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LEVERAGED CAPITAL NEWSLETTER Leveraged Capital, is a free monthly newsletter that presents growth and strategy issues effecting entrepreneurs and owners of small to medium size enterprises (SME's). Leveraged Capital is published and delivered electronically to subscribers. Your privacy is strictly respected and we do not share or sell subscriber email addresses to anyone outside of Graham Financial Corporation. If you enjoy what we present, please forward a copy of Leveraged Capital to clients and associates. They can subscribe to Leveraged Capital, by clicking on this link: http://www.GrahamFinancial.com/newsLetter.htm and filling out the quick form.
My dad always said to never apologize until accused. Well, the stuff of life came up last month and I wasn't able to get the March issue of Leveraged Capital out the door - my apologies to those of you who wrote in wondering what was up. This week should prove to be an interesting one - as if the last four weeks weren't interesting enough from a social, political and economic perspective. It seems that many investors are holding their breath for the first big week of quarterly earnings. Many of the reporting companies have been whispering sweet nothings into the ears of analysts that results will be less than estimated. The question for the analysts will be in understanding how much earnings have been hurt by the war and perhaps more importantly, will profits significantly increase over this next quarter now that Saddam is "safely" tucked away in Syria or perhaps, hopefully, in a place less than heavenly for eternity. One more thing - our Prime Minister certainly has not given Canadians much cause for being proud of lately - Mike Weir certainly did on Sunday; a rather sad state when we look to pride on a golf course instead of our House of Parliament; but this too shall pass! Much (long-term) success to you, DPG.
14 Years of Exceptional Service Contact Nikki Barnett (416) 367 - 1055
In This Months Issue: (Click on the Article Title To Go To The Full Story.)
Quote Of The Month: Investment Hindsight:
Stanley Szortyka is founder, chairman, and chief executive officer of Quaker Maid Meats, Inc., a Pennsylvania corporation since 1960, which manufactures, processes and distributes portion control meat products to commercial, wholesale and retail customers. Over forty years ago I traveled extensively throughout Pennsylvania, into New Jersey and New York to sell meat products. At that time, sales calls were a matter of personal contact, driving door-to-door, many missed dinners and sleeping in the back of my "wagon." Business transactions were completed with a handshake, and I drove for hours on two-lane roads, singing out loud, with my shirt open and the car windows rolled down to invite cool air. That was my defense against falling asleep behind the wheel, and I had to push my limit in order to meet all of my appointments. Persistence was necessary, just as it is today. Doors were slammed in my face. Rejection was common. A typical greeting was, "Another steak company? Get the hell out of here!" "But I…." "No! You don’t have anything new to tell me!" The buyer or owner would have the final word and the hopes of a sale abruptly ended, too soon from my point of view and not soon enough as far as the buyer was concerned, I was certain. But I was determined to sell products and returned time and again. For over five years I called on one particular "customer" without an order. Every Tuesday I talked to the buyer, hawking the virtues of my products and trying to leave with an order, only to return home empty handed. I returned for 260 Tuesdays, five years worth, with high hopes of making a sale each time. One eventful Tuesday QM sandwich steaks were frying in preparation for a taste-test. The Chairman of the company walked by, detected the aroma of lunch cooking, and asked what was being prepared. He said it smelled so good, so I jumped at the opportunity to introduce him to QM sandwich steaks and offered him a taste. There was no doubt that he was impressed, and he immediately acknowledged that they were very good. I was prepared to write up an order, after all, the Chairman liked the steaks so I was assured a sale. Wrong! Flat out, the buyer declined to order. To my protests, "but your Chairman liked the steaks," the buyer replied, "it’s my ass on the line, not his if the product fails to sell." Once again I went home empty handed. A long time ago I learned that you must respect the customer. Still determined, I returned the following week just I had done 260 weeks before. That same buyer met with me, but this time he asked if I could make a special item for him. Deliriously happy, I said, "Yes!" and accepted his order. I then promptly got out of my chair, turned and walked straight into the door! The buyer laughed at me, and under normal circumstances my pride would be wounded. That moment, however, I was anaesthetized to both pain and embarrassment…I was walking out with a sale! "Dave, I could have walked through this door and not felt it." I replied. "I have called on you for five years without an order and today I finally have one." I was walking on air when I left Dave’s office and was quickly struck by reality when the thought came to me…how was I going to make the item he requested? That was a small matter in comparison. Today we still service this much-valued customer. Being on time for all appointments is an obligation. When you call on customers, especially potential customers, it’s critical. Another experience comes to mind of the day I was returning from a particularly hectic set of appointments in New York and New Jersey, already late for a 5:00 p.m. appointment in Pennsylvania. By 7:00 I arrived dreadfully late. There were still a few people working so I asked to see the buyer, but he had left for the day. Riddled with guilt (it was not in my nature to be so late), I wanted the buyer to know I tried my best to keep our appointment. Perhaps by approaching him at home I could head-off any ill will for my lateness, I hoped, so I asked for his home address. Remember, forty years ago there was much less separation between private and business life. At the buyer’s home, I went straight to the back door, because that was a more casual approach. The man answer my knock on his door and I immediately introduced myself and apologized for my lateness and intrusion into his home. Probably noticing the signs of an unbearably long day, he graciously invited me inside and asked if I had eaten. The buyer was of Italian decent and self-sufficient in the kitchen. Homemade meatballs, spaghetti, and fresh-baked bread were waiting to be eaten. I responded that I had not eaten and accepted his invitation. Before we sat down to dinner, he asked if I wanted to call my family and advise them of my whereabouts. At that time we lived in Wilkes Barre, but I was in the process of moving to Reading. He was an extremely extremely kind man. Dinner conversation covered a variety of topics. What most astonished me was that I learned he buried his wife last week. I felt terrible, more intrusive than I had already felt, and guilty at the thought of discussing business with a man who was grieving for his lost wife. The man reassured me that my visit wasn’t an imposition and that he in fact appreciated the company. His son was handling the buying end of his business now, and asked if I could return the following morning to meet with him. I eagerly agreed…and stressed that I would not miss that appointment. Arriving on time the following morning, I met the man’s son who was about the same age as myself. We talked and he gave me an order without much trouble and this father and son company became another one of our fine customers. Looking back on the early days of Quaker Maid, I realize that I met extremely personable, generous, and understanding people, including customers, employees and suppliers. I am also reminded of a man I met before the "Quaker Maid" days. He was an "oiler," his sole job was to lubricate machinery and keep it running. With barely a grade school education, the man was capable of designing machinery that boggled the mind. I asked him where he got his ideas, because they were so inspired. He said, "Sometimes I get ideas from the president of the company and sometimes I get them from the guy who sweeps the floor. Sometimes he’s right, sometimes he’s not." This was one of the lessons I learned from my humble beginnings. His open-mindedness allowed him to see the benefits of the grandest ideas coming from the very top on down to the obvious ideas from the humblest workers below. Quaker Maid is celebrating 40 years of manufacturing the best portion-controlled products. Your cooperation and contribution to the Company was instrumental in the Company’s success. Thank you. Your support helped Quaker Maid grow. Great strides were made in the past, yet, the best lies ahead. I don’t drive to work with the car windows down and my shirt open while singing loudly anymore. But we are still beating down doors and getting recognized. Stick around and watch us grow!In 1960, a small meat processing operation named Quaker Maid Meats was founded by Stanely Szortyka. In the years that followed, this family owned company has grown to over 100 dedicated workers in two production plants. Visit http://www.quakermaidmeats.com . This article originally appeared at http://www.genusresources.com . Since its founding in 1985, the firm has worked with over 200 family businesses to resolve a multitude of issues that interfere with sound business decisions.
A cliché of entrepreneurial life is the image of the founder unwilling to let go when the company passes the start up stage and needs someone with managerial skill to drive rapid growth. Another situation in which letting go is difficult, however, occurs when a mature company suddenly finds itself in vastly different circumstances. Take Omnet Inc., for example, the company I founded in 1980 with my wife, Susan K. Kubany. For 23 years, we operated the company entirely on our own - through good times and bad. In the 1980s, we rode the crest of a then-exotic service - e-mail - which we provided to scientists doing research around the globe and needing to communicate across time zones. Annual revenue rose to $3.2 million. In the mid 1990s, when the Internet dealt our proprietary service a crushing blow, we shuttered the business, moved from Boston to Staunton, Virginia, where costs are lower, and repositioned Omnet as a consulting firm focused on information technology and the Web. Time for a Partner. We had operated all on our own, with nary a thought of bringing in a partner - until recently, that is, when a wave of good fortune has forced us to think the unthinkable: that we may have to hire someone other than an employee. You might also be thinking of finding a partner, should your business follow a similar trajectory. In our case, my wife - Omnet's president - has been pursing government contracts for the past several years. What happened recently is that many began coming to fruition. We were named a prime contractor by one agency, meaning that work is about to flow to us. A large contract is in the works that will increase revenue geometrically. Several smaller pieces of business are also on the horizon. All of a sudden, our staff of seven employees seems dwarfed by the opportunities, and my wife and I question the scope and adequacy of the skills we bring to the table. It is time, in short, to think about a partner. Wrestling with this dilemma - and it is a dilemma that we're far from having solved - has led to a flurry of questions on a number of levels that I will share in this article in hopes of guiding entrepreneurs in similar situations. To Partner or Not to Partner. At the most fundamental level is the question of whether we need to partner. An entrepreneur, of course, could forego enticing opportunities and choose just to coast, especially if the outcome would involve merely growing less rapidly than otherwise would be the case. However, if those dangling plums represent an important change in your market, or a shift in what your customer wants, perhaps you can't as easily ignore them - and survive. At the next level, you might be able to pursue the new opportunities by simply taking on a new employee, one that you manage as you have managed others so far. If that is possible, you don't have a problem. However, if the opportunity requires a self-starter, someone who is ambitious and au courant with the technology, and who has skills you don't have, you might need to face the fact that you need a partner rather than an employee - and that you need one sooner rather than later. Ask yourself: are you expanding from a customer base with which you are familiar to one with a different culture? Are you shifting from a business model in which you will incorporate products into a service you've been providing, or vice versa? Are you aiming (like Omnet) to actively pursue large government contracts? The Role of Authority. If you've answered yes to the above questions, you've taken your thinking about partnering to the next phase. You might believe that the task is as easy as finding a person with the right skills and giving that person the authority to do the job. (This is all the more doable in this Internet era, in which you can search for talent nationally and even internationally as easily as placing ads in the local newspaper.) Ah, but the kicker is that little word "authority." When a bright self-starter takes the plunge and pulls your company into a promising new market, that person is going to know more than you do and substantially increase the value of your company. In return, he or she may want and deserve to be rewarded with more than a salary. Thus, the ultimate question becomes: if you are going to have to give up some control to achieve greater value for your company, are you ready for that? Do the math to figure out what the new opportunity is worth to you. In other words, how much of your company can you justify setting aside for a partner to drive the new business? At this point, you also need to address the thorny issues of how big a cut the new shareholder gets and what that person, in turn, might be expected to chip in, over and above expertise. Wrestling with Demons. Whether you can cede some control is just the first of the demons with which you will have to wrestle. Recognize that bringing a partner into a mature business isn't the same as doing so in a start up. When moving from infancy to adolescence, a company doesn't have a lot of history or a deeply engrained culture. When moving from maturity into a new phase, however, it has all of the above, plus a customer base to protect and a well-established chain of command. Do you really want to stir up all of that? One specific danger is that your company will split in two, psychologically speaking. One group continues with business as usual, while another cohort led by the partner could go off on its own. As a way to guard against the culture shock of such a split, you might consider setting up the new group as a separate corporate entity, or moving it into different physical quarters or to another geographic location. Inevitably, some corporate upset will occur as a result of your bringing in the new authority figure. The trick is to keep it to a minimum by establishing in advance the boundaries of the person's authority and making sure those boundaries are understood by others in the organization. A clear commitment to the new partner as to the extent and timing of his or her own rewards is also in order. A Balancing Act. Ultimately, recruiting a partner involves a delicate balancing act. You must give your new equity holder (or potential equity holder) the authority and personal space to get the job done, while making sure the values and culture that served you well for a long time don't get lost in the turmoil. After all, those values are a part of how your existing customers see you. The balancing act also involves a nod to the inevitability of change. And change is difficult, all the more so for an established company that has become comfortable and achieved results under its existing way of operating. As my wife and I ponder the changes ahead for Omnet, I am not about to say we've come to an answer about whether or not to bring in a partner. However, we've begun to ask the questions, and for us, as well as for you, that is what is important. Robert Heinmiller, 62, co-founded Omnet, Inc. in 1980, with his wife, Susan K. Kubany, and currently serves as Vice President. Frustrated by poor communication options, he began experimenting with commercial electronic mail just as the FCC first deregulated the public data networks. Omnet became the outgrowth of Heinmiller's experiments where he developed and built the world's first virtual collaborative environment, based on a commercial store-and-forward electronic mail network. For 15 years, Omnet functioned as the communications hub for almost 15,000 ocean researchers world-wide. Visit http://www.omnet.com Reprinted with permission from The Ewing Marion
Kauffaman Foundation. Visit http://entreworld.org/
Canadian
companies looking to expand their international presence in either European or
emerging economies can tap into a financing and procurement source they may not
have previously considered: the European Investment Bank (EIB). An international
financial institution owned by the European Union (EU) member countries, the EIB
is a potential source either of long-term loans for capital investment projects
or of procurement opportunities for existing or upcoming EIB-supported projects. Established in 1958 by
the Treaty of Rome, the European Investment Bank operates like a development
bank, raising its resources on the financial and capital markets and making
long-term loans for capital investment projects. Companies that are nationals of
any country, including Canada, are eligible for most EIB loan financing, as long
as their projects adhere to EU economic and social development policies and are
implemented in the countries in the EIB's mandate. Investment partner in many countries.Unique in its experience
in both advanced and emerging economies, the Bank supports projects that further
EU economic policy objectives within EU member states; assist the preparation of
candidate (Accession) countries for EU membership; or contribute to the EU's
external partnership and development assistance policies in some 150 countries
in Africa, the Caribbean and Pacific Regions (ACP countries), South Africa (SA),
and Asia and Latin America (ALA). The EIB typically
finances up to 50% of a project and sometimes co-finances with other financial
institutions such as the World Bank and European Bank for Reconstruction and
Development. Loans are usually long term, from 4 to 20 years. While IFIs such as the
World Bank typically finance projects put out for bid by the host country's
government, the sponsor (or "promoter") of an EIB-supported project is
usually a private-sector or public-sector company, often involved in the
modernization and re-equipment of privatized ventures. The EIB is thus a
potential investment partner for Canadian corporations looking for a source of
financing for capital projects in either Europe or developing countries with
which the EIB has partnership agreements. Currently 85% of EIB
lending goes to support projects within the EU. Outside the EU, the main focus
of the bank's lending is on the Accession countries and those in the
Mediterranean and Balkan regions. In the ACP countries, the EIB has been a
development partner for up to 40 years, providing reimbursable aid to support
investment in all key sectors: production (manufacturing, agro-industry,
horticulture, mining, quarrying), transport (airports and air traffic control
ports, shipping, railways), telecommunications, water supply and sewerage, power
generation and transmission, infrastructure, oil and gas development, and
tourism. The EIB's financing
operations are conducted principally from the Bank's own resources, but also,
under mandate, from EU members' budgetary resources. For projects in the ACP
that are funded from the latter source, supplies must originate from an EU or
ACP country; this doesn't exclude the participation of Canadian corporations, as
long as they contract through their subsidiaries, or subcontract to companies,
in the EU or ACP. Source of procurement opportunities.
EIB-supported projects -
both inside and outside the EU - also offer opportunities for procurement of
goods and services put out to international tender by the project's promoter.
Firms from all countries, including Canada, are eligible to bid on works, goods,
and services contracts for projects that are financed by the Bank's own
resources - that is, funds raised mainly through the Bank's borrowings on
capital markets. (There are some restrictions on eligibility when the financing
is from funds the EIB manages from EU members' budgets; see above.) Among the Canadian
companies that have supplied goods to EIB-supported projects is Bombardier Inc.,
which, as one example, supplied, through its French subsidiary, 19 autorails
à grande capacitée (AGC) for upgrading the railway system in Brittany. Financing facilities.
The Bank offers various
financing facilities to support projects, including direct loans for larger
projects (more than EURO 25 million [C$40 million]), venture capital, and, for
smaller projects and SMEs, "global loans," whereby the EIB provides
the funds to a domestic partner bank, which makes them available to the investor
in the form of a line-of-credit. For projects within the
ACP countries, the EIB is expecting to channel EUR 3.9 billion (C$6.3 billion)
from 2002 to 2008. Of this amount, EUR 1.7 billion (C$2.7 billion) will be from
EIB's own resources, with the remainder to be provided under a new investment
facility - a revolving fund provided from member state funds - for support to
private-sector companies, particularly SMEs. Loan application and procurement info.
Companies wishing to
apply for a loan for a capital project can make initial contact with the Bank by
phone, fax, e-mail or letter. The Bank will review the promoter's feasibility
studies and make a preliminary assessment of the technical, environmental,
economic, financial and legal aspects of the project. Favorable review will be
followed by a detailed project appraisal by an EIB Project Team. Positive
response to an appraisal will result in the submission of a loan proposal for
approval by the EIB Board of Directors. Companies looking for
procurement opportunities in EIB-supported projects are encouraged to consult
the EU Official Journal (http://eur-op.eu/int),
the billboard for all procurement notices in the EU and ACP. Information on
EIB-supported projects can also be found on the EIB's Web site. For a list of
projects at the conceptual stage, see www.eib.org/projects/pipeline;
for project announcements, visit www.eib.org/news/press. For
more information on the EIB,
contact: Bram Schim van der Loeff , Information and Communications
Department
Sarbanes-Oxley is important, yet complicated legislation that everyone must understand in order to remain in business. Join Business Finance, Hyperion and BearingPoint for an opportunity to interact with and learn from leading industry experts regarding the Sarbanes-Oxley Act of 2002. Experts will discuss exactly what impact the Sarbanes-Oxley Act will have on your internal controls and financial reporting processes. In this Web Cast session on Wednesday, April 23, at 12 noon EDT, you'll find out how to shorten your financial consolidation and reporting processes to ensure compliance with the new 10Q and 10K reporting deadlines. Our panel will review what enhancements in technology and internal processes may be required in order to ensure compliance. They will also discuss how Sarbanes-Oxley impacts more than finance and in fact extends to executives and operational management. Don't miss your opportunity to learn from and share knowledge with industry authorities-- click here to register today!
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