Sep
18
Minneapolis
32°
debriefing

The Upsize Growth Challenge: Track records

Brideget Manahan,
Western Bank:

651.290.8140
bmanahan@western-bank.com
www.western-bank.com

Brian Kensicki,
Winthrop & Weinstine:

612.604.6621
bkensicki@winthrop.com
www.winthrop.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

I See Me!, Highland Electric
chart progress toward goals

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 the sponsoring companies: Brian Kensicki and Deb Cochran of Winthrop & Weinstine and Bridget Manahan of Western Bank. Upsize covers their progress in this issue, covering workshop two that convened in September, and in the June/July issue, covering workshop one. Nominations for next year’s contest open in spring 2012.


After a frustrating couple of years with no revenue growth, I See Me! Inc.’s sales are up 10 percent year to date, reports CEO Maia Haag, generating praise from the experts gathered to hear her company’s progress at the second of two Upsize Growth Challenge workshops, in September.

The Deephaven-based publisher of personalized books designed to increase children’s self-esteem is one of two winners of this year’s contest, which matches two companies with expert advice to  help the owners reach an ambitious growth goal. Haag’s goal is to double her company’s revenue, to roughly $10 million, in the next five years. She calls it “five over five.”

Bridget Manahan, a commercial banker with Western Bank in St. Paul and the Upsize Growth Challenge finance expert, compliments Haag after she details the steps taken since workshop one. “I’m impressed but not surprised,” says Manahan. “It sounds to me like you’re doing a remarkably good job.”

Brian Kensicki, an attorney at Winthop & Weinstine in Minneapolis and the Upsize Growth Challenge legal expert, wants to know the reasons for the growth, and Haag ticks them off.

“We’ve been doing a great job of introductions of new books,” Haag says, with a nod to her husband and company co-founder, Allan Haag, also at the workshop. Through his design firm, he runs development and production of the books, insisting on high-quality illustrations and digital personalization that looks handmade.

“We’ve been doing a better job at marketing to existing customers,” she says. Adds Allan Haag: “Our e-mail strategies are becoming more refined. Now we’re in a nice spot where we’re hitting more refined targets.”

Haag lists three specific actions taken since workshop one, in May, that she believes have moved the company toward its goal. First, a detailed set of financial forecasts is now in place, which Haag says is helping her team focus on specific actions and benchmarks to reach along the way.

“The last meeting was good as a prompt for me to get started on our financial planning, and for getting our goal-setting done,” Haag says. They do that every year at I See Me!, but this year’s effort was delayed. Maia says they now have a detailed financial plan in place, with projections regarding revenue, profits, wages, inventory and many more items stretching ahead for three years.

Western Bank’s Manahan, especially, is a strong advocate for such financial modeling, and had urged Haag in May to make projections for each 12-month period over all five years of her growth goal. That’s the only way to reach such a target, Manahan says, and ensure that rising revenue will be matched by adequate cash flow to cover higher expenses.

Second, Haag hired two marketing agencies, each with a different specialty area, to help the company increase traffic to their website. She figures I See Me! needs to double the number of visitors to its website, in order to double revenue.

It’s the first time the Haags have gone outside the company to hire marketing expertise; Haag herself has a background in marketing at General Mills.

Allan Haag describes how he decided which firms to hire, after interviewing a half-dozen over the summer in pitch meetings. “I’m really observant of people’s gestures,” Allan says. “I’m looking for an interest level. I’m looking for how they prepared for the meeting. I’m looking for, how serious are they going to take us? How important are we to them as a customer?”

Third, the Haags have a surprise to unveil, in the works for some time but not ready to be mentioned at workshop one, in May. They plan to launch in late October a $4.99 app called My Very Own Name, which brings their personalized book title to the iPad.

They expect children will like the interactive app, and they think parents will be happy with its educational aspect. But they don’t have big revenue expectations for it-unless they reach the “holy grail,” as Allan puts it, and get listed on iTunes’ home page. They developed the application to beat competitors.

“I didn’t want to see anybody else there,” Allan says.

Adds Maia: “Part of it is a move of making sure that we’re learning this new world. We don’t expect it to revolutionize our business,” or be part of a new, broader suite of products. “But we’re experimenting.”

No wild spending
In fact, experimenting with new products or especially new marketing techniques is a key strategy for Haag, who says her experience working for two Internet companies that went bankrupt is now “part of my DNA.”

“We’re not going to spend wildly before we know it’s going to work,” Maia says. “But what I am trying to do is to push hard to try different tactics. So then when we know what works we will push the accelerator to the floor.”

Still, the Haags often discuss whether they’re being too cautious, whether they should go after venture capital investors and grow much faster than their current plan.

Winthrop & Weinstine’s Kensicki suggests they talk this over with entrepreneurs who have gone that route, and venture capitalists who can tell them what the interest level might be. He suggests a particular contact who could help them sort through the issue.

He also suggests they might benefit from adding diverse viewpoints to their advisory board. The Haags rely on an active advisory board now, a fact that the Upsize Growth Challenge experts applaud. But the board members are all successful entrepreneurs who continually tell Haag to grow. “Their view of the world is drive revenues like crazy and it will work out,” Maia says.

Kensicki responds: “You were saying all your people are go, go, go-ers. You need a naysayer.” He mentions one of his clients, a company that recently sold for $120 million, and has a “very diverse board.”

“Talk to people about this,” Kensicki says, to learn what it’s like to go for outside investment, with results both great and rotten. “Just because you get the cash from the VCs doesn’t mean you’ll get the growth.”

He encourages them to stick to the beliefs and plans that feel right to them. “You’ve done a great job” growing the company so far, he says; they should feel confident they will continue to make smart decisions.

Maia Haag continues to wonder: “We talked last time about the negative side of venture capital, but when I do talk to VCs, that’s when I start thinking. Because I’m used to working with a bank and internal funds, I will question sometimes: should we be ramping up and changing our model entirely?”

Western Bank’s Manahan suggests Haag do the same exercise with outside investment as she did with internal and bank funds. “The question I would ask you is, if you received X dollars from venture capital, what would the next 12 to 36 months look like?

“It would be interesting for me to know how much you’re thinking about, because that will influence the nature of the investor who will be attracted.”

Then Manahan cautions the Haags against abandoning their track record of profitability year after year. “Your ability to demonstrate consistent profitability is important to retain control of your company,” she says. “Too often we’ve seen companies bite off a risk in the name of growth and then there’s an unexpected event.

Allan Haag asks: “If you get one of those success stories, does that give you greater credibility?” He wonders if they can spend more on a given marketing tactic, for example, and show a loss for a period of time, then become profitable again-and take that story to their banker to borrow more.

Says Manahan: “Part of underwriting credit is the assessment of management. They will do more if they’re confident.”

Then she elaborates: “What the bank wants to see is if you’re going to take the loss, how are you going to fund the loss? There are three ways to do that: You can borrow to fund it. You can retain earnings to fund it. You can put in additional equity to fund it.

“We’re in an environment where you can’t say to a bank, We’ll grow our way out of the losses. That’s not a story they want to hear anymore.”

Although it’s clearly not a closed subject, the Haags seem more comfortable than at workshop one about their decision to grow with internally generated funds, keeping the company profitable along the way. They agree-at least for now, subject to more discussion-that maintaining control of the company is the best way to keep quality high, one of their deeply held beliefs.

 Maia Haag puts it this way: “Our business is a product business, and we both come from product businesses. What I have realized is ultimately it’s all about the product. Do the market research. Execute the product well. And if you do that growth will come much easier.”

Allan Haag says it’s a difficult but crucial standard to meet. “If you do good quality, good quality, good quality, and then poor quality,” customers will notice the stinker, and they will not be pleased. “If you’re going to set the bar high you have to keep it there.”

EXPERT ADVICE…

…ON MAINTAINING PROFITS
“Your ability to demonstrate consistent profitability is important to retain control of your company,” says Bridget Manahan, senior vice president and a commercial banker with Western Bank in St. Paul, and the Upsize Growth Challenge financial and operations expert.

“Too often we’ve seen companies bite off a risk in the name of growth and then there’s an unexpected event,” she adds, speaking not only to the Upsize Growth Challenge winners but to all business owners.

…ON HOW BANKERS THINK
“Part of underwriting credit is the assessment of management. They will do more if they’re confident,” Manahan says about bankers.

Then she elaborates: “What the bank wants to see is if you’re going to take the loss, how are you going to fund the loss? There are three ways to do that: You can borrow to fund it. You can retain earnings to fund it. You can put in additional equity to fund it.

 “We’re in an environment where you can’t say to a bank, We’ll grow our way out of the losses. That’s not a story they want to hear anymore.”

…ON RESISTING LOSS LEADERS
“It merits saying: We are in an environment where you need to be realistic about how much growth we can expect. This is the time to reinforce your message of credibility,” Manahan says. 

She supports Highland Electric’s Rick Lowenberg in his insistence on profitability, and encourages other business owners to follow that lead. “There is a temptation to buy business, and I think it wise not to do that.”

As Highland Electric
prez thinks bigger,
top line grows, too

Rick Lowenberg expected revenue at Highland Electric in St. Paul to be flat this year, but he reports good news at the second Upsize Growth Challenge workshop. “Through July, we’re above what we were all of last year,” he says.

One of two winners of this year’s contest, which matches business owners who have ambitious growth goals with experts who can give guidance, Lowenberg credits his company’s good reputation leading to repeat customers as low-bid competitors fall away.

“I’m seeing more and more out there, if you do a good job you’re going to get the work. It might not necessarily be the low-bid term sheet” that wins the deal, he says.

Lowenberg bought the company last year, his first acquisition after engineering dozens of turnarounds at other people’s companies.

He sticks to his business philosophy that allows no loss leaders, and expects $750,000 in revenue in 2011, up  from $580,000 last year. “In the past electrical contractors would buy work. A lot of them got in trouble,” he says. “With the reduction in contractors there are not a lot of people chewing at what little business there is.”

A key bright spot is servicing commercial elevators, which must meet upgraded code requirements. The deadline to upgrade such elevators was January 2012, but the Minnesota Legislature this past session extended the time frame for three years, he says.

Lowenberg also serves as CEO of Minnesota Elevator Inc., a $50 million company, and deploys Highland Electric’s electricians for the specialized work. “We had to build rapport” with elevator customers, he says. “Now we’ve been able to articulate the benefit of using our electricians, thanks to Derek and the team.” He nods to Derek Nissen, his operations manager who also attended the workshop.

He has added a fourth electrician, increasing capacity. “When you bring in a new electrician, they’ve had a lot of experience, they have a lot of contacts,” Lowenberg says. And Nissen has secured preferred vendor status with the Metropolitan Council, as part of that government agency’s work on crime prevention in St. Paul.

Perhaps biggest of all for Highland, Lowenberg has signed up to be the case study for a marketing class at St. Catherine’s University, which will develop a marketing/communications plan for the firm under direction of a professor.

It will be the first such comprehensive plan for Highland, and he expects the first to do more than tiptoe into social media. “We’re pretty excited about that because that’s something a small business can’t afford,” Lowenberg says.

Many of the fruitful efforts this year illustrate one of Lowenberg’s key attributes as a business owner: he devotes considerable time to board and volunteer service in the local and regional business communities, and maximizes those connections. Both the St. Kate’s and the Metropolitan Council connections happened through Highland Business Association meetings, for example, where Lowenberg is a board member.

Thinking bigger
Upon urging from the Upsize Growth Challenge experts at workshop one, in May, Lowenberg says he is thinking more about articulating his overall strategy to grow Highland Electric. Lowenberg routinely employs tested tactics at the companies he turns around, and Highland Electric is no exception. But now he sounds more ambitious.

“One lesson as a small business is how to think bigger. To be bigger you have to look at your marketing plan, and not grow to get yourself in trouble, but you have to find those market niches that pay a fair dollar for the service and there’s not a lot of competition,” Lowenberg says.

Deb Cochran, marketing director at Winthrop & Weinstine, answers Lowenberg’s questions about marketing with a concise tutorial on social media’s big three: Facebook, LinkedIn and Twitter. “Marketing needs to be integrated, and social media needs to be an important part of that,” Cochran says.

“Twitter is about reputation-building,” says Cochran. “Twitter could be an awesome tool for you because it’s location-based.” For example, Highland could tweet whenever a lightning storm rolls through St. Paul. “You could put out a safety tweet, what to know in an electrical storm, and then you’d get tons of Twitter followers,” she says.

LinkedIn is like a business version of Facebook, she explains, and is best used to establish yourself as an industry thought leader. For example, she says: “You could start your own group of contractors on LinkedIn, post questions and provide thoughtful answers.”

A Facebook page is a must, too, says Cochran, especially for Highland’s residential customers, which make up about a third of the business. “Just do a basic page on Facebook, and then people will ‘like’ you,” she says.

Lowenberg presses her to recommend just one of the three tactics, given time constraints, but she refuses. “I’d do all three,” she insists, emphasizing her belief in an integrated marketing plan. And she urges him to go even further with his leadership role in the community, staking out a signature issue or project that the company can own.

“One of your great skills is your leadership skill,” Cochran says. “What can you do as a leader in the community to really put your stamp on it?”

For example, she suggests: “You could really latch onto that safety issue,” and sponsor a project around that theme each year. Maybe this year it’s sponsoring an effort to repaint all the school crosswalks in St. Paul, and handing out a pedestrian safety booklet at school open house events.

“Think of things where you can be a leader,” Cochran urges.

Brian Kensicki, attorney at Winthrop & Weinstine and the Upsize Growth Challenge legal expert, likes the way Highland Electric is exploring market niches, although he expresses concern over the elevator service business because the upgrading work has a three-year time limit. Lowenberg needs a plan to replace that business when the time comes, Kensicki says.

“You’re doing a nice job exploring a lot of different avenues,” Kensicki says, urging Lowenberg to push further. (Kensicki is consistent: at workshop one he encouraged Lowenberg to think bigger, to quit characterizing his company as the little guy and start acting like a community and industry leader.) “Pick a market and go for it. Commit yourself.”

Bridget Manahan, a commercial banker with Western Bank in St. Paul and the Upsize Growth Challenge finance expert, makes a point to pause the conversation and state what everyone has been thinking since Lowenberg’s opening remarks.

“I would note that moving your top line this year-you’re doing a lot of things right,” she says, and the panel agrees. “You’ve put together a strong management team, and you’re doing it on customer service, building credibility. You are defining and exploiting those niches.

“It merits saying: We are in an environment where you need to be realistic about how much growth we can expect. This is the time to reinforce your message of credibility,” she says. “I applaud you also on your working to develop a plan for going outside a little bit, to think outside the box.”

She concludes by supporting Lowenberg in his insistence on profitability, and encouraging other business owners to follow that lead. “There is a temptation to buy business, and I think it wise not to do that.”

Lowenberg thanks the panel for their input, noting that participating in the Upsize Growth Challenge is one of many concerted efforts he regularly makes to seek the viewpoints of others.

“I think it’s important to use outside opinion and input: this panel, fellow business owners, board service,” Lowenberg says. “You do tend to get a little bit close-minded when you’ve been in it so long. It opens your mind.”

EXPERT ADVICE…

…ABOUT SEEKING VENTURE CAPITAL
The Haags of I See Me! Inc., like many business owners, often discuss whether they’re being too cautious, whether they should go after venture capital investors and grow much faster than their current plan.

Brian Kensicki, an attorney with Winthrop & Weinstine and the Upsize Growth Challenge legal expert, suggests that business owners talk over their plans with entrepreneurs who have gone that route, and venture capitalists who can tell them what the interest level might be.

“Talk to people about this,” Kensicki says, to learn what it’s like to go for outside investment, with results both great and rotten. “Just because you get the cash from the VCs doesn’t mean you’ll get the growth.”

…ABOUT ADVISORY BOARDS
Kensicki suggests that business owners benefit when they have an active advisory board with many diverse viewpoints. The Haags of I See Me!, for example, rely on an active advisory board now, a fact that the Upsize Growth Challenge experts applaud.

But the board members are all successful entrepreneurs who continually tell the Haags to grow. “Their view of the world is drive revenues like crazy and it will work out,” Maia says.

Kensicki responds: “You were saying all your people are go, go, go-ers. You need a naysayer.”

…ABOUT BELIEVING IN YOURSELF
He encourages successful business owners to stick to the beliefs and plans that feel right to them. “You’ve done a great job” growing the company so far, he says to the Haags; they should feel confident they will continue to make smart decisions.

Kensicki urges small-business owners to think big. “Pick a market and go for it,” he tells Rick Lowenberg of Highland Electric, but he means it for others as well. “Commit yourself.”

Beth Ewen

Editor – Upsize MN

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