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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Beth Ewen
June - July 2011

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Opposing views

Beth Ewen,
Upsize:

bewen@upsizemag.com
dev.divistack.com

Maia Haag,
I See Me! Inc.:

952.473.3939
mhaag@iseeme.com
www.iseeme.com

Rick Lowenberg,
Highland Electric:

651.690.1551
rick.lowenberg@minnesotaelevator.com
www.highland-electric.com

Two winning CEOs take different paths toward growth goal

by Beth Ewen

ABOUT THIS CONTEST
The Upsize Growth Challenge, presented by Winthrop & Weinstine, is a contest created by Upsize magazine to match two winning business owners with the expert advice they need to reach their goals. From nominations, judges Western Bank. Upsize covers their progress in this issue, covering workshop 1 that convened in May, and in the October/November issue, covering workshop 2. Nominations for next year’s contest open in winter 2012.

EXPERT ADVICE…

…ON PLANNING FOR GROWTH
“As you look to move to $10 million in revenue, would you have to make investments in infrastructure, in people?” asks Bridget Manahan, senior vice president and a commercial lender with Western Bank in St. Paul, and the Upsize Growth Challenge financial and operations expert.
That’s a crucial exercise for any business owner: carefully forecasting the effect on cash flow, profit margins, etc. before you step on the gas.

…ON SETTING GOALS
“You’ve mentioned the goal to bring it to $10 million. I think those kinds of benchmarks are really important psychologically, ” Manahan says to I See Me! Inc.’s co-founders.

…ON BALANCING GROWTH VS. PROFITS
“I’m a big proponent of financial modeling,” says Manahan. “Given that you have been able to finance this with the profitability of your company, that tells me you have some flexibility to push the top line.”

…ON MEASURING SUCCESS
“There are a lot of different ways to define growth and to define success,” says Manahan, to Highland Electric’s president. “If a growth goal is in part to fulfill a mission that includes serving the non-profit sector, then, A, it’s a legitimate business goal and, B,  it serves to grow another segment.”

CONTACT
Bridget Manahan, Western Bank:
651.290.8140;
bmanahan@western-bank.com
;
www.western-bank.com


EXPERT ADVICE…

…ON ATTRACTING INVESTORS
“”The spending only makes sense if the spending is smart,” says Brian Kensicki, an attorney with Winthrop & Weinstine and the Upsize Growth Challenge legal expert.
He cautions that business owners seeking outside capital must expect big changes. “The private equity piece-that’s a personal issue. Right now it’s your baby. When private equity comes in they’re going to ask for a million things.

…ON MAXIMIZING DISTRIBUTION
“You seem to be focusing on your website for revenue growth, but I wouldn’t overlook Nordstrom” and the other prestigious retailers through which I See Me! sells, Kensicki says.
“If you could get exclusive arrangements, that would really add value to a sale of your company down the road.”

…ON PROTECTING ASSETS
“You’re going to have a good thing,” says Kensicki, so make sure it’s protected. That means ensuring the company owns everything, an especially important point when outside contractors or vendors are participating in creative development. Also, have well-crafted employee agreements in place so staff cannot leave and start their own competitor.

CONTACT
Brian Kensicki,
Winthrop & Weinstine:
612.604.6621;
bkensicki@winthrop.com;
www.winthrop.com

With top-line goal clear,
I See Me! co-founder
can map steps to reach it

Maia Haag has a clear goal in mind for I See Me! Inc., her 11-year-old personalized children’s book business. “Our goal is to double our revenue in five years,” she tells the Upsize Growth Challenge experts, from $4.4 million now to about $10 million. “5 over 5” is the catchy way she describes it.

She is being pushed by an advisory board who wants her to “go, go, go,” Maia says, and take more risks than she has been accustomed to do. “After I left General Mills I worked for two companies that went bankrupt. That influenced me as a financial manager. The strategy has been pull up by the bootstraps, fund as we go.”

The company has grown so far with proceeds from profits and a line of credit, and she’s unsure about spending enough fast enough to double the number of website visitors, which is what she feels it will take to reach $10 million.

Venture capitalists, too, have approached Maia and Allan Haag, her husband and company co-founder. Should they go the private equity route, they ask the experts, adding that their ultimate goal is to sell the business. She is also a bit frustrated that an initial fast growth clip has slowed in the last two or three years; revenue has been flat through the recession.

She presents two questions to the panel: “How aggressive to be with spending, and what’s better for the long term, growth or profitability? If I were very aggressive with spending I can find ways to grow,” she says.

The panel quickly lays out the key issues for her or any similarly situated entrepreneur: Maia should detail how much money she would spend, and specify exactly how she would spend it, starting with the next 12 months and then projecting for each year after that. But first they hear some background about the founders that adds nuance to the challenge.

Gorgeous illustrations
Maia and Allan thought of the company name while walking around the lake with their newborn baby, now 13. They had been delighted to receive a personalized book for a baby gift but thought they could improve the quality. Eventually she left her marketing career at General Mills to try to do it better, and Allan, too, began to shift more and more of his independent graphic design business to working on the books.

I See Me! was a one-product company for six years, with the book built around the child’s name; animals bring the letters to spell the child’s first and last names. Now they have 10 titles, with a fairy bringing the letters or a pirate. “Who Loves Me?” has the names of six people who love the child. “God Loves Me” works for Christian, Hindu and Muslim babies. “The World According to Me,” Maia’s favorite, she says, allows the child to be the author and illustrator.

Gorgeous illustrations and high-quality production are Allan’s focus, important because he believes the quality differentiates their books from what he calls “fly-by-night personalization” that marks many so-called customized products.

“We strive to make sure we’ve met three criteria,” Maia says. “Does it build the self-esteem of the child? Have we executed it in a high-quality way? And is it unique?”

Brian Kensicki, an attorney with Winthrop & Weinstine law firm in Minneapolis and the Upsize Growth Challenge legal expert, cautions the entrepreneurs about how drastically their life would change if they sought outside funding. “Right now it’s your baby,” he says. “When private equity comes in they’re going to ask for a million things.

“They’re going to want their money back first, before you get it. There’s going to be a third group involved as well: the investors behind the private equity fund. When you bring in private equity, it becomes a lot more complicated,” Kensicki says.

Too, outside funders may not be as focused on quality as the Haags are, something that Kensicki supports because it sets them apart from competitors. “If you don’t have a quality product, it won’t be successful.”

Bridget Manahan, senior vice president at Western Bank in St. Paul and the Upsize Growth Challenge financial expert, approaches the subject in a different way. “I think those kind of benchmarks are really important psychologically,” she says, applauding Maia for stating a clear revenue goal. She suggests that the Haags back up from their top-line goal and do the financial analysis required to get there, breaking the issue down into 12-month periods.

First, though, she wants them to consider a critical issue: how much growth they can handle with their current cash and infrastructure. “When you’re spending money, what do you spend it on?” Manahan asks.

“Marketing is No. 1; we spend a lot of money on Internet advertising,” Maia says. “Wages and technology are No. 2, with our ordering system and our ability to personalize books. And No. 3 is new products.”

Maia believes they can double their number of orders with the current technology infrastructure; she believes they can keep up the pace of introducing one new product per quarter with existing people as well. (The company employs six, and outsources the printing and distribution of the books.) Manahan emphasizes the importance of understanding how growth will affect expenses, profit margins and cash flow-before stepping on the gas.

Manahan probes further. Set aside the source of the cash for a moment, she says. “If you were going to take a bite-sized piece out of your five-year goal-so 12, 24, 36, 42 months-do you know how much you would need to spend and how you would spend it?”

“No,” Maia responds, and it is clear that here is the opportunity for her to shore up her growth plan.

“I’m a big proponent of financial modeling,” Manahan says. “Given that you have been able to finance this with the profitability of your company, that tells me you have some flexibility to push the top line a little bit. If strategically my goal is to sell, then the important question becomes what am I selling-then the growth piece is very important.”

Ask yourself, what are the marketing initiatives, and drill down, Manahan advises. “Over the five-year, 60-month period-go through the exercise of projecting forward. What are your key initiatives for 2011, 2012, 2013, and what does that mean to the top line, to the gross profit margin, and then to the bottom line.”

Maia can then monitor those numbers, and if the top line isn’t met, for example, make adjustments to the plan right away. That may also make her more comfortable with taking a more aggressive approach than she has been used to.

Matching temperaments
Deb Cochran, marketing director at Winthrop & Weinstine, suggests the Haags be sure to check for personality fit as they embark on a series of meetings to hire a marketing firm to boost website visitors. “You know yourselves pretty well. You’re going to take some risks but not big risks. Find someone to match your temperament,” she says.

She applauds their marketing moves so far, especially their efforts to attract more visitors to their site. “Now it’s not outbound. It’s inbound,” she says of the trens in marketing. “So you want people to come to your website to build community.”

She believes they have an opportunity to add licensed products to their line of books, such as a special blanket or a bag of blocks with the letters of the child’s name, to add to the tactile experience for customers and the revenue opportunity for the company and for retailers, a selected and prestigious number of which sell I See Me! books.

She also thinks they have a huge opportunity in the trend toward mobile devices: perhaps they could develop an I See Me-branded hand-held device, which would also push their market into an older age group; right now it’s 0 to 6 years of age. Cochran acknowledges this idea would change the nature of the company, and likely require outside investment. But she also warns that if they don’t do it someone else will take the space.

All experts agree that the Haags are in a good position, with high-quality products and a profitable business. Kensicki ends with a word that they make sure to guard it. Do they have agreements in place to make sure they own all their intellectual property? Do they have well-crafted employment agreements to make sure no one takes their business and starts a competitor? “You’re going to have a good thing,” Kensicki says. “Make sure you own it all.”

Stating overall goal
can help Highland
Electric’s boss reach it

After working on more than a hundred turnarounds, Rick Lowenberg has developed firm beliefs about how to run a company. No. 1: Chasing revenue growth is forbidden. Cash flow and profits, rather, are the paths to success.

In 2008 he became a business owner for the first time, buying a 50 percent stake in Highland Electric, a 46-year old electrical contractor in St. Paul, with the remainder split between Steve Romnes and Ron Romnes. He is also president of Minnesota Elevator Inc., a $50-million sister company whose customers Highland Electric now serves.

Ownership to him isn’t a big deal, he says: He runs companies the same way whether he owns it or not. (See the accompanying interview to learn more.) Companies should identify their strength, Lowenberg believes, the definition of which is simple: “It’s what customers will pay a fair price for with a good profit margin-that is what a company is good at.”

One of two winners of this year’s Upsize Growth Challenge, Lowenberg asks the experts assembled to help him  for their insights on how best to diversify. They end by pointing out that he needs to articulate a clear overall goal-even an ambitious revenue target, they suggest-to help inspire employees, attract specialty customers and influence the industry.

“Don’t be afraid to think big,” is how Brian Kensicki puts it, a Winthrop & Weinstine attorney and the Upsize Growth Challenge legal expert.

No slogans
When asked why he bought Highland Electric after passing up many other opportunities for ownership, Lowenberg’s answers are prosaic: It’s located in town; the industry is not one he dislikes; it’s a service economy; it didn’t have “idiot sons” running the place; Minnesota Elevator needed the office space that Highland had.

It’s vintage Lowenberg, who is not one to spin slogans. Rather, he likes to use the same simple processes that have helped him turn around countless companies. For example, he opens the books to all employees and reports financials each week, including the number of labor hours bid-something many owners keep top-secret. He invites all employees to an annual planning session, and each comes up with a short list of measurable goals to meet in the next year-and they all check on each other six months and a year later.

Highland Electric’s fortunes began turning once Lowenberg brought on a new operations manager, Derek Nissen, in 2009, who began leveraging past relationships at multi-store retail customers and large commercial customers. They added a line of self-contained battery storage solar poles that do not require electrical connection, and a line of surge protection products, the latter of which is proving more fruitful for the company so far than the former.

With the addition of passenger and freight elevator service, ready-made business from Minnesota Elevator, revenue increased 78 percent in 2010 from the year before, to $720,000, and the company is on track to grow 30 percent this year. “It’s coming from diversifying into various segments,” Lowenberg says. He accesses those segments with “old-school social networking,” he says: a specific number of flyers, e-mails, “lunch-and-learns” with key customers, and the like for each target.

Kensicki, the Winthrop & Weinstine attorney, asks whether Lowenberg is interested in growing the residential side of the business, and suggests they ask customers to review the service on Angie’s List to increase calls.

He also suggests a possible acquisition strategy for Highland Electric. Competitors for residential business tend to be tiny shops, these days often with a single owner who would like to retire but has no way to sell the business to do so. If Lowenberg offered such owners a small earnout, or a percentage of any additional acquired business for a short period, he could grow the customer base plus ease competitors out with at least something in their pockets.

Bridget Manahan, senior vice president with Western Bank in St. Paul and the Upsize Growth Challenge financial expert, quizzes Lowenberg about the profitability of the business lines, and learns that all are profitable now, with commercial being by far more so than residential. She applauds Lowenberg’s choice of an industry that doesn’t require huge capital investments in equipment, and his focus on cash flow and profits. “You can afford to be opportunistic,” she says.

“You clearly have a great team in place, and you have a solid brand, and you have some defined areas of expertise,” Manahan says. “So I would ask you a question now: What are the questions you need to answer to exploit those strengths?” That will be an important exercise to bring to his management team, and perhaps a higher-level challenge than they have been used to considering.

She, like Kensicki, is suggesting he think bigger about the business. “So what’s your long-term strategy?” she asks.

Lowenberg demurs: “I think it’s slow, baby steps. We’re not looking to double in size, but it’s adding another component each year. No. 1 is cash flow and profit.” He likes to try one thing at a time, such as the solar pole product, which hasn’t sold as well as he hoped. “We learned that you need to find a bigger market for something like that, statewide rather than local.” On the other hand, another initiative, working with non-profits such as museums as a niche market: “that is going well.”

Deb Cochran, marketing director at Winthrop & Weinstine who lent her expertise at the workshop, pushes the point. “I think you should put a strategy together around marketing, including revenue goals, because people follow the incentives.”

She urges him to continue to identify target markets to serve, and suggests such things as beauty salons or jewelry stores or art galleries, with particular electrical or lighting needs. “What can you own in terms of branding?” Cochran says is the question to ask.

She holds out the Highland Electric card, which says blandly: “24-hour service; residential, commercial, industrial. “This doesn’t state your value proposition,” she points out, and suggests an alternative tag line like: “The electrician for specialty needs.”

Passionate point
Cochran repeats her suggestion to state a revenue goal: “You want to put a number on your revenue that you can strive for.” But Lowenberg pushes back, saying such projections can just be silly mathematical exercises that no one believes, and that such measurement doesn’t inspire him, anyway. He asks about alternative ways to measure success.

Then he lights up when telling the panel he arrived at the workshop that day after delivering Meals On Wheels to people, something he regularly volunteers to do. He also cites the eight boards on which he serves, and the non-profits that his company serves. “You just feel good about going in there and helping them, and it’s needed,” he says. He also challenges his employees to volunteer up to eight hours in the community, and then gives that back to them in vacation pay.

The panelists notice the change: Lowenberg is obviously passionate about this topic, so they suggest he find a way to make community service part of his company’s overall mission. For example, Cochran tells about an HVAC serviceman she knows who donates some of his company’s time to filling the needs of a builder of group homes for people with developmental disabilities-and in turn gains business in the fast-growing assisted living industry.

Manahan suggests he align his company with agencies that help people stay in their homes longer, something that would resonate in the Highland Park community, full of older homes with aging residents, and also build his residential business.

Their point isn’t to suggest a particular path for Lowenberg to follow, but rather to urge him to tap an obvious hot button. In the end, articulating an inspiring and satisfying mission will help him drive the business.

It may even help Lowenberg see, for the first time, the special benefits that come with being a business owner, rather than just a turnaround manager at somebody else’s company. “There are lots of different ways to define growth and to define success, and the luxury of being an owner is you can choose,” Manahan says.