Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Upsize Growth Challenge: Floorworx Distribution Services
by Beth Ewen David Miller built his commercial hardwood floor refinishing business to more than $1 million in sales by 2001.
Using a mantra that emphasized service and expertise, he beat out big competitors to snare accounts including Abercrombie & Fitch, the national retailer. That is Miller’s specialty: primarily retailers with wood floors that others ignore because they’re too small or awkwardly shaped.
Then his “cash cow,” as he calls it, switched contractors. “I had all my eggs in one basket,” Miller says. “I ran out of cash, too. I built a decent small business, then I just about lost everything.”
Miller used to spend a fair amount of time on his hands and knees, refinishing floors for customers himself. He still is the company’s best — and so far only — salesperson. He recently secured a contract with the national Caribou Coffee chain by walking into a local store, noticing that the floors looked awful, and offering to help.
He is now rebuilding his Rosemount-based company by concentrating on higher-level issues, including identifying independent contractors in cities throughout the United States who can service the accounts that he secures.
His secret weapon: An ultraviolet chemical and equipment system called WoodSimple that dries and hardens in a matter of hours, down from several days. Miller is negotiating for exclusive distribution rights with its maker, also a Twin Cities-based firm. “We’re the high-tech side of a low-tech business,” Miller says.
Bigger and bigger
The Upsize Growth Challenge experts agree that WoodSimple deserves to be Miller’s focus. “This technology is going to become a bigger and bigger differentiator for you,” says Clare Scott, director of marketing for Fredrikson & Byron law firm in Minneapolis.
She relates a story about a recent hotel visit, where her shoes stuck to the floor in the elevator the morning after it was refinished. “The value to that hotel to coat the floor and have it instantly cured…” Scott muses.
Kevin Howk notes that Miller’s main expense budget, $300,000 for advertising and marketing and research and development of WoodSimple, is not a candidate for a bank loan. Howk is executive vice president for Crown Bank in Edina.
“As a banker, those are tough items to finance. You can finance equipment, receivables or inventory,” Howk says. Miller may be able to secure debt for the WoodSimple equipment, which costs $25,000 per machine.
Bryan Ross recommends that Miller stretch his budget through “strategic alliances” with a key independent contractor in each of several regions throughout the country. “I’m envisioning identifying regional champions,” says Ross, a tax partner with EideBailly accounting firm in Bloomington.
Miller should interview flooring specialists per region and select the best, offer use of the WoodSimple process, and build his national presence while conserving cash, Ross says. Miller says he’s pursuing a certified contractor program, in which “they would apply this custom program for me and in return they would get exclusive rights to WoodSimple.”
But first Miller needs to nail down his agreement for WoodSimple, a point that Patrick Kelly emphasizes. He is an attorney who heads the emerging business group for Fredrikson & Byron.
Kelly outlines key points for anyone negotiating a similar contract: know what kinds of rights you have with the creator of the technology. Be certain you have exclusivity. Negotiate as much flexibility as you can so you’re not tied up if the maker has problems.
“This looks like it’s going in the right direction,” Kelly says after skimming Miller’s draft agreement. He notes the contract talks about a sales quota. “That’s good for them, not for you,” he says. He recommends getting rid of the quota, or if that’s impossible imposing it in two years or five years. Miller should recognize the risk he’s taking and the benefit he’s bringing to the deal while negotiating such points.
Before signing the completed contract, Miller may want to attend trade shows to see what competing technology is in development. “If you lock yourself in and they’re not the lead horse, you want to be able to get out of it,” Kelly says. “You might want an option to purchase this technology in the future.”
‘What’s the need?’
Technology experts at the workshop point out tactics that can help companies build a national network.
“What’s the need” is the first question to ask when considering any purchase, says Mary Korthour, local service product manager for telecommunications firm Eschelon Telecom Inc. in Minneapolis. “What’s the biggest advantage of having a portable device” or any device for the business.
She relates a story about one of her customers, who operates a blacktopping business, who asked for a full suite of products. ‘I said you need voicemail and directory advertising only,” Korthour says. Owners can save money by carefully choosing.
“Technology is really real estate,” agrees Diane Cady, senior BTS sales manager for Eschelon Telecom in Golden Valley. “You need to have more customization as you grow.” She recommends three-phase plans tied to growth milestones.
Any technology system “needs to be adaptable,” says Steve Kolar, senior director, IP network ops and engineering, for Eschelon Telecom. “Ask yourself, is it scalable at every step, and when does it begin to get bigger?” He warns that when it comes to hardware, six months is about as far out as anyone can plan.
Miller says he has two big challenges when it comes to technology: he wants to redesign his Web site, and he wants to “create an EDI interface with some of these national accounts.”
Kirk Hoaglund, founder of Clientek Inc., a technology consulting firm in Minneapolis, questions the former. “I’m going to challenge you on your statement to redesign your Web site. Why? What will it get you? It’s serving the function that you want,” Hoaglund says. “Focus on the core of the business. Focus everything there.”
As for Miller’s latter goal, Hoaglund says EDI, or electronic data interchange, “is the old way of doing it. “There’s a growing list of ways” to achieve connectivity, he says, and agrees that there are advantages to creating such connections. “There’s a brotherhood that gets set up when you can say, yes, I can hook up with the supplier.”
Miller would see his biggest gains from focusing on connecting with his suppliers, the independent contractors around the country who service his accounts, the technology panelists say. Scott Davis, senior technology consultant for Clientek, says Miller could automate parts of his process by, for example, posting bids on a secure Web page.
“You won’t be able to automate all of it, but as your business grows you’re going to want to have something like this,” Davis says.
Miller sums up the opportunity for Floorworx with an overview of the market. “It’s a $90 billion industry, cleaning services. 40 percent of that goes into flooring. Six percent of that is our part,” Miller says. “All I need is one to five percent of that and I’m happy.”
David Miller, Floorworx Distribution Services: 651.322.7480; da*********@*******rx.com; www.floorworx.com
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