fit,” Birkeland says. “We did not have the metrics or what we needed to attract equity financing or venture capital. It met our needs and it met their needs.” Secured2 does have to build an interest-only payment into its model and make sure that, going forward, it works with funders who have the ability to pay off that debt or can absorb it. But it served the company’s needs. “We made a bet on ourselves and said ‘we are going to perform, we are going to beat our expectations on what we think on those milestones and we are going to reduce our dilution,’” he says. SEPTEMBER • OCTOBER 2018 UPSIZE

UPSIZE GROWTH CHALLENGE By Andrew Tellijohn

Photographs by Jonathan Hankin

ABOUT THIS PROJECT The Upsize Growth Challenge, presented by Winthrop & Weinstine, was created by Upsize magazine to match two business owners with expert advice they need to reach their goals. The two companies were selected based on the ambition of the growth goal and the quality of the work already completed to meet it. They participated in a workshop this summer with expert advisers supplied by the sponsoring companies. NoSweat’s plans are featured in this issue of Upsize. The journey being undertaken by Foreverence will be covered in the November/ December issue. The two companies will tell their stories at a public event in October and experts will give advice applicable to all growing firms.

GROWTH CHALLENGE NoSweat Co. exploring construction market, staffing models as expansion efforts increase

eople sweat. And those who wear hats, helmets and hard hats — whether recreationally or occupationally — have long lacked a good way to control the burning eyes, sweat stains, fogged up glasses and acne that accompanies it. But Minnetonka-based NoSweat Co. has created a peeland-stick liner that attaches to headwear to wick away that sweat and those associated problems. “People hate sweating through their hat,” Chief Sales Officer Collin Iacarella told a panel of experts assembled for the 2018 Growth Challenge meeting at Winthrop & Weinstine’s downtown Minneapolis office in early September. The idea came about while brothers Justin and J.T. Johnson were students at Gustavus Adolphus College in St. Peter. Justin was taking a class focused on writing business plans and he sat around the table one weekend with family members pondering ideas. The idea for a superabsorbent helmet or hat-liner that eliminates forehead moisture initially came from his stepfather, Chad Sulheim. “In the middle of the class we started filing patents,” Justin Johnson says. “It made too much sense. We went all in from the get go. Ten years later, here we are.” It did take a couple years to actually build the initial

UPSIZE SEPTEMBER • OCTOBER 2018

product and there were some improvements to be made after that initial release. They rewrote their business plan, raised capital and spent some time looking for the right people to manufacture the product. But as a result of the efforts, NoSweat officials believe the company has created something superior to skull caps, sweatbands and other products marketed as sweat absorbent. “There is a gap in sweat technology,” Iacarella says. “That’s why we created NoSweat.”

So, what’s next?

The market slowly seems to be taking notice. The product has been popular on Amazon and it became a hit in sports, particularly with hockey players and other athletes, many of whom have endorsed the product. Golden Tate from the Detroit Lions and T.J. Oshie from the Washington Capitals are just two among several celebrity brand ambassadors. And the company is looking to build on its momentum in sports by expanding into other areas, namely construction. “Sports is great for the marketing,” he says. “Construction is the wider market.” NoSweat recently unveiled a heavier-duty product tailored to that market. The company is exploring the best way to reach those customers, whether it’s partnering with a large player in the market, going directly to the largest companies in construction or some combination of those and other strategies. NoSweat recently added two experienced professionals to its senior executive team in Damian Topousis, who has been in sales, and Tom Rolando, who has worked in the adhesives industry. Both of them have worked with small businesses previously and they arrive with a wealth of experience and contacts. “We’re all 30 or younger,” Iacarella says. “We needed a little more gray hair in the conversations and their networks as well.”

And what’s the challenge?

There is unity among company executives about entering the construction business. But should that be its main focus going forward or should it try to tap into a number of additional markets in which sweat-removing technology would seem applicable? Furthermore, there is still consumer education to be done. Despite strong usage in high-visibility sports, the company is still a relative unknown. “Nobody knows what the product is yet,” Iacarella says. “If you could see our product we would be big by now. We have every NHL player wearing it. But it’s inside their helmet.” And as these plans develop, what’s the best way to structure a sales team or approach potential financiers in making those plans? “Finding the best way to get into that — is it just ‘let’s go to www.upsizemag.com

UPSIZE GROWTH CHALLENGE “I’d be in favor of them trying to take the time to chase a larger dollar amount knowing the business is self-sustaining. Maybe next year doesn’t go as fast as you want, but maybe year two and year three go five times faster.” Rick Brimacomb, Brimacomb Capital —

Grainger and Fastenal and try to go top-down? But there is no growth around establishing business-to-business connections. one demanding the product yet, so how do you get enough Dan Moshe, co-founder and CEO of TechGuru, says the small companies or medium-sized construction companies to company should focus on growth in the market that can push it up chain?” produce the largest return on investment. “There are so many things you could be doing, but you Distributors or direct? Another tough call. “The best sale only have so many resources,” he says. “Of those hundreds for a company like ours,” Iacarella says, “is the hockey type of things you could be doing, where are you getting pulled? sale. ‘Okay, we need 1,000 liners in bulk and we just ship Where is the most energy? Where is the them to them bulk. That’s the easiest biggest ROI?” thing for us. It’s got the best margin.” COMPANY PROFILE Winthrop & Weinstine officials say The company has been testing some the strategy makes marketing easier. different strategies but hasn’t come up NoSweat Co. ““Being able to market to a specific with the best answer just yet. focus is what is going to have to be But he adds that as the company Founder/CEO: Justin Johnson done,” says Gretchen Milbrath, director grows, it’s looking into various Launched: 2008 of business development and marketing. approaches that could include adding Headquarters: Minnetonka “You are doing a great job, but focus on sales staff or finding a partner already Website: www.nosweatco.co construction and figure out how to get well-known in construction to help get About: Manufacturer of prodinto that market.” the product in front of more people ucts to increase performance, Adds Noreen Sedgeman, a faster. safety and hygiene for anyone shareholder: “To the extent you can “That’s another thing that changes who sweats and wears some figure out how to break into the how you build a sales team,” he says type of hat, helmet, visor or business-to-business market, that’s hard hat where the gold mine is. If you can get What the experts say the big companies to buy hundreds of Growth Challenge experts indicated thousands of hat liners for all their employees, that seems to that while there may be many opportunities for NoSweat to be where the opportunity lies.” grow, the company should focus its resources on expanding Jon Cassens, a director with DS+B | CPA’s + Business into the construction industry and attempt to tailor its

“To the extent you can figure out how to break into the business-to-business market, that’s where the gold mine is. If you can get the big companies to buy hundreds of thousands of hat liners for all their employees, that seems to be where the opportunity lies.” — Noreen

www.upsizemag.com

Sedgeman, Winthrop & Weinstine

SEPTEMBER • OCTOBER 2018 UPSIZE

UPSIZE GROWTH CHALLENGE “The best customers for you are the big customers, not necessarily the direct-toconsumers who are buying a three-pack every month,” Jon Cassens, DS+B | CPAs + Business Advisors —

Advisors, agreed with the B2B approach. “The best customers for you are the big customers, not necessarily the direct-to-consumers who are buying a three-pack every month,” he says. He also suggested that much as it has done with finding hockey and football players to act as ambassadors, NoSweat should find some similarly popular ambassadors that might speak to the construction industry. NoSweat’s Johnson indicated that many of the sports stars would have crossover appeal to construction workers. “You can use the sexiness of the sports to market to every other demographic,” he says. “We’re going to try it and we’ll see what happens.” But he and Iacarella agree that they “are totally open” to branching out its cachet of celebrity ambassadors. “It’ll take time, but I think we should do that,” Iacarella says. As far as fundraising, because NoSweat already is breaking even, the company might benefit from a bigger picture approach, says Rick Brimacomb, CEO of Brimacomb Capital. He says rather than seeking a smaller offering, the company should pursue a substantial investment with entities willing to provide more capital. It’s an approach that might slow short-term growth, he acknowledges, but could pay off in future years with the ability to ramp up growth more quickly. “You have time to go raise the money,” he says. “It is a little bit more of a serious effort ... in who you are talking to. I’d be in favor of them trying to take the time to chase a

larger dollar amount knowing the business is self-sustaining. Maybe next year doesn’t go as fast as you want, but maybe year two and year three goes five times faster.”

CONTACT THE EXPERTS: RICK BRIMACOMB, Brimacomb Capital: 612.803.3169; rick@ brimacomb.com; www.brimacombcapital.com. JON CASSENS, DS+B | CPA + Business Advisors: 612.630.5071; jcassens@dsb-cpa.com; www.dsb-cpa.com. COLLIN IACARELLA, NoSweat: 615.697.9328; collin@nosweatco.com; www.nosweatco.com. JUSTIN JOHNSON, NoSweat: 952.412.6906; justin@nosweatco.com; www.nosweatco.com. GRETCHEN MILBRATH, Winthrop & Weinstine: 612.604.6640; gmilbrath@winthrop.com; www.winthrop.com. DAN MOSHE, Tech Guru: 612.235.4895; dan@techguruit.com; www.techguruit.com. NOREEN SEDGEMAN, Winthrop & Weinstine: 612.604.6617; nsedgeman@winthrop.com; www.winthrop.com. Editor’s Note: Foreverence, the second company selected for the 2018 Growth Challenge, will be profiled in the November/ December issue of Upsize

“There are so many things you could be doing, but you only have so many resources,” he says. “Of those hundreds of things you could be doing, where are you getting pulled? Where is the most energy? Where is the biggest ROI?” —

Dan Moshe, Tech Guru UPSIZE SEPTEMBER • OCTOBER 2018

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SOLUTIONS for Growing Companies

Are IT Unicorns Real?

(SMB), IT people need to communicate and understand your organization’s needs. Translation Abilities Your IT team should be technical gurus, but also people who can speak to less technicallyinclined employees. They should be able to explain an issue to teammates, superiors and end users. Loves a Challenge An IT unicorn doesn’t sit around with a dwindling a task list. They seek more work to conquer and processes to improve. They’re always on the move and love to learn.

he IT person you want to hire probably already has a job. With the Bureau of Labor Statistics reporting unemployment rates for tech jobs as low as 1.9%, a good IT professional is hard to find. You need adequate hands to plan your IT strategy, implement and maintain your infrastructure and protect your network from security threats. But hiring the right person is like finding a unicorn. An IT Unicorn. Seriously, that perfect fit who understands your needs and pushes your goals to the next level. Knowing when you’ve found one isn’t easy, so here are some qualities to help you identify them:

7 Virtues of an IT Unicorn Nerd-Like Tendencies Look for people who call IT a hobby. When new software versions are announced, they salivate. They build computers on their own time. When the power goes out at home, multiple devices beep and wake the family.

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Are IT Unicorns Real? They are. You might find this magical employee in the search for your next great hire. If you can’t find one, managed IT services can help you outsource to fill gaps. If you have an overloaded IT staff, managed Stickiness IT services can take on routine patching, An IT person likely gets recruitment help desk calls, data storage or other special emails at least weekly if they have a decent LinkedIn profile. Know how long have they projects. If you do not have an IT staff, managed IT stayed at previous jobs. If you are a two- to three-person IT team, being down a person services can provide IT for your entire organization. can be a real pain. Outsourcing all or part of your IT brings your organization the expertise of many Fit Are you looking for $35,000 per year help subject matter experts, without having to hire them or pay benefits. This is helpful whether desk support or someone at $120,000 per year who is part database administrator, part you’re supplementing your team, treading network specialist and part security expert? water while down a person or in need of full An IT professional with expertise across the IT support. board is rare. Loffler Companies 1101 E 78th St Ste 200 Working Knowledge Bloomington, MN 55420 An IT unicorn should know questions to ask and how to troubleshoot when something breaks. People new to IT may be developing this knowledge and may take time to understand the innerworkings of your business. James Loffler Vice President — IT Solutions Group Business Savvy Alignment of IT and business strategy are 952-925-6800 info@loffler.com essential to remain competitive. Especially www.loffler.com for a small- to medium-sized business

SEPTEMBER • OCTOBER 2018 UPSIZE

UPSIZE RESOURCE DIRECTORY accounting Cummings, Keegan & Co., p.l.l.p

BANK Highland Bank

COMMERCIAL PHOTOGRAPHER Tom Dunn Photography

St. Louis Park, MN • Apple Valley, MN 952-345-2500 • www.ckco-cpa.com Kathy J. Klang, CPA/ABV

Rick Wall, CEO | 952.858.4753 Jay Hammond, President | 952.858.4810 952-858-4888 | highlandbanks.com

Business owners in all phases – new and emerging, established, and those planning a succession or exit strategy – rely on Cummings, Keegan & Co., P.L.L.P. for a complete range of tax, accounting and auditing, and business management needs. Clients receive a tailored client experience – driven by client preferences, needs, and goals.

Founded in 1943, Highland Bank is focused on small business lending and is an SBA “Preferred” Lender, making us uniquely qualified to help your business obtain the financing it needs expeditiously. Work directly with the decision-makers who will treat you like a business partner. Member FDIC.

308 Prince Street Studio 242 Saint Paul, MN 55101 651-368-2047 www.tomdunnphoto.com Tom Dunn tom@tomdunnphoto.com Tom is a commercial photographer who has been helping businesses tell their unique story with photographs for websites and marketing materials since 2006. Tom works closely with his clients to understand their business and branding strategy and creates images that support their mission and success.

ACCOUNTING Olsen Thielen CPAs

Bank North American Banking Company

commercial real estate The Ackerberg Group

Roseville, 651-483-4521, Michael Bromelkamp Eden Prairie, 952-941-9242, Thomas Pesch www.otcpas.com

Offices located in: Roseville, Minneapolis, Woodbury, Hastings Brad Huckle, President and Chief Lending Officer www.nabankco.com

Lake Calhoun Center, Suite 10 3033 Excelsior Boulevard • Mpls, MN 55416 612/824-2100 • www.ackerberg.com Stuart Ackerberg • stuart@ackerberg.com

Our goal at North American Banking Company is to give business owners all of the banking services they need and make it a great experience. Our bankers are seasoned professionals in all areas of business banking. You will find it’s easy to do business with bankers who are focused on you. We’re not your average bank.

The Ackerberg Group creates vibrant neighborhoods in Minneapolis’ urban core by combining astute development, renovation, investment, management and brokerage services with passion for social and ecological sustainability and the arts. Since 1964, Ackerberg has created office, industrial, retail, residential and mixed-use projects that have transformed neighborhoods through the development of long-standing relationships with neighbors and tenants alike.

We strive to provide an exquisite client experience that is dedicated to building strong relationships while providing a hands-on approach to business consulting. In addition to the traditional CPA services, we provide valuations, employee benefits, HR, and back-office accounting. We also have extensive experience working with start-up companies, mergers, recapitalizations and financing. Depend on Our People. Count on Our Advice. SM

Member FDIC

ADVERTISING • MARKETING Risdall

business machines Coordinated Business Systems, Ltd.

computer consulting Intertech

851 W. 128th Street• Burnsville, MN 55337 (952)894-9460 (p) (952)894-9238 www.coordinated.com • Jim Oricchio – President

1575 Thomas Center Drive • Eagan, MN 55122 www.intertech.com • Ryan McCabe at rmccabe@intertech.com or 651.288.7001

With over 40 years of success, Risdall is one of the longest-standing marketing agencies in Minnesota. We harness creativity, technology, and data to help brands live fully and effectively online- creating vital digital visibility that drives engagement and business growth. Our experienced team can provide your organization with the strategy required to create integrated programs that drive bottom line success.

Coordinated Business Systems is Minnesota’s premier independently owned and managed provider of document imaging technology and managed IT and network services. In addition to providing the latest hardware and software, our mission is to offer custom designed managed print services, document management and managed I.T. and Network services programs to help business of all sizes improve profitability, increase productivity, lower costs and maintain their competitive edge.

Intertech consultants are leading software developers who focus on more than simply “heads down” programming. We provide comprehensive software services – consulting, project delivery and mentoring – for all leading technologies, most notably Java, .NET and mobile. Intertech consultants are highly experienced and among the IT industry’s top contributors at conferences, technology journals and user groups.

business machines Loffler Companies, Inc.

insurance O’Rourke Agency, Inc.

BANK Crown Bank

Innovate. Deliver. 1101 East 78th Street, Suite 200 • Bloomington, MN 55420 952-925-6800 phone 952-925-6801 fax www.loffler.com • Jim Loffler — President

Kevin Howk, President 6600 France Avenue South, Suite 125 Edina, Minnesota 55435 Ph: (952) 285-5800 www.crown-bank.com Imagine a bank that actually helps you get what you want. Instead of red tape, loan committees and canned lending formulas. Work with a decision-maker who can back you up from start to finish.

Member FDIC

Loffler is your one call for office technology and services. Our integrated solutions from digital printers & copiers (Canon, Konica Minolta, HP, Lexmark, OCE & Toshiba) to telephones, IT services, dictation, document management software and on-site managed services improve your productivity and bottom line. Our fast, reliable and professional customer service makes Loffler your first choice.

UPSIZE SEPTEMBER • OCTOBER 2018

ADVERTISING SECTION

41 North 10th Avenue Hopkins, MN 55343 952-932-7219 (phone) 952-932-2820 (fax) www.orourkeagency.com Tim O’Rourke Our agency has provided personal and business insurance services for the past 30 years. We proudly represent a number of outstanding insurance carriers, including Chubb, Metropolitan, Progressive, Travelers and Kemper. Call us for all your insurance needs!

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UPSIZE RESOURCE DIRECTORY LAW FIRM Lommen Abdo

mailing services Braemar Mailing Service Inc.

SUCCESSION PLANNING Lommen Abdo

1000 International Centre, 920 Second Avenue South Minneapolis, MN 55402 612-339-8131 | 800-752-4297 www.lommen.com | Contact: Jesse Beier

7379 Washington Ave S • Edina, MN 55439-2417 tel: 952-767-0300 fax: 952-767-0345 www.braemarmailing.com cu@braemarmailing.com

1000 International Centre, 920 Second Avenue South Minneapolis, MN 55402 612-339-8131 | 800-752-4297 www.lommen.com | Contact: Cameron Kelly

Looking for a business lawyer who speaks plain English and not legalese? Contact Lommen Abdo where we focus on small, medium-sized, family and closely held businesses. Our attorneys operate like your outside general counsel – providing you effective legal advice and sound business strategies. We are upfront about our costs and will work with you to budget legal expenses.

Since 1985 business mailers who value personal service and meticulous attention to detail have found one company rich in both. We are postal experts and list brokers who offer a full service lettershop and data management services. Your mailing, unique or ordinary, in large quantities or small, receives Braemar-style attention to detail. We are proud of the work we do and the customer service we provide.

You owe it to yourself, your family, your co–owners and your employees to have a business succession plan in place in the event of incapacity or death. Every business and every family is unique and your succession plan needs to fit your goals for your business and your family. Contact us to design a plan that meets your goals.

LAW FIRM Winthrop & Weinstine, P.A.

SBA LENDER Highland Bank

venture capital Brimacomb + Associates

Capella Tower, Suite 3500 225 S. Sixth St. • Minneapolis, MN 55402 Tel: 612.604.6400 • www.winthrop.com

Rick Wall, CEO | 952.858.4753 Jay Hammond, President | 952.858.4810 952-858-4888 | highlandbanks.com

Winthrop & Weinstine has a long tradition of representing entrepreneurs and rapidly growing private and public companies across the Upper Midwest and the United States. Our mission is to help fuel the growth of great companies. We are committed to providing outstanding service, sound advice and strong execution. We offer flexible fee arrangements including fixed fees, “success” fees, hourly fees, blended fee arrangements and performance-based agreements.

TCF Tower, Suite #1600, 121 South Eighth St., Minneapolis, MN 55402 612-803-3169 * www.brimacomb.com Rick Brimacomb, rick@brimacomb.com Chief Strategy and Relationship Officer Results-oriented advisory firm with unparalleled access to executive suites and financing sources. Emerging companies and established professional services firms rely on our depth of knowledge and deep-network connections to grow client lists, assemble project resources and secure new sources of funding.

GROW OR DIE Move your business forward with investment capital generation, deep-level network connections and strategic refinement consultation from Brimacomb and Associates. We partner with emerging companies and professional services firms to offer unparalleled access to professional resources, executive suites and financing sources.

www.brimacomb.com 612.803.3169 • rick@brimacomb.com www.upsizemag.com

ADVERTISING SECTION

SEPTEMBER • OCTOBER 2018 UPSIZE

BACK PAGE St. Paul SCORE touts online business guide

CORE, the nationwide nonprofit resource partner of the U.S. Small Business Administration, has long been known for mentoring to small business owners. It’s 300 chapters and 10,000 volunteers meet directly with clients and offer additional insights through free or low-cost educational workshops, through which it hopes to foster a vibrant small business community. The organization’s St. Paul chapter kicked its efforts up a notch earlier this year with an online client resource guide, which provides easy access to actionable research and information entrepreneurs can use to start and grow their business. Harry Miller, director of SCORE St. Paul, shared some details on this new resource with Upsize’s Managing Editor, Andrew Tellijohn. Tellijohn: How would you describe the SCORE St. Paul Client Resource Guide? Miller: Our intent with this tool is to provide our clients with a single point of reference in their business

that can reliably and consistently be looked at to build your business.

development efforts. To put this in perspective, we’re all familiar with the challenges of building a business plan and leverage various sources of information. How often have you started down the path of research only to get an “error 404” or “page not found” message? Or, done a ton of research, taking copious notes, just to find yourself scratching you head as to how you found the data you’re working with. This guide makes the process of finding meaningful, actionable content easy and consistent. We’ve streamlined the process with both embedded and linked content from our own body of work done over the years to the tools available from the SBA to trusted third-party content

Tellijohn: What kind of content will business owners find in the Guide? Miller: The SCORE St. Paul Client Resource Guide is a simple PDF with linked and embedded content that can be used by anyone looking to develop their business plan or improve their business development efforts. Content ranges from cross-references to the SCORE sites for general information and links to our learning resources, to specific areas, such as what it takes to start a business, business plan research and development, marketing resources and development, financial resources and, finally, legal resources. The guide has been designed with an easy and intuitive user interface that’s compatible across platforms, whether you’re on a MAC or PC. The version available now is in its second release with continued enhancement planned based on client feedback, which has been great, and the evolving needs of our market. Tellijohn: How can they access it? Miller: Access to the guide is easy. Go to: https://bit.ly/2QKAZbE to find a download link. There is no cost. contact: HARRY MILLER, director, SCORE St. Paul: 651.340.2699; harry.miller@scorevolunteer.org; http://stpaul.score.org.

UPSIZE SEPTEMBER • OCTOBER 2018

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PROTECT what’s important to your organization.

A data breach can put an organization in the dog house. It’s not a matter of if an attack will happen, but when. The proper security measures can make all the difference. Choose a partner whose bark is bigger than any hacker’s bite.

SECURITY • DISASTER RECOVERY • MANAGED SERVICES • CLOUD

Learn more at www.loffler.com • 952.925.6800