Crain's Cleveland Business

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CRAINSCLEVELAND.COM I JANUARY 13, 2020

ECONOMIC DEVELOPMENT

Exits can have lasting impact here

LAW

A CASE OF BIG MEETS BIGGER

Sales of startups bring potential of big gains

BY JAY MILLER

See MERGERS on Page 19

See EXIT on Page 8

ILLUSTRATION BY MARK DANE/ISTOCK

acquisition by Taft Stettinius & Hollister (which lists Indianapolis as its main office, but was founded in Cincinnati and is among the larger firms in Cleveland) represented the third-largest combination to pan out in the Midwest.

Sam Gerace is now on his fifth business startup: Convey.io, whose software replaces business cards with a digital service that updates contact information in real time. Before Convey, Gerace led teams that built and then sold tech firm Veritex, which operated the digital ticketing business Gerace Flash Seats and was sold in 2015 to AXS. His earlier firms were PCXIS Inc., PCX Consulting Inc. and BeFree Inc. That kind of work history may be old hat in Silicon Valley, but it’s the kind of résumé that Gerace and others believe Northeast Ohio needs more of to build its economy in the 21st century.

The region has been fortunate to have a number of successful, longlived companies. Firms such as the Sherwin-Williams Co., founded in 1866, and the relatively younger Progressive Corp., founded in 1937, continue to be important employers and anchors of the economy here.

Increasingly important, though, are the entrepreneurial companies that get swallowed up by or receive ownership-changing investments from larger companies after a year, two years or even 10 years. While the identity of a company such as Explorys Inc., a Cleveland Clinic spinoff that analyzes health data, may now be buried in IBM Corp.’s organizational chart, the sale of that business, called an “exit” in the investment world, is part of a vital entrepreneurial recycling process that can stimulate a region’s economic growth.

Gerace sees exits having three important impacts on the region. The process begins when company founders, initial employees and their early financial backers — often called “angel investors” — collect their profits, either through an outright sale or through a significant strategic investment.

“I see a) money to reinvest in companies, b) people gaining the experience to either start their own companies or join new startups,” he said.

“And then c) I watch people take the benefit of the exit and educate themselves or their children. All of those provide real and lasting economic benefit.”

Record pace for law firm mergers and acquisitions could continue through 2020

BY JEREMY NOBILE

As it scours America for new markets to cover, the largest international law firm in the world, Dentons, is actively looking to secure a foothold in Cleveland as part of its merger strategy.

It’s just one of the many signs that

last year’s record pace for law firm mergers and acquisitions — which included several Ohio and Cleveland-specific combinations — could continue through 2020.

“Every big firm today is looking to absorb people with clients and talent,” said Tom Clay, a principal with Altman Weil, a consulting firm for

NEWSPAPER

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the legal services industry that also tracks law firm M&A. “Whether every smaller firm is interested, though, depends on a whole lot of issues and dynamics.”

Per the Altman Weil MergerLine, there were 115 law firm combinations announced in 2019, building on what is now a seven-year streak for annual growth in the number of mergers. The deal flow sets another high-water mark for the industry with the most activity seen since the firm started tracking combinations in 2007.

Several deals that played out were connected to Ohio and Cleveland itself. Frantz Ward, Walter | Haverfield and Ulmer & Berne were among midsize players that inked deals last year, while a Minneapolis

U.S. law firm acquisitions in 2019 Number of law firms acquired Average acquired firm size Cross-state acquisitions Average acquirer size AmLaw acquirers Top region targeted

115 18 lawyers 16% 1,407 lawyers 23% South

SOURCE: ALTMAN WEIL MERGERLINE

1/10/2020 12:26:05 PM

REAL ESTATE

Hemingway principal exits to start own firm Michael Panzica has ‘entrepreneurial’ bloodline BBY STAN BULLARD

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Michael Panzica, a principal of the high-profile Hemingway Development firm, has left the company to form his own real estate development firm in Cleveland.

Panzica said in an in-person interview that he has set up shop as the owner of Panzica Development, which will be based somewhere in Cleveland. He joined Hemingway in 2012, four years after fellow principals Fred Geis and Jim Doyle launched the company to pursue complex real estate developments in the city after long, successful careers, respectively, in Northeast Ohio real estate development and real estate finance.

“I grew up in an entrepreneurial atmosphere, and there is no better way to work than for yourself,” Panzica said, referring to his family.

His grandfather is Nacy Panzica, who founded Mayfield Village-based Panzica Construction Co. in his station wagon in the 1950s, and his father is Tim Panzica, who operates a consultancy called IQ Advisors LLC that represents owner interests on construction projects. His uncle, Tony Panzica, is president of Panzica today and has also taken roles through the years in real estate development projects.

However, Michael Panzica also weathered the economic storm that buffeted his generation of real estate professionals. He became a Hemingway principal in 2016, having joined the firm when he returned home in 2012 from Chicago, where he had been working in real estate finance, with the intention of moving, in his phrase “to the principal side” of the property business.

He had already gotten a taste for realty ownership with investments in Northeast Ohio and Chicago. He also was able to join Hemingway because Doyle, a mentor and former boss in the mortgage banking business, was building his own foray into development full-time at a point when most would retire, and the firm needed staff. Hemingway also used services from Streetsboro-based Geis Cos. for design and construction.

Panzica wound up working on a variety of projects, including The 9, the conversion of the former Ameritrust Corp. bank complex to mixed use as the Metropolitan hotel and apartments with a new Cuyahoga County Administration Building next door. Others included small suburban build-to-suit headquarters, the build-to-suit for IBM’s Explorys Systems unit in University Circle, and apartments from Little Italy to Ohio City.

“I couldn’t have asked for a better education,” Panzica said. The niche for his company will be the same as Hemingway’s. He will focus on mixed-use residential-commercial projects and build-to-suit structures such as company headquarters. He intends to pursue deals costing more than $10 million to develop.

“They’ll also be the projects that need a capital stack with federal and state historic tax credits, EB-5 and other sources of funds,” Panzica said.

In other words, the focus will not

”I GREW UP IN AN ENTREPRENEURIAL ATMOSPHERE, AND THERE IS NO BETTER WAY TO WORK THAN FOR YOURSELF.” ——Michael Panzica, owner of Panzica Development

be vanilla suburban projects that may have a single source of funding.

Panzica not only sets up shop with top-drawer contacts in government and real estate, but also some significant potential pieces of business. The largest is the contract with several investor-partners to buy from Cuyahoga County the old bridge garage property at the northwest corner of Veterans Memorial Bridge, midway between the Stonebridge apartments and condos and the 2-year-old Quarter apartments. The design for the 200-suite structure with some first-floor commercial space is in flux, so Panzica wouldn’t discuss its height other than characterizing it as midrise, which means under six stories. It’s expected to be a $40 million project.

In a phone interview, Doyle said Hemingway will consider partnering with Panzica on future projects.

They are also investors in existing projects, such as the 11-story Church+State apartment-commercial project being built at 2861 Detroit Ave. in Cleveland.

“It’s time for him to get out and do his own thing,” Doyle said. “One motivation for me here is that Cleveland needs good young developers, and (Panzica) fills the bill. He has education, street smarts, and now he has the experience.”

For his part, Doyle said Hemingway will not replace Panzica because he and partner Fred Geis plan to wind down operations but not quit.

“I want to keep my finger in the game a while,” Doyle said. “I just don’t need six projects at a time.” He acknowledged actively working on three other projects at this time.

Panzica said he intends to focus on projects in Cleveland and Northeast Ohio, adding that he starts his company with one eye on the downside thanks to his experience working in real estate through the Great Recession.

Even as the real estate cycle moves into extra innings before the next, overdue recession, he said he’s excited about making his own mark on his hometown.

“There’s a lot of runway left in Cleveland,” he said.

Stan Bullard: sbullard@crain.com, (216) 771-5228, @CrainRltywriter

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GOVERNMENT

Bills at the Ohio statehouse to watch in 2020

A pair of measures involving tax credits highlight group that could become laws this year BBY KIM PALMER

Ohio is in the second and final year of its 133rd General Assembly, and lawmakers have until the end of the year to move their bills through the statehouse and onto Gov. Mike DeWine’s desk for signing.

As of the end of 2019, Ohio lawmakers had proposed a number of consequential and bipartisan economic development measures that have the momentum to eventually become state law.

State Sen. Kirk Shuring, a Republican representing senate District 29, which encompasses most of Stark County, is a sponsor on two tax credit bills that passed the Senate last year. ``Senate Bill 39: Senate Bill 39, which proposes an insurance premiums tax credit for capital contributions for “transformational mixed-use developments,” or TMUDs, is one the senator said he is “cautiously optimistic” will become a law. The bill would offer an insurance tax credit for developments costing $50 million or more with at least 300,000 square feet of space and a minimum 15 stories. The funds would be approved only if developers can prove the taxes generated from the project are more than the tax credit and that the tax credit is a necessity for the project to be built.

“There are developers from across

A number of significant bills await the 133rd General Assembly in 2020. | GETTY IMAGES

Shuring

the state saying this is the very thing they need to move their projects forward,” Shuring said. “The projects are transformational by nature. They will be catalytic. They will cause other development by other developers because the community will be a mecca for economic activity.” ``Senate Bill 8: Another Shuring-sponsored bill would make Ohio the first in the country to offer an additional 10% state tax credit for residents who invest in Ohio’s Opportunity Zones. The credit is capped at $1 million for a program that targets capital gains investment in economically distressed communities. Opponents of the legislation argue that the proliferation of tax credits already

costs more than $9 billion a year in forgone tax revenue, and tax credit legislation like the TMUD bill would add an estimated $500 million more in funds that are necessary for communities to provide basic services.

Kent M. Scarrett, executive director of the Ohio Municipal League, a nonprofit representing state municipal governments, said he understands those concerns, but added that tax credits, when balanced with public need considerations, are a significant tool for cities wanting to draw a workforce attracted to centralized urban living.

“Downtowns and cities have to compete not only regionally but throughout the country and internationally. You cannot just say, ‘We will provide jobs and they will come.’ You

have to get workers to come, and then the jobs will follow,” Scarrett said.

tional development around those airports,” he said.

``House Bill 283: Attracting and retaining businesses is the goal of House Bill 283, which would appropriate $15 million in grants for the state economic development group JobsOhio to assist state airports with guarantees for private airlines in an attempt to attract additional or new international and domestic flights.

``House Bill 382: Like every previous legislative session, mixed in with the promising legislation are sundry bills that most statehouse observers believe have little or no chance of becoming law.

Sober but partisan attempts to address issues like citywide minimum-wage increases, hikes in the local government fund (tax revenue the state returns to municipalities) or curtailing eminent-domain laws often stall out in committee.

Others are more show than substance, such as House Bill 382, which proposes to eliminate income taxes for nonresidents working in urban areas.

“It would absolutely gut municipalities and destroy a city’s economic development,” said Scarrett. Even though he adamantly opposes the bill, he said he’s welcomed it each time it has been introduced in the last six sessions.

“I rail on it all the time — I love to talk about it,” he said. “We tell people that the bill is out there and this is what’s happening in the general assembly, because we need our people to pay attention and to be involved. It is absolutely on our radar, but it goes nowhere,” he added.

``Senate Bill 204: Senate Bill 204, also a Shuring-sponsored bill, seeks to create a voluntary special district eligible to collect taxes from businesses in proximity to Akron-Canton, Dayton and Youngstown-Warren regional airports. The bill is proposed to fund public infrastructure improvements and to subsidize or guarantee new and direct routes by private airlines to spur growth.

Terrence Upchurch, a Democrat in the House representing the Cleveland area, supports the legislation sponsored by the Republican senator from Canton.

“If Cleveland is ever going to be one of the top cities in the country, we are going to need a thriving airport,” Upchurch said, adding the legislation would eventually address the needs of both Cleveland Hopkins International Airport and Burke Lakefront Airport.

“We need to talk about doing addi-

Kim Palmer: kpalmer@crain.com, (216) 771-5384

January 13, 2020 | CRAIN’S CLEVELAND BUSINESS | 3

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1/10/2020 1:19:58 PM

REAL ESTATE

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The overall vacancy rate in the industrial market remained unchanged in the fourth quarter of 2019 compared to the fourth quarter of 2018, with the average asking rent nudging up slightly.

4th quarter 2019

Total inventory Vacancy rate Quarterly net absorption Average asking rent Under construction Deliveries

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12-month forecast

     

The overall vacancy rate in the office market rebounded in the fourth quarter of 2019 after suffering three straight quarters of negative growth. The average asking rent remained virtually unchanged from the third quarter to the fourth.

4th quarter 2019

Total inventory Vacancy rate Quarterly net absorption Average asking rent Under construction Deliveries

37.3 MSF 16.7% 243,535 $18.34 160,000 0

3rd quarter 2019

37.3 MSF 17.3% (192,923) $18.38 60,000 0

4th quarter 2018

36.6 MSF 15.7% 139,721 $17.91 235,290 22,352

SOURCE: NEWMARK KNIGHT FRANK

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Slowing is evident in Northeast Ohio’s industrial and office markets, but both remain busy in another sign of the length of the most recent business expansion.

Terry Coyne, vice chairman at Newmark Knight Frank and head of its industrial unit, said he remains bullish on the market because it’s a case of activity slowing in 2019 after “three great years.”

NKF’s just-released year-end 2019 reports tell the tales. In the industrial market, construction dropped almost 40%, to 1.8 million square feet in 2019 from 2.9 million square feet the prior year.

In the meantime, even with tremendous growth in the industrial market, primarily in massive warehouses for the likes of Amazon, vacancy fell to 5.4% at the end of 2019 from 5.6% in the like period.

Last year, the office market lost ground, primarily due to conditions in the downtown office market, the NKF report said. In the region as a whole, office vacancy climbed to 16.7% as 2019 drew to a close from 15.7% as 2018 ended. Most of that dip was in the downtown office market, where vacancy climbed to 20.6% at the end of 2019 from 18.7% at the end of 2018.

In the suburban office market, vacancy inched to 13.2% at year-end 2019 from 13% a year earlier.

The report noted that the suburbs, particularly the eastern suburbs, kept the market afloat, as the amount of office space occupied or absorbed totaled 174,991 square feet in 2019 in the suburbs. At the same time, 312,249 square feet was shed by tenants downtown in 2019 (called negative absorption in the office leasing business).

Bob Nosal, executive managing director and head of NKF’s Cleveland office, said downtown’s rental office market lost momentum in 2019 as several tenants — primarily banks and financial concerns —

emptied more than 100,000 square feet of space last year after cutting staff, allowing staffers to work from home or other measures to reduce their footprints.

“Simply, it was a case of no growth (downtown). Generally, most of the people who needed to expand have already expanded,” Nosal said. Moreover, the handful

Cleveland Alliance also is pushing to aid the move by promoting development of an Erieview Historic District downtown, which makes it easier for individual buildings to qualify for the incentives.

Nosal noted the eastern suburbs in particular benefited from the occupancy of new office space at just-developed mixed-use projects,

“SIMPLY, IT WAS A CASE OF NO GROWTH (DOWNTOWN). GENERALLY, MOST OF THE PEOPLE WHO NEEDED TO EXPAND HAVE ALREADY EXPANDED.” — Bob Nosal, executive managing director and head of Newmark Knight Frank’s Cleveland office

of tenants moving downtown from the suburbs did not offset the amount that was shed by large financial concerns downtown. He concluded that the situation means “there’s clearly no room for another downtown (multitenant rental) office building.”

Asked why downtown office vacancy remains so high, at 20.7%, when more than 5 million square feet of office space was removed from the market by converting it to residential use in the last decade, Nosal said it’s a question of what vintage or type of office building is being considered.

The conversions have occurred among buildings 60 years old or older. Meantime, office buildings that date from the 1960s and 1970s have significant vacancies.

For example, more than 1 million square feet of space is vacant near the corner of East Ninth Street and St. Clair Avenue, from the totally dark former AT&T (originally Ohio Bell) building to large amounts of empty space at the Tower at Erieview, AECOM and IMG Center office buildings. Significantly, some of those buildings are reaching the age at which they could be converted to apartments using federal and state historic tax credits. The Downtown

including Pinecrest in Orange Village and the Van Aken District in Shaker Heights.

Conversely, in the industrial market, few buildings have so far been shed by concerns shutting down, and it remains difficult for manufacturing concerns to find the right building to buy.

However, those conditions are not reflected in rents, which are climbing in both segments. The average asking rent for industrial space rose to $4.79 a square foot at the end of 2019, from $4.24 at the close of 2018, NKF reported.

Meanwhile, despite the general flatness of the office market, average asking rents climbed to $18.34 a square foot throughout the region at the end of last year, compared with $17.97 a year ago. Rents vary dramatically in both office and industrial markets due to factors such as where a space is located and how old an individual building might be.

Looking at 2020, Nosal said he expects it to be the story of a variety of “pockets of the market,” with some gaining tenants due to their location or renovation, while others stay flat or lose ground.

Stan Bullard: sbullard@crain.com, (216) 771-5228, @CrainRltywriter

4 | CRAIN’S CLEVELAND BUSINESS | JANUARY 13, 2020

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NONPROFITS

AmpliFund ramps up revenues, sets sights on wider reach Grant management firm, having reeled in larger customers, hopes to assist more nonprofits

BY LYDIA COUTRÉ

Having secured some large government customers for its grant management software, Cleveland company AmpliFund (formerly known as StreamLink Software) wants to get back to its roots: helping nonprofits better manage and create more value from the grant dollars they receive.

In doing so, company leaders expect to see significant growth in their employee base in the next two years, following a couple of years of strong revenue growth.

AmpliFund secured partnerships with the state of Illinois in 2019 and the commonwealth of Puerto Rico in 2018 to implement its technology.

“We are excited about sort of the opportunity with those customers and continuing to build on that,” said Adam Roth, founder and president of the company. “But also we really want to focus our growth on reconnecting with those roots and driving business in the nonprofit space, which is kind of where we started, and driving in the local government space, and really … building out the product and the business to really support that sort of growth and that structure.”

StreamLink Software, founded in 2008, offered two main products: grant management software AmpliFund and BoardMax, a board man-

Prosser

Roth

agement software that supported leadership volunteer engagement for nonprofits. In 2017, the company sold BoardMax to Diligent, which is owned by Insight Venture Partners in New York. The company then began focusing exclusively on its AmpliFund product, which ultimately prompted StreamLink to rebrand itself as AmpliFund last fall. Roth said the team worked to build out AmpliFund to support larger governmental entities, especially state and local governments that receive federal funds and then pass them on to other agencies and nonprofits.

“What we’ve done is, over the years, have built a product to manage not only sort of the end recipient but also the ones giving out the money and the ones receiving and redistributing the funds,” Roth said.

That worked well for the company, which saw 350% revenue growth between 2017 and 2018, and nearly 100% growth from 2018 to 2019.

While the functionality for smaller local nonprofits has always been there, the marketing and branding in recent years has focused on larger customers. HavSmith ing solidified that customer base, AmpliFund now looks to expand sales and marketing efforts to smaller and midsized cities, counties and nonprofits to be more inclusive of a broader market.

Building a higher-velocity sales and marketing effort is a big focus for Scott Smith, who joined AmpliFund last year as its CEO, a title previously held by Roth.

“There’s a strong foundation: the product. There’s a number of marquee-name clients that can be leveraged, but the organization at the end of the day is still pretty small, having just recently gone through this kind of strategic pivot to be able to go to market,” said Smith, who added he wants to focus on “how do we build out that sales and marketing engine to drive a more repeatable and scalable process?”

Roth said he expects to see at least 50% to 100% annual revenue growth year over year for the next few years as AmpliFund targets new customers.

“We’ve put a lot of energy into making it fit the entire ecosystem, but now we need to really, I think, refocus,” Roth said. “And I know Scott — one of his tenets is refocusing around that repeatable sales process, which really is more around looking at the nonprofit customer, the local government customer, than it is looking at sort of states or state agencies or the like.”

With that, Roth said he expects the current team of about 40 employees (which already is roughly double the year prior) to grow to around 65 by the end of this year, and to more than 100 people by the end of 2021. Smith said this growth will be across every department and function of AmpliFund, from sales and marketing to technology and product development.

Roth said he’s proud to point to three employees who left the company in recent years but returned soon after. One is Chip Prosser, who works on the quality team at AmpliFund.

He took a six-month hiatus after almost four years with the company.

Prosser said he returned in September for several reasons: empowered employees, flexibility in his work, great product development processes and the talent and management on board.

Shannon Flavin, grants compliance manager at Waubonsee Com-

munity College in Illinois, said that since the college began using AmpliFund several years ago, it’s been able to significantly cut down on the time it takes to review and process grant applications. Before the software, staff had been running packets of paper around to different offices. Now, people can simultaneously and remotely access the documents to review them.

“It’s been terrific for us,” she said.

“What we have been able to do is literally cut down on the amount of time that had to be blocked out in the development process for review.”

Smith said the grant management industry is an “interwoven ecosystem.” Focusing on the top of that pyramid has meant added reach.

In licensing the software to Illinois, for instance, almost 10,000 entities get use of the product for free to interact with the process that the state has.

“So that flows down the use of the tool,” Smith noted. “So that creates this huge network effect for the product and the technology in the marketplace. Going more directly at those folks that are a little bit further down that flow of money, that food chain, is becoming an increasingly larger focus for us.”

Lydia Coutré: lcoutre@crain.com, (216) 771-5228, @LydiaCoutre

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1/9/2020 3:47:25 PM

SPORTS BUSINESS

Westlake counting on pair to create ‘unique’ golf addition BBY KEVIN KLEPS

Westlake recreation director Bob DeMinico said Meadowood Golf Course has been “in a downward spiral” since the 2008 financial crisis.

The city’s 2018 financial report showed that the golf course — which features an 18-hole, par-3 layout and a standard nine-hole option — had expenses that exceeded revenues by $216,877. That tally was up almost $70,000 from a loss of $147,440 in 2017.

Westlake’s solution is to spend more money on golf, which might not be as crazy as it sounds.

In 2018, Westlake, emboldened by the 2017 renewal of a 0.125% municipal income tax, approached Northeast Ohio golf operator and media personality Jimmy Hanlin about devising a master plan for the future of Meadowood, located at 29800 Center Ridge Road.

The city has since hired Hanlin as a consultant on the potential project, and in November retained the services of Fry/Straka Global Golf Course Design.

The Dublin, Ohio-based firm’s credits include Little Mountain Country Club in Concord and StoneWater Golf Club in Highland Heights — two courses Hanlin has a hand in operating.

The Westlake project, however, doesn’t figure to follow the 18-hole path that often was a given during the greener days of the golf industry.

Instead, Hanlin and Fry/Straka principal Jason Straka will be drawing up plans that could replace the flagging

“We want something unique so we’re not competing with everyone else,” said DeMinico, Westlake’s recreation director. “We feel having a practice facility next to a unique nine-hole golf course will be a natural draw.”

Practice makes ...

Hanlin

Straka

Meadowood with a loop course that would play in different directions, depending on the time of day, and a state-of-the-art practice facility.

“It’s easy to walk in and say the facility needs something. ‘Let’s rip it down and build a golf course,’ ” Hanlin said.

“The idea is to create something that maybe you don’t have in Northeast Ohio, and maybe something different than anything we’ve ever seen before.”

Westlake Mayor Dennis Clough is counting on Hanlin and Straka to be creative.

A new 18-hole course hasn’t been ruled out, Clough and DeMinico said, but the option doesn’t seem as likely because doing so could extend the golf course’s property beyond the current grounds. Westlake, after a 2017 land swap in which the city traded 29 acres next to Westlake Porter Public Library for 42 acres on Bradley Road, could make such a move, but it would be more costly.

It also wouldn’t be as different as some of the other options that have been discussed.

A practice facility is key, all parties said, partly because so many driving ranges have shut down in the region.

“There’s really almost nothing on the West Side if you want to just hit a bucket of balls and practice right now,” Hanlin said. “That makes it easy for us to create teaching programs for the city. That’s a major focus of this project.”

Another is an “outside-the-box” approach Clough said he prefers.

In separate conversations, Hanlin and Straka each mentioned The Cradle, a nine-hole, par-3 layout that opened in 2017 at the historic Pinehurst Country Club in North Carolina.

During a recent visit, Straka said The Cradle featured a corporate outing, families playing with their kids, music blaring from speakers built into rocks on the course and beer flowing.

“There’s also a putting course next to it, and it was packed,” Straka said.

And while that particular concept isn’t being considered for Westlake, it has elements — clever, fun attractions that appeal to younger golfers — that Hanlin and Straka are contemplating.

A nine-hole reversible course could be “really cool and different,”

Hanlin said. The same goes for an indoor-outdoor practice facility that could have a driving range that includes a par-3 course.

Straka, a Trumbull County native with family members who live a mile from Meadowood, brought up the possibility of a 12-hole course that could play in three four-hole loops.

Those types of non-traditional ideas are a must for an industry whose struggles have been wellchronicled. In Northeast Ohio, more than 15 golf courses have shut down in the last couple years — the latest being Rosemont Country Club in Fairlawn, which would have celebrated its 100th anniversary in 2020.

Straka, who frequently gives presentations about the state of golf, said the younger generations “are much more focused not on the collection of things, but the way to spend their time with experiences.

“For them, it’s not less time, but the value of time,” the golf course architect said.

Waiting on a master plan Westlake, which has partnerships with the First Tee of Cleveland and the PGA Jr. League, has posted some of its strongest numbers during the down years via younger players, DeMinico said.

And though Meadowood, like many courses, has consistently operated in the red, decreased competi-

tion and favorable weather led to a strong 2019 for many courses, Crain’s reported in September.

Golf Datatech’s latest report, which is through November, showed that the number of rounds played in Northeast Ohio was up 5.3% in 2019. In Ohio, rounds had increased 7.5% for the year.

Hanlin said his visits to dozens of golf courses because of his work filming the “18 Holes” TV show give him a glimpse at “what works and what doesn’t work.”

To be successful, facilities must have multiple sources of revenue, he said.

Hanlin and Straka are coming up with different versions of a potential Westlake project, and the pair will narrow their selections to a few in the coming months. Those will then be presented to city council.

“We’re anxiously awaiting the master plan,” Clough said. “We’d like to know by the spring.”

If the city likes and gets the necessary approvals for one of the options, which is the expectation, the plan would move forward. Ideally, Hanlin said, construction would start later this year.

DeMinico is a proponent of that timeline, but doesn’t expect things to happen so fast.

“By late August, our numbers really drop,” the Westlake recreation director said of Meadowood. “Our clientele is juniors and seniors. By then, they’re done. Their outings are over.

“That would be a great time to do that,” he added, “but that would be aggressive.”

6 | CRAIN’S CLEVELAND BUSINESS | January 13, 2020

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SMALL BUSINESS

Crowdfunding turns customers into investors Direct-to-consumer platforms have created a nontraditional investment pipeline BBY DOUGLAS J. GUTH

This fall, Cleveland teacher Monica Grays needed financing to expand her small business — a Wickliffebased resale store offering used educational materials — but didn’t have many options to pursue for the crucial cash infusion. For starters, her venture hadn’t reached a point where it could even qualify for a bank loan.

Like thousands of independent business owners before her, Grays turned to crowdfunding to reach her entrepreneurial goals. Through a Honeycomb Credit crowdfunding campaign launched in September, Grays raised $10,500 to fund renovations at a new location of her 2nd Semester Consignment and Resource Shop.

By tapping into the power of the internet, as well as a tight-knit Cleveland neighborhood of interested lenders, Grays will replace unsightly glass-block windows at her new store in Collinwood. 2nd Semester sells recycled classroom items such as books, games, storyboards and furniture, while also setting aside space for tutoring services.

“I love the idea of the community rallying together to create this vision for the store,” said Grays, a 23-year classroom veteran in the Cleveland Metropolitan School District. “This is something the community felt was valuable, and we were able to do it through crowdfunding.”

A platform of goodwill According to proponents, crowdfunding gives entrepreneurs an inexpensive means for refinancing their business or bankrolling a new product or service. Donation-centered platforms like GoFundMe — usually used to raise money for medical debt or natural disaster relief — are now being harnessed by small businesses to build a foundation of enthusiastic customers.

Would-be borrowers set a funding goal and publish their request online. Interested people give cash donations, often in exchange for company equity or additional assets.

Ideally, a project is financed by an owner’s biggest fans, creating marketing buzz and goodwill.

Pittsburgh-based Honeycomb — a funding portal that topped $1 million in raised dollars this year — is a departure from donation-centric crowdfunding sites, noted Dora Rankin, Cleveland city manager for the investment website.

“We stand out from those platforms and don’t look at them as competition,” Rankin said. “For one, we’re regulated through FINRA and the Security Exchange Commission. Every business owner we work with has to go through underwriting and approval. There’s a due diligence done before putting them on the platform.”

Anyone can back a Honeycomb project, which range from $10,000 to $100,000. Successfully supported campaigns pay backers with interest when the business is up and running. Meanwhile, borrowers pay lower interest than they would for bank loans or high-interest merchant cash advances.

Prospective patrons can view live

campaigns on Honeycomb’s website, which includes a short bio and introductory video. The platform works mostly with nontech businesses, such as a startup kombucha brewery and a child care service for people caring for their older parents.

Cleveland became Honeycomb’s second market in March, motivated by an organizational focus to buoy Rust Belt cities. Six lucrative Cleveland campaigns — Grays’ consignment shop among them — have added to the platform’s 90% overall success rate.

“Cleveland needs to understand that community capital is where we see the future,” said Rankin. “This is a new platform, and people sometimes don’t understand the challenges business owners face.”

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Climbing the ‘micro-ladder’ Kiva Cleveland is another regional crowdfunding option, filling a gap in small business financing through crowdfunded microloans that target low- to moderate-income borrowers.

Via its partnership with the Economic Community Development Institute (ECDI) and the city of Cleveland, Kiva can be a catalyst for local economic growth, said Jasmine Dixon, capital adviser and program manager for ECDI. Visitors to Kiva’s website can search for area entrepreneurs under the Kiva U.S. tab, supporting them with loans as small as $25. Most Kiva entrepreneurs crowdfund loans of $5,000 at 0% interest with no fees.

The program, launched in September, is projected to generate $300,000 in economic gains for Cleveland, according to the city’s economic development department. The organization, formed in 2005 and headquartered in San Francisco, claims $1.25 billion in loans since its inception. For cashstrapped small businesses — particularly those headed by minorities, women and others with limited access to investors — the Kiva model represents the “micro-ladder” of affordable loans.

“If clients are having difficulty getting funding somewhere else, this is the first step in the ladder helping them go through other lenders,” Dixon said.

“Positioning businesses so they can grow their revenue is our goal.”

She noted that three Kiva-funded establishments will be part of Glenville Circle North, a retail business incubator set to support the Neighborhood Transformation Initiative, a community revitalization program unveiled by Cleveland Mayor Frank Jackson in 2017. Among these new enterprises are a seafood restaurant and a unisex streetwear clothing brand.

Most businesses Kiva with which works derive from lower-income communities where friends and family may often be the only lending lifeline. Dixon called the microlending hub “a pathway to opportunity” for owners needing a shot of confidence alongside a monetary boost.

“Some people find Kiva isn’t what they’re looking for, but that’s OK,” Dixon said. “We’re trying to eliminate that obstacle to opportunity for them.”

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EXIT

From Page 1

Michael Goldberg, associate professor of design and innovation at the Weatherhead School of Management at Case Western Reserve University, and an investor and startup supporter, said exits matter to the region and that Northeast Ohio has a growing band of angels, people who understand that early investing in startups, while risky, is crucial for the region.

“What you’re seeing is people that are investing because they want to make money and they want to sort of help the region,” he said.

These investors know that most startups don’t succeed, but believe that careful investing can make the ones that do succeed cover the other losses and then some. “Angel investors know that most startups fail, and

no one likes being wrong 10 out of 10 times, Goldberg said. “You like to be right one of 10 times.”

While risk-taking angel investors are important to the entrepreneurial cycle, the employees of a successful startup may be as important as recycled cash, said Todd Federman, managing director of North Coast Angel Fund (NCAF), a Cleveland investment group. “Having gone through a successful exit, startup employees gain a powerful experience that adds to their capabilities and the startup culture in general,” he noted.

Gerace said he can count at least 12 businesses spawned by team members of his startups, all of whom had shares in those businesses. He considers that important to keep the cycle going strong.

In addition, several alumni of earlier companies have joined him at Convey.

“I’ve always made sure that every team member had equity,” he said.

“And so when we have an exit, it is fi-

nancially beneficial to not just investors and not just a small team of founders, but every employee.”

NCAF is one of several organizations that target making early investments in Northeast Ohio. Others include nonprofits BioEnterprise Corp. and JumpStart Inc. North Coast, which is like similar organizations across the country, has 220-plus investors who have invested more than $30 million over the past dozen years to help launch and nurture 55 companies, most in Northeast Ohio. But building that entrepreneurial ecosystem takes time. Of its 55 investments, Federman said, it’s seen only four exits, though most of its companies continue to operate.

NCAF’s four exits include one local company: OnShift Inc. The other three are based in Columbus or Cincinnati.

BioEnterprise, a Cleveland-based nonprofit that assists client biosci-

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ence companies with management guidance and access to venture capital and private equity firms, has helped entrepreneurs complete 70 exits since its inception in 2002. Some of those were by people who recycled their returns into new ventures, noted Aram Nerpouni, BioEnterprise’s CEO. “When you look at the progress of the sector over the last decade or two, we’ve gotten pretty good at, as a community, feeding fish. We’ve got to get better at reef-building,” Nerpouni said. “It’s not just solving for individual companies, but it’s creating an environment where ideas and talent and capital can come together. If you look at places like Minneapolis, which is the No. 1 region in the Midwest in terms of deals and dollars, they have not only a vibrant startup community, but they have all these big companies that are shedding talent and (intellectual property) all the time.”

JumpStart, a Cleveland business ac-

celerator that provides support and investment capital to startup and young businesses in Ohio and New York state, has invested more than $57 million into 120 Ohio tech startups. According to Pitchbook.com, the nonprofit has had 57 exits from its portfolio. Among those are CoverMyMeds, a Columbus medical software company that began life in Twinsburg before building a headquarters in Columbus, and Wireless Environment, a Mayfield Village maker of LED lighting products under the Mr. Beams product name.

Ohio’s Third Frontier economic development program got the ball rolling for JumpStart’s investment activity beginning in 2004.

“Early on, money came from the Ohio Third Frontier program,” said Rem Harris, a JumpStart senior partner who directs investment activity.

“And that required a match, and we raised match from the foundations here in Cleveland.”

JumpStart now can fund investments from the proceeds of exits. Harris said that after the accelerator’s first decade of investing, returns from exits have allowed it to put significantly more capital into young companies. In its first 10 years, the organization invested $28 million in 76 companies. Now, it has $57 million deployed in 120 companies.

“So, we look at our first $28 million deployed, and that has returned a little bit more than two times capital deployed,” Harris said. “It’s approximately $60 million that is the total return from that funding.”

That doubling of invested capital is what keeps early investors in the game. Of course, it takes a few big winners to double the invested capital in a total portfolio where most investments don’t pan out.

NCAF, a private investor that also invests beyond Northeast Ohio, has had similar success, though it reports it in a different way.

“It’s part of why we’re very optimistic,” Federman said. “The exits we’ve had as a fund have been a low of four (times invested capital) and a high of seven times. But we expect that we have some stronger returns than that in development right now.”

Those kinds of returns also attract individuals who might be approached directly by an entrepreneur or through an entity like NCAF. Lee Zapis, who invests through his Zapis Capital Group in Westlake, has been investing in young businesses for 20 years, even before his family sold its radio station business (its flagship was 93.1 WZAK).

“I always had an interest in technology,” he said. “And it’s always interesting to work with very smart people who have a vision. It got me excited.”

Zapis added that he learned what to expect early on, comparing the situation to being a baseball player.

“It’s not a high batting average kind of situation,” he said he learned early. “It’s like you play the whole game and when you’re up to bat, you strike out one or two times and get a single one or two times. But then, you know, in your last at-bat you get a grand-slam home run.”

Zapis recently had what may be described as a home run. He was an investor in Scout RFP Inc., a San Francisco-based firm started by two Case Western Reserve University graduates that was sold for $540 million late last year.

But Zapis would like to see more of Northeast Ohio’s institutions and wealthy individuals get involved in local risk investing, although he understands why it doesn’t happen more often. He said many investors, who rely on money managers, expect their money managers to follow two rules: “One is, ‘Don’t lose money.’ The second rule is ‘don’t forget rule No. 1.’ ”

8 | CRAIN’S CLEVELAND BUSINESS | JANUARY 13, 2020

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PERSONAL VIEW

Rust Belt shows the future of growth is borne out of need

RICH WILLIAMS FOR CRAIN’S CLEVELAND BUSINESS

BBY RICHEY PIIPARINEN

EDITORIAL

Is smaller better?

Cleveland City Council may well have too many members.

They might also make too much money. But two proposals taking aim at those issues, and approved last week for placement on the March ballot, are rushed and ill-considered — and they don’t constitute any type of plan for making government actually work better.

A group called Clevelanders First last week submitted to council petitions in support of the two issues that met ballot requirements for the number of signatures. Members of council unenthusiastically did their duty, and now voters will decide on the two measures: one to reduce the size of council to nine members from 17 (requiring a redrawing of the city’s ward map that would give each ward about 40,000 residents rather than the current 20,000 to 25,000) and the other to cut members’ pay to $58,000 a year from about $83,000.

As Cleveland.com reported, Clevelanders First — a group backed financially by Westlake businessman Tony George, who grew up in Cleveland and owns several businesses in the city — was motivated to pursue the initiatives for several reasons, including a perception that council is a rubber THE RESPONSIVENESS stamp for Mayor Frank OF COUNCIL MEMBERS Jackson and is ineffective as a watchdog; that council ARGUABLY WOULD BE members are unresponsive; WORSE IF WARDS ARE and that council is too large with other cities.

NEARLY DOUBLE THEIR compared On that last point, CleveCURRENT SIZE. land does indeed have a larger council than most cities, and its pay for council members is higher, though staff size is smaller. But it’s hard to see how reducing the size of council makes the institution more effective at any of the tasks in which Clevelanders First finds it deficient, and the responsiveness of council members arguably would be worse if wards are nearly double their current size.

This isn’t an argument for the status quo. Perhaps council would operate more efficiently at a smaller size, but the proposal to do that is both drastic (essentially cutting it in half ) and not backed by an objective study making a case for the

reduction. Same goes for the pay issue, where $83,000 may be on the high side, but $58,000 may not be enough to attract qualified people to pursue a job that’s more than 40 hours a week for a person who’s doing it diligently.

It’s also easy to be skeptical about what’s driving this.

George, a controversial figure who hasn’t always gotten what he wants from the city, insists he’s just looking for a more responsive government. Even so, it would be better if proposals for such drastic changes came organically from Cleveland residents.

City Council hasn’t performed very well for a long time. It does need to be held more accountable and it needs to hold the administration more accountable. But this just isn’t a serious reform effort.

More, please Goodyear Tire & Rubber Co. last week used the high profile of the Consumer Electronics Show in Las Vegas to announce the launch of a $100 million venture capital fund called Goodyear Ventures that will target new investments in transportation and mobility initiatives over the next decade.

CES bills itself as “the global stage for innovation,” and with respect to this initiative from the Akron tiremaker, the slogan is apt. The company says Goodyear Ventures will focus on making investments in eight areas, including electric and autonomous technologies; next-generation public mobility; future transportation infrastructure; future maintenance and operations; and emerging technologies. Development in all these sectors would be a public good — and potentially a boon for Northeast Ohio’s economy, if creative companies here are up to the challenge.

In response to Goodyear’s announcement, Baiju Shah — a senior fellow at the Cleveland Foundation, the former CEO of BioMotiv and BioEnterprise, and someone who knows his way around the new economy — tweeted, “We need more Cleveland-area companies to step up and add fuel to the innovation ecosystem.” We wholeheartedly agree. Good for Goodyear, and may it set an example in the region to think big.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com) Managing Editor: Scott Suttell (ssuttell@crain.com) Contact Crain’s: 216-522-1383 Read Crain’s online: crainscleveland.com

In a 2015 interview with The Guardian, Daniel Kahneman, arguably the world’s most influential living psychologist and a Nobel Prize winner in economics, said that if he had a magic wand he would do one thing: eliminate the propensity for humans to be overconfident.

Kahneman, who birthed the literature on human bias along with Amos Tversky, explained that while confidence-inducing Piiparinen is mental shortcuts, or “heuristics”, are need- director of ed to survive — imagine painstakingly urban theory doubting every decision made every day and analytics at — these shortcuts can run amok. Instead the Maxine of being shortcuts, for instance, heuristics Goodman Levin too often stand in for analysis via the filter- College of Urban ing of information into preconceived no- Affairs and tions, ultimately polluting the capability principal and for insight. This lack of insight, then, en- CEO at Rust Belt genders path dependencies that favor the Analytica. status quo, often with detrimental effect.

This is readily apparent in how we think about cities. For example, “Sun Belt” cities conjure up images of the sun. It’s where growth is and where migration ends up.

Then there are cities in the “Rust Belt.” They elicit images of, well, rust. It’s where migration comes from and where losses stack up. The latter region is synonymous with failure, and the former with aspiration and success.

But is this really so?

In terms of population growth, the Sun Belt shines. Looking at the United States’ largest 40 metros, the top seven fastest-growing from 2001 to 2017 are all in the Sun Belt: Austin (60.1%), Las Vegas (50.9%), Orlando (46.7%), Houston (43.1%), Charlotte (42.7%), San Antonio (41.5%) and Phoenix (40.8%).

The bottom seven? They are all in the Rust Belt: Cleveland (-3.9%), Pittsburgh (-3.5%), Detroit (-3.3%), Providence (1.6%), Chicago (4.0%), St. Louis (4.4%) and Milwaukee (4.6%).

Peeling the onion back a bit reveals another narrative, however. In 2001, inflation-adjusted GDP per capita — a standard measure of labor productivity — was higher in the Sun Belt ($48,189) than the Rust Belt ($47,628). But that’s no longer the case. The Rust Belt’s GDP per capita is $54,435, compared to $52,419 in the Sun Belt. Looking at the growth rate since the Great Recession shows the Rust Belt pulling away, with gains of 13.1%, compared to 8.9% for the Sun Belt since 2009. Makes you wonder how much of the Sun Belt’s labor productivity was contrived by the housing bubble.

A similar story unfolds when measuring real per capita income. The inflation-adjusted real per capita income is $52,939 in the Rust Belt, nearly $7,000 more than in the Sun Belt ($46,049). Again, the divergence has only gotten larger since the Great Recession.

We can keep going. The Rust Belt cities have more college-educated adults (5,956,549) than their Sun Belt counterparts (5,249,355), according to the 2018 Census. They also have higher college educational attainment rates (35.5% versus 33.0%). The Rust Belt has more workers with advanced degrees (2.03 million versus 1.39 million), as noted by the Current Population Survey. It also has a much greater concentration of skilled immigrants, with 34.2% of the Rust Belt’s immigrants being college educated, compared to 27.9% in the Sun Belt. Oh, and when it comes to efficacy in land use, it’s not even close. The Rust Belt’s population density of 905 people per square mile is nearly double that of the Sun Belt (549).

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

See RUST BELT on Page 11

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com. Please include a telephone number for verification purposes.

10 | CRAIN’S CLEVELAND BUSINESS | January 13, 2020

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RUST BELT

From Page 10

So, on some of the most basic measures of development — productivity, prosperity, education, density — it’s the Rust Belt that’s on top. This reality echoes Richard Florida’s analysis that population growth “bears little relation to economic growth, and it’s a terribly misleading indicator of it.” It also dovetails with a Brookings study that shows low-wage workers have their highest concentrations in the South and the West.

Why do biases persist in how we view and narrate a region’s success?

And what are the societal consequences of the tales we tell?

Why population growth is seen as the be-all and end-all of success is pretty straightforward. Economic growth is measured by gross domestic product (GDP), which is simply the amount of things produced and consumed in a given time and place.

Increasing GDP, in turn, is a function of two factors: a growing labor force (quantity of people) and a more productive labor force (quality of work). The former is low-hanging fruit. It doesn’t involve the hard stuff, like human capital development.

That’s largely why cities fight for attraction. You get people to move to a region and consumption grows. A local economy then feeds it on itself, like a food mold.

But it’s a 20th-century model.

This past fall, LeBron James, who left Cleveland for the Los Angeles Lakers, tweeted: “Man these LA (fires) aren’t no joke. Had to emergency evacuate my house and I’ve been driving around with my family trying to get rooms. No luck so far!” That one of the most powerful men in the world was powerless for shelter — albeit temporarily — shows the precariousness of the situation. Consider it a shadow of the Sun Belt. A recent New York Times op-ed by Farhad Manjoo pieced together a pattern of human

activity that’s increasingly disabusing the bias of where the future is. These activities include housing sprawl into wildfire areas, and the tenacity and frequency of wildfires tied to the carbon emissions created by such land use inefficiencies. They include a homelessness epidemic part and parcel with housing unaffordability, which, in turn, is tied to growing income inequalities provoked by an innovation economy that creates “winner-take-all” effects.

That innovation economy — what’s it really about? A colleague of mine recently opined that Silicon Valley matured via “tech for the sake of tech: making computers, search engines and software. Now, it’s 20-something dudes making solutions to replace what their mom did for them at home ... laundry, food, rides around town and recommendations on where to eat.” Put another way, it’s about consumption.

That’s why Facebook and Google make the lion’s share of their profits on precision advertising.

Historically, that’s what American progress has been so often about: consuming toward some virtuously vague notion of growth. That’s a bias that will be hard to bust, if only because “bigness” is so ingrained in the American psyche. It is questionable, then, that the Sun Belt will pivot from the consumptive model of development, despite the costs. Rather, the low-hanging fruit may be picked until the branches are bare. And that’s not because people don’t know there’s a problem: The most recent Yale Climate Opinion Survey, for instance, shows 70% of Americans believe climate change is real — it’s just that, like Kahneman said, “unrealistic optimism is a pervasive human trait,” as affirmed by a Nature Neuroscience report. Eventually, though, reality burns optimism into realism.

But perhaps there’s a silver lining on the horizon. Cities nationwide relying on the growth-at-all-costs manner of development will have to innovate out of necessity, if only due

to a phenomenon called “demographic decline,” which refers to the shrinking of the population pipeline that has historically fueled urban development.

Let’s start globally. According to the latest figures from Our World in Data, the global fertility rate has more than halved since 1964, going from 5.06 births per woman to 2.43 in 2017. Given that immigration will be the primary source of growth, this is important. In fact, demographic decline is already creating a new normal in the U.S. A recent EIG report showed that 80% of American counties lost prime working age (25-54) adults from 2007 to 2017.

Also, last year was the first time in the nation’s history that its three largest metropolitan areas — Los Angeles, Chicago and New York — all lost population in the same year.

So, America, welcome to the Rust Belt, a region that is arguably the first collection of big cities in America’s short history that has “died.” And by “die” I mean losing total population and doing so consistently, year after year. It’s thus the first collection of cities that’s had to do more with less, which helps explain the comparative trends elucidated above between the Sun Belt and the Rust Belt. This is not because of any superiority in values, per se, but rather a productivity play borne out of need. Any Rust Belt optimism has been burned into realism some time back. But — as noted by Colin Lloyd of the American Institute of Economic Research — demographic decline, while inevitable, “if approached as opportunity, can be a blessing rather than a curse.”

The future of growth, then, is exactly that. It will not be recreated by gluing back the vestiges of the 20th century. It will be principled on the production of well-being, not its consumption. On quality of life, not the quantity of lives.

But these principles won’t be possible until we lose overconfidence and get real. We need to remember that the sun does indeed cast shadows, and there’s solidity under rust.

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nspiration arrives in unexpected ways.

Thirteen years ago, Jonathan Klinger came home from work to find his wife, Julianne, in the living room of their home in Cambridge, England. She was holding a CD player and had big earmuff-sized headphones strapped to her pregnant belly.

More than a decade later, the couple’s baby-tech startup has gone through loads of research, engineering, testing, relocation and risk-taking. After several prototypes, securing a patent and winning the Northeast Ohio Chapter of the Innovation Fund of America prize (a “Shark Tank”-like competition) in the form of a $100,000 interest-free loan, Mbrio Pregnancy Earbud Adapters hit the market in June 2019, and they’re getting noticed.

The adapters, which transform regular earbuds into pregnancy headphones, garnered an Instagram shout-out from supermodel Ashley Graham to her almost 10 million followers, blurbs in People and Us Weekly magazines, online coverage on lifestyle sites including PopSugar, and a rating of 4.9 out of 5 stars on Amazon.

Having an idea, designing the product, manufacturing it and establishing a company around it are daunting tasks.

Jonathan and Julianne Klinger merged their experience — his in engineering, hers in marketing — to create earbud adapters that clip to a pregnant mom’s waistband. They’re made of safe, quality materials in an ergonomic shape.

Decibel level and frequency testing was performed by a nationally registered lab.

“I’d heard about playing music to my unborn baby from

“WE COULD USE SUPPLIERS FROM AROUND THE WORLD. WE COULD HAVE THE GRAPHIC DESIGN DONE ELSEWHERE, ANYONE COULD DO OUR FULFILLMENT, BUT WE FEEL THE COMMUNITY HAS GIVEN US SO MUCH, WE LOVE CLEVELAND AND WE WANT TO GIVE BACK.” — Julianne Klinger, who founded Mbrio with her husband, Jonathan.

my mom and sister,” Julianne said. “It wasn’t a new concept, and after my midwife suggested it, I decided to give it a try. I thought I could go to the store and pick something up. All I found were bulky speakers that required adhesives or straps and splitters or adapters. That got us thinking that there must be a better way.”

Jonathan, raised in England, is an engineer with a graduate business degree from France. Julianne, raised in the Midwest, has an undergraduate degree in anthropology and an MBA from the University of Chicago Graduate School of Business, where the two met through a mutual friend.

Together, the couple moved often, following their jobs.

Jonathan worked in marketing and product innovation for large corporations, while Julianne worked in advertising and marketing for a large Fortune 100 company.

“We kept thinking that playing music for our baby shouldn’t be a different experience than playing music for ourselves. It should be seamless and use things we already had,” Julianne said.

Three months after their first child was born, Jonathan’s work took them to New York. Design began with a trip to Walgreens and CVS, where they bought everyday products, including things with plastic clips, gel shoe inserts and other items that would attenuate sound.

As an engineer, Jonathan had two questions. “One was: How do you make the sound safe for the baby? And the second is: How do you hold it to the mom’s belly without harnesses or sticky stuff? The first sketch was literally drawn on the back of an envelope.

See MBRIO on Page 15

12 | CRAIN’S CLEVELAND BUSINESS | JANUARY 13, 2020

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FOCUS | SMALL BUSINESS

AD

Pamper your pets at Woof Gang Bakery

B

Chain’s first Ohio outlet offers grooming and healthy and organic pet foods BBY DOUGLAS J. GUTH

For many folks, dogs and cats are members of the family, not just furry lodgers to be fed and cleaned up after.

The home of Woof Gang Bakery owners Joe and Natalee Gilk includes a 13-year-old rescue dachshund named Cloe. Years ago, Cloe ruptured a disc in her back, requiring expensive surgery that Joe paid for in part with funds drawn from his 401(k). Although the operation left a scar, Cloe has entered her senior years both happy and healthy.

“I have no regrets,” Gilk said of the expenditure. “I’d do it again in a second.”

Gilk is bringing that impassioned attitude to the first Ohio location of Woof Gang Bakery, offering professional grooming services alongside a selection of healthy dog and cat foods, gourmet baked treats, toys, and petpampering accessories. The new store, located at 20075 Chagrin Blvd. in Shaker Heights’ mixed-use Van Aken District, launched with a grand-opening celebration on Dec. 7.

“If you want to come and play with

Woof Gang Bakery provides one-stop grooming and supplies for pets young and old.

animals, this is the place to be,” said Gilk.

Prior to opening his Woof Gang Bakery franchise, Gilk served as director of operations for a pet-supply

store in his native Youngstown. He also spent nearly two decades as a manager for Pet Supplies Plus, overseeing one of the chain’s top five stores in the United States.

As a franchisee for one of 130 Woof Gang Bakery locations so far, Gilk is primed to provide one-stop grooming and supplies to discerning pet lovers — the type who might scan dogfood ingredients before purchasing. Among other high-end brands, Gilk sells Best Breed, a veterinarian-concocted pet nutrition product made in Findlay.

The organic pet treats he stocks are made without fillers, preservatives or artificial colors. Though not exactly suitable for human consumption, they’re not half-bad either, Gilk reported, adding, “They just taste like an oatmeal cookie.”

Customers can buy goat’s milk to aid their fuzzy family members’ digestion, or bathe them in a spa-like atmosphere of doggy indulgence.

Gilk suggested such luxurious treatment isn’t found at larger retailers more concerned about numbercrunching than clientele.

BBY J

Joe and Natalee Gilk have opened the first Ohio location for the Woof Gang Bakery chain in Shaker Heights’ Van Aken District. | DOUGLAS C. GUTH FOR CRAIN’S CLEVELAND BUSINESS

“I’m a dog lover; everyone here is the same,” he said. “People loving their pets is what it’s all about. I’m going to treat the customer like I’d want to be treated. I want to feel good when I sell someone that bag of treats, that what I’m selling them is good for their pets.”

Enormous demand exists for pet products and services today. The American Pet Products Association counted more than 100 million pet households in the U.S., while the nation’s pet industry is forecast to reach $96 billion in sales by 2020. Dog grooming alone is projected to grow 11% per year through 2023, according to the Bureau of Labor Statistics.

Based on Gilk’s conversations with customers, families now are more often caring for multiple pets rather than just one. Modern pet owners, much like the general populace, also

have a healthier standard of living, which may have a trickle-down effect for their pets.

“People are more conscious about getting the right food for their dogs,” Gilk said. “They’ve passed that down to their pets from their own lifestyle.

Dogs have allergies, so it’s a matter of getting them the right food. That wasn’t the case when I first started.”

Woof Gang Bakery ramped up for holiday business, with Gilk bringing in a manager from a previous job to help run operations.

“This is the place for people to go for the right advice and to be treated like family,” Gilk said. “There’s no dumb questions, you can come to us with anything. We’ll try our best to resolve any problem you have.”

Contact Douglas J. Guth: clbfreelancer@crain.com

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14 | CRAIN’S CLEVELAND BUSINESS | January 13, 2020

P014_015_CL_20200113.indd 14

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FOCUS | SMALL BUSINESS

ADVISER

Be aware of tax implications if using Venmo for business

BY JONATHAN WOLNIK

Venmo is an increasingly popular peer-to-peer mobile payment app, owned by PayPal, that allows users to easily transfer money through their phones. While most often associated with personal use, it’s starting to gain popularity for business transactions.

Although the app is being used by millions of people and, more recently, organizations, it’s likely that few of those users are considering the tax ramifications related to commercial use.

Interestingly, the Venmo user agreement makes it clear that the app is generally not intended for business purposes, unless the users have established an “approved business account.” Consider the following excerpt from the Venmo user agreement available online: Venmo should only be used to transact with people you know and trust. Do not use Venmo to transact with people you don’t know, especially if the payment involves the purchase or sale of a good or service. Unless Venmo expressly authorizes your payment for a good or service, for ex-

MBRIO

From Page 12

“We made several iterations,” he added, “and by the time we got close to the final prototype, we searched to see if anyone had done anything like it. No one in the world had, so we applied for and received a patent. No one can legally copy it.”

After having another child and moving to Cleveland a few years ago, the Klingers were nearing the home stretch. They discovered Sears think [box], a public-access innovation center at the Case Western Reserve University School of Engineering.

“They have a phenomenal 3D printer that we could use for free,” Jonathan said. “Unlike many 3D printers that only produce items in hard plastic, this printer allows you to model the squishiness of the piece.”

“We gave prototypes to local pregnant moms to try,” added Julianne, who named the company Mbrio.

They also commissioned Suzy.com, a market research company, to carry out an online survey of 500 pregnant moms across the U.S. to confirm attitudes about the benefits of prenatal music and interest in their product.

The couple also discovered the JumpStart Inc. nonprofit accelerator, which provided mentoring, networking and ongoing support before, during and after the grant application through Glide (Great Lakes Innovation and Development Enterprise) for the Innovation Fund of America prize and the product’s launch.

The final product, which looks as sleek as anything hanging on the wall of an Apple Store, meets the standards put out by the CDC and the National Institution for Occupational Safety and Health (NIOSH). It’s made of medical-grade silicone and a plastic clip that are joined without screws or glue but using split, flanged pegs.

When it came to finding a manufacturer, Jonathan says that many turned the product down due to the complicated design.

“It was our choice to be this concerned about product safety. I’ve

ample, transactions with an Venmo and tax authorized merchant or regulations made with your Venmo Mastercard, it is restricted For IRS tax substantiaunder this agreement. If you tion purposes, think of payuse Venmo to conduct such ments using Venmo like a a transaction and we later cash transaction. reverse the payment (which The IRS considers paycould occur if it is determents made by cash as unmined that this agreement Wolnik is a tax substantiated. Accordingly, was violated or if the pay- attorney with there must be other conment was made using a Cleveland-based temporaneous documentacompromised payment McCarthy, Lebit, tion, such as receipts, inmethod or account), you Crystal & voices and expense reports, could lose both the underly- Liffman. to explain the tax deducting goods or services and the ibility. For example, some money sent for them. businesses may be reimDespite these warnings, several bursing their employees through large, notable retailers are already Venmo for company expenses legitioffering their customers the conve- mately incurred in connection with nience of paying via Venmo, pre- the trade or business. For IRS pursumably through established “ap- poses, however, a Venmo timeproved business accounts.” Smaller stamped transaction is not sufficient entrepreneurs are also using Venmo by itself to justify a business expense. in their businesses, including payments to vendors and employee ex- Paying vendors with Venmo pense reimbursements. However, the convenience and efficiency of Payments made through Venmo to the app are no substitute for good vendors also are still subject to IRS business practices and proper docu- information reporting rules. Vendor mentation. payments over $600 in a calendar been through this with other products,” said Jonathan, who left his fulltime job two years ago. Through his contacts, he chose a high-quality, tier-one manufacturer in Asia to make the two components.

The next step, he added, became equally important.

“The organization that assembles the product and the packaging is a nonprofit based in Norwalk called CLI Supports,” he said. “It provides paid employment to adults with developmental disabilities. They assemble the silicone to the clip and package the finished product. We also have the graphics done locally and use Ohio suppliers. Many are women-owned businesses.”

“We could use suppliers from around the world,” Julianne said. “We could have the graphic design done elsewhere, anyone could do our fulfillment, but we feel the community has given us so much, we love Cleveland and we want to give back.”

She manages engagement with influencers and moms through Instagram. “That was a big part of this for us,” she said. “Who we are in terms of bringing this product to light is also about who we are as parents. We left our lives in large corporations to do this a certain way. It might have taken us a little longer, it might cost us more, but there is integrity in it and that’s the only way we wanted to do it. We came into it launching a product for pregnant women, but the richness has been the lives of these women we’ve gotten to know and remain in touch with. That’s been the jewel of the whole thing.”

As for additional items from Mbrio, Julianne said, ”We’re thinking of the next product as we consider the community and their needs.”

Mbrio Pregnancy Earbud Adapters fit earbuds by Apple, including wireless AirPods, Samsung and Google Pixel. They’re available in white or aqua, sell for $30 and can be purchased at mbriotech.com and on Amazon. For additional reviews and images see mbriotech on Instagram.

Contact Allison Carey: clbfreelancer@crain.com

year must be reported on IRS Form 1099-MISC, regardless of the mechanism by which the payment is made.

Earnings to the individual receiving payment through Venmo are taxable to that individual and must be reported in compliance with tax law.

Further, vendors receiving payment through Venmo for goods or services must also be cognizant of sales tax laws imposed at the state level. If a business is paying payroll through Venmo, then all of the withholding tax rules still apply, as well.

Failure to report activity transacted through a peer-to-peer app will create tax problems. From the government’s perspective, Venmo activity is no different from any other transaction conducted through a traditional bank account. Payments received through Venmo must be reported on the appropriate tax returns and must be included in taxable income.

Despite all this, not all transactions executed through Venmo are automatically taxable. For example, simply reimbursing a friend for your share of a group dinner or taxicab ride is generally not a taxable transaction.

B2B payment solutions With businesses looking for ways to improve cash flow while simplifying bookkeeping, the trend to use electronic or digital payment solutions is not likely to subside. Business managers should research payment gateways designed specifically for business-to-business transactions.

There are technology solutions that automatically record and store payment data and can be integrated with bookkeeping software. PayPal, Fundbox Pay, Square, Quick Books and Due are all popular B2B payment solutions. But management should also be aware that these B2B platforms tend to be developed specifically for certain types of businesses.

The bottom line is that, while e-commerce platforms continue to develop and evolve, the fundamental tax law has not changed. The substance of the transaction, regardless of the mechanism by which it takes place, is ultimately what matters to the taxing authorities.

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THE LIST

SBA Lenders

Ranked by dollar value of 7(a) loans approved in fiscal 2019 COMPANY HEADQUARTERS CITY

VALUE OF APPROVED LOANS FISCAL 2019

VALUE OF APPROVED LOANS FISCAL 2018

% CHANGE

NUMBER OF LOANS FISCAL 2019

NUMBER OF LOANS FISCAL 2018

% CHANGE

1

Huntington National Bank Columbus

$126,709,500

$165,398,300

-23.4%

892

1,111

-19.7%

2

KeyBank NA Cleveland

$15,092,600

$29,312,700

-48.5%

35

63

-44.4%

3

First Commonwealth Bank Indiana, Pa.

$14,651,100

$441,000

3,222.2%

15

2

650.0%

4

Live Oak Banking Co. Wilmington, N.C.

$14,409,000

$13,022,000

10.7%

13

12

8.3%

5

Chemical Bank (a division of TCF National Bank) Detroit

$11,107,700

$11,038,500

0.6%

15

19

-21.1%

6

United Midwest Savings Bank NA De Graff

$11,043,000

$6,082,500

81.6%

17

12

41.7%

7

Stearns Bank NA St. Cloud, Minn.

$8,516,000

$2,705,800

214.7%

12

11

9.1%

8

First National Bank of Pennsylvania Greenville, Pa.

$6,767,000

$5,007,300

35.1%

8

16

-50.0%

9

Fifth Third Bank Cincinnati

$6,189,600

$9,511,200

-34.9%

28

30

-6.7%

10

HomeTrust Bank Asheville, N.C.

$5,200,500

$436,000

1,092.8%

3

1

200.0%

11

First Bank of the Lake Osage Beach, Mo.

$5,000,000

$4,900,000

2.0%

1

1

0.0%

11

Centerstone SBA Lending Inc. Los Angeles

$5,000,000

$1,765,000

183.3%

1

1

0.0%

11

Comerica Bank Dallas

$5,000,000

NA

NA

1

NA

NA

14

Byline Bank Chicago

$4,962,000

$5,468,000

-9.3%

6

7

-14.3%

15

Citizens Bank Providence, R.I.

$4,918,500

$8,333,000

-41.0%

21

59

-64.4%

16

U.S. Bank Minneapolis, Minn.

$4,791,500

$6,535,800

-26.7%

43

46

-6.5%

17

Northeast Bank Lewiston, Maine

$4,620,000

$2,171,000

112.8%

2

1

100.0%

18

Newtek Small Business Finance Inc. Lake Success, N.Y.

$4,490,800

$4,281,000

4.9%

11

10

10.0%

19

Bank of Hope Los Angeles

$3,837,000

NA

NA

3

NA

NA

20

Home Savings Bank Youngstown

$3,641,800

$9,912,100

-63.3%

5

4

25.0%

21

Growth Capital Corp.

Cleveland

$3,606,900

$4,370,400

-17.5%

56

42

33.3%

22

Middlefield Banking Co. Middlefield

$3,571,000

$3,818,000

-6.5%

4

3

33.3%

23

Bank of George Las Vegas, Nev.

$3,390,000

$950,000

256.8%

1

1

0.0%

24

PromiseOne Bank Duluth, Ga.

$3,382,000

NA

NA

2

NA

NA

25

Peoples Bank Marietta

$3,319,800

$3,280,600

1.2%

8

8

0.0%

26

Civista Bank Sandusky

$3,255,900

$920,000

253.9%

5

3

66.7%

27

PNC Bank Pittsburgh

$3,252,800

$4,051,000

-19.7%

29

35

-17.1%

28

The State Bank and Trust Co. Defiance

$3,190,400

$1,897,100

68.2%

7

6

16.7%

29

Independence Bank East Greenwich, R.I.

$2,775,000

$1,775,000

56.3%

19

14

35.7%

30

CIBM Bank Champaign, Ill.

$2,582,000

NA

NA

1

NA

NA

31

United Community Bank Blairsville, Ga.

$2,520,000

$2,727,000

-7.6%

4

3

33.3%

32

Hometown Bank Kent

$2,150,000

$1,854,200

16.0%

1

1

0.0%

33

Consumers National Bank Minerva

$2,138,500

$3,111,700

-31.3%

16

24

-33.3%

34

JPMorgan Chase Bank NA New York

$1,792,500

$2,783,700

-35.6%

14

26

-46.2%

35

IncredibleBank (formerly River Valley Bank) Wausau, Wisc.

$1,670,000

NA

NA

2

NA

NA

36

The Bancorp Bank Wilmington, Del.

$1,658,000

NA

NA

1

NA

NA

RANK

RESEARCHED BY CHUCK SODER: CSODER@CRAIN.COM

Get all 83 SBA lenders and up to 10 years of data in Excel. Become a Data Member: CrainsCleveland.com/data

Source: Cleveland District office of the U.S. Small Business Administration. Numbers are for fiscal years ending Sept. 30 and include 7(a) loans made throughout the 28 northern Ohio counties in the SBA's Cleveland District. Send feedback to Chuck Soder: csoder@crain.com.

16 | CRAIN’S CLEVELAND BUSINESS | January 13, 2020

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CRAIN’S CLEVELAND BUSINESS

|

S E P T E M B E R 3 - 9 , 2 018

|

PA G E 17

AKRON MANUFACTURING

Stark County sauce maker Mid’s simmers back to profitability BBY JUDY STRINGER

While it’s a global brand today, Coors beer had a cultlike status as a regional treasure in the 1970s. Consumers east of the Mississippi River couldn’t get the popular Colorado brew, and the scarcity prompted East Coast beer lovers to “smuggle” cases from western retailers, even inspiring the plot of the 1977 classic film “Smokey and the Bandit.”

Steve Cress muses about a similar trajectory for Mid’s, a pasta sauce simmered in Navarre, just 12 miles southwest of Canton. No, he’s not expecting a celluloid resurrection of Snowman and the Bandit racing a truckload of marinara across states.

But he has heard numerous tales of Mid’s jars stuffed in suitcases and crammed in care packages bound — in this case — for far west destinations.

“If you take a 60- to 70-mile radius of Canton, Mid’s is probably the No. 1 pasta sauce in supermarkets like Acme, Heinen’s and Giant Eagle,” said Cress, who is majority owner and principal of the 65-year-old company.

“And while we’ve made a lot of headway in expanding our (geographic) reach in the last few years, we are not in stores west of the Rockies.”

That means, he said, Northeast Ohio transplants on the West Coast often rely on the kindness of friends and family back home.

Mid’s modernized its prodution equipment in 2018 to allow for greater efficiencies.

CONTRIBUTED PHOTO

Cress and investment partner Scott Ricketts bought the familyowned Mid’s True Sicilian Pasta Sauce company in 1997, under their RC Industries Inc. umbrella. By 2016, the duo had expanded the brand’s footprint from 80 stores in three Ohio counties to “thousands of retailers in 33 states,” Cress said. Soon after, earnings began to flatten.

“We were in many ways a victim of our own success,” he said. Employment had swollen from about six mostly part-timers in 1997 to roughly 40 full-time workers in 2016 “to meet growing demand,” according to Cress, “and it just wasn’t profitable.”

RC Industries suspended sauce

making in the winter of 2018 to upgrade and automate production lines. After the new lines opened in February 2019, it took another seven months to work out the kinks, upskill the — now smaller at about 20 — workforce and fully realize new efficiencies.

Still, Cress said, Mid’s managed to regain profitability in 2019. He expects 2020 “to be excellent, growthwise.” The owner, who declined to provide specific revenue figures, characterized Mid’s as “fair-sized.”

“It’s not a $50 million company, but it is working toward it.”

Stark County restaurateur Mideo “Mid” Octavio, who operated a midcentury Italian eatery in downtown Navarre, first began jarring his grandmother’s sauce at the bequest of customers. For decades, the sauce was simmered in a large “Jacuzzi-like

tub” in what was essentially a two-car garage, Cress said. Workers mixed in freshly cooked meat and jarred each batch by hand.

In 2005, the new owners constructed a 20,000-square-feet plant on the same Main Street site as the original production facility.

“It was our first attempt at professional-grade kettles and better packaging,” Cress said.

Capacity, however, did not keep up with demand, and the process remained too labor intensive. Multimillion dollar upgrades in late 2018 were aimed at increasing output. The plant was stripped down to its bones and modernized with computer-driven simmering kettles and automated mixing and packaging equipment.

Cooking volume increased from 1,300 gallons to 3,200 gallons per batch, according to Tom Bonk, director of operations. Production rose from 70 to more than 200 jars a minute.

“We built this plant for the future,” Bonk said, noting how uniquely “compact” the operations are. “The production space is 4,000 square feet and packaging is another 2,000 square feet, so in 6,000 square feet, we could produce 65,000 jars of sauce a day if we wanted to.”

Even with the automated equipment, Mid’s owners “haven’t toyed with the family recipe,” Cress said.

Mid’s sauce is still simmered for hours,

unlike larger brands, which steam their sauce in minutes. The company’s meat varieties also include a heaping, 11ounce portion of “fresh, never frozen” beef or pork, he said. Most other sauce makers use so little protein in their meat sauces, they have to say “meat flavored” on their labels.

Then there’s the jar size. Mid’s continues to market its sauce in 32-ounce jars, while most of the field has moved to the more standard 24-ounce size.

That means that while Mid’s is a bit pricier per jar than national brands, “we are pretty competitive when it comes to value,” the principal said.

Cress added that the higher price point translates into a stronger connection and more co-promotional opportunities with grocers, who “would rather make 30% on a $4 or $5 sale than a $2 sale.”

With new capacity up and running, the company plans to refocus efforts on maximizing supply relationships with its current customers, as well as moving into new markets.

Just as Kroger and Publix brought Mid’s into supermarkets along the East Coast and across the Midwest and much of the South, Cress sees opportunities for greater footprint expansion through new prospects like Costco, Whole Foods Market and The Fresh Market.

Contact Judy Stringer: clbfreelancer@crain.com

SMALL BUSINESS

Audiovisual company is making some noise on big-event scene BBY KAREN FARKAS

Steve Savanyu’s career has evolved from installing intercoms at McDonald’s drive-thrus to overseeing audio for presidential debates.

He is well-known in Northeast Ohio for his audio and video work at local events, plus for his signature rocker style of leather pants and long, blond hair, and the name of his company: Buford T. Hedgehog Productions.

But the 65-year-old also is a respected industry expert who teaches at colleges, is director of educational services at Audio-Technica U.S. in Stow and helps oversee the audio at national events, including a papal visit and the 2009 presidential inauguration.

“I love what I do,” he said.

Much of his work is created in the basement of his northern Summit County home, which includes a state-of-the-art audio/video production studio.

Savanyu admits he never could have predicted how his love of electronics and audio, which began in elementary school when he watched Dick Clark interview kids on “American Bandstand,” would lead him to his own company and signature events.

The Warren native earned a bachelor’s degree in electrical engineering from Youngstown State University.

While there, he helped at university concerts, gaining information from the experts. After graduation, he started a business in Warren.

“I did commercial sound, including intercoms and football sound systems,” he said. “I was the score-

board repair guy for schools in Trumbull County.”

He said he knew it was time to leave Warren in 1979, when the steel industry collapsed.

He Savanyu took a job as a sound systems estimator for Kidde Automated Systems in Cleveland.

The company had numerous government and military contracts throughout the world.

“I was in my 20s and was traveling the world,” Savanyu recalled. “I went to the Middle East six times and was in parts of the world that do not exist on maps.”

In 1986, as tensions rose in the Middle East and the company wanted to transfer him to Baltimore, Savanyu took a job at Dukane Corp. near Chicago, which sold commercial and industrial audio equipment.

He oversaw commercial and educational marketing for the company.

He also had an audio/video media production company.

Buford T. Hedgehog was born while he was at Dukane.

Savanyu said he was in Atlanta in the 1990s with a sales team to visit schools to promote a video/television system. His puppy’s hedgehog squeak-toy had ended up in his briefcase, so they used it as the model to show how the system worked.

“We decided to name it, so we chose a Southern name,” he said.

When he moved back to Ohio in 2000 and began working at Audio-Technica,

he needed a name for his new production company. Buford fit the bill.

His job at Audio-Technica includes creating training and other videos that are posted on YouTube. He does all the work, including the voiceovers.

“I get to play with the pretty cool products that A-T develops,” he said.

His equipment and knowledge has expanded from analog recording — which included reel-to-reel tape, complicated editing and heavy cameras — to digital recording, lightweight cameras and computers. His editing suite includes large monitors and equipment for audio, graphics and video.

“Everyone wants content,” he noted.

While he has numerous clients and offers his services for local concerts and events, primarily in Hudson and Chagrin Falls, his work at political and other high-profile events has left him starstruck.

Through his work at Audio-Technica, he met Larry Estrin, who founded Best Audio in California and was considered an audio innovator for major events. Estrin sought Savanyu’s expertise for Pope Benedict XVI’s Mass at Yankee Stadium in 2008, the 2008 and 2012 presidential debates, and Barack Obama’s inauguration in 2009. Estrin died in 2015, but Savanyu still does work for his company, including at the 2016 debates. He expects he’ll be at debates in 2020.

Savanyu is also the archivist for the Commission on Presidential Debates. In that role, he records all broadcast network coverage of a debate. The multitrack recording is pre-

served by the commission.

While he didn’t share Hedgehog’s annual revenue, he’s grown the company to a level where he can still maintain his full-time job at Audio-Technica, but said he plans to expand his recording work and other opportunities after he retires from the Stow company in about a year.

Savanyu is also the archivist for the Akron Symphony Orchestra and writes product reviews for Front of House magazine, for audio professionals.

One of his most recent jobs was to provide audio support for the NFL at

games at FirstEnergy Stadium. He also worked the Major League Baseball All-Star Game in Cleveland last year.

Savanyu was never interested in sports, which likely frustrated his late father, who was a coach and athletic director at several high schools.

So he said his dad would have been proud to know he is now on the sidelines at professional football games.

“He never understood what I did — the sound stuff — until I fixed things,” he said.

Contact Karen Farkas: clbfreelancer@crain.com

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PEOPLE ON THE MOVE

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ACCOUNTING

HEALTH CARE

LAW

LAW

TECHNOLOGY

Sikich LLP

The MetroHealth Foundation

Roetzel & Andress LPA

Frantz Ward LLP

OEC

Sikich LLP is pleased to announce the promotion of Jeremy Michael to Director of Audit Services.

Jeremy’s service approach focuses on establishing a strong communicative environment with his clients in order to deliver effective services that meet their business goals. By also gaining a thorough understanding of each client’s operations and internal control systems, Jeremy is able to skillfully and efficiently perform, evaluate and analyze his client’s financial statement audits.

John Chae, MD has joined the Board of Directors of The MetroHealth Foundation.

John is vice president for Research and Sponsored Programs for The MetroHealth System and professor and chair of Physical Medicine and Rehabilitation and professor of Biomedical Engineering at Case Western Reserve University School of Medicine. He joined The MetroHealth System in 1994.

Megan Millich has been promoted to Shareholder.

Ms. Millich works in the Medical Defense/Health Care Litigation group and focuses her practice on the defense of medical Millich malpractice claims for physicians, hospitals, and other medical providers. She earned her J.D. from The University of Akron School of Law. David Oeschger has been promoted to Shareholder. He is a member of the Medical Defense Health Care Litigation Group. He focuses his practice on the defense of personal injury and wrongful death Oeschger claims in the areas of medical malpractice and product liability lawsuits. He earned his J.D. from The University of Akron School of Law.

Allison Taller Reich has been elected Partner.

Allison immerses herself in the construction industry and assists clients with issues including project delivery methods and contract forms, claim and change management, project close-out processes, and dispute resolution and litigation. Allison earned her J.D. from ClevelandMarshall College of Law and her B.S., in Architecture, from The Ohio State University.

Ike Herman has been named Chief Commercial Officer at OEC and has responsibility for all aspects of the company’s global business lines, European sales and Product Marketing. Ike most recently served as Chief Operating Officer, Europe & Asia, where he was responsible for leading and integrating our European Entities and for growing and developing the OEC product offerings in Europe. Ike was named a Rising Star in the automotive industry in 2018 and holds an MBA from The Ohio State University.

LAW

TECHNOLOGY

Ulmer & Berne LLP

OEC

Ulmer is proud to announce that Dolores (Lola) Garcia-Prignitz has been promoted to Partner. Garcia-Prignitz is a business litigator who represents clients in a variety of industries in complex commercial litigation including commercial matters, contract disputes, and business torts. She is involved in all aspects of litigation, and has experience with arbitrations, internal investigations, government contracting, and antitrust matters.

She received her law degree from Harvard Law School.

Katherine Golden has been named Chief Information Officer at OEC. In this role, she has responsibility for global strategic and operational leadership for the company’s Data Authoring, Software Development, Infrastructure & Operations, Data Services, Risk & Compliance, UX/UI, Quality Assurance and Project Management functions. Ms. Golden previously served as Chief Technology Officer.

She is a RITE Board member and was honored as a 2018 Notable Woman in Technology by Crain’s Cleveland Business.

INSURANCE ACCOUNTING Tramer, Shore & Zwick Tom Lund, CPA, is the newest member of Tramer, Shore & Zwick.

His experience includes public accounting experience for an international and regional accounting firm. Tom’s experience includes performing all types of assurance, accounting, and tax return preparation services for companies of all sizes and industries. Tom manages assurance projects, tax planning and compliance engagements, and has experience in fraud detection, cash flow projections, due diligence, and various other consulting projects.

Gallagher Gallagher welcomes Denny Stusek as Area Senior Vice President and the Practice Leader of Ohio’s National Accounts Practice. Denny has over 25 years of industry experience consulting with and implementing strategic plans for Fortune 1,000 companies as well as local, private entrepreneurial organizations. He brings a unique perspective to the role and we are excited to have him join our team.

INSURANCE BANKING

LAW Ankuda, Stadler & Moeller Ltd. We are pleased to announce that Paul R. Morway has been promoted to the position of Partner. Paul’s valuable contributions to our litigation practice group over the past five years, including his success in trial, have added, and will continue to add, incredible value to the services and counsel we provide our clients.

Gallagher PNC Financial Services Inc. Shawn Zurat has been named Fiduciary Market Manager for PNC Bank Cleveland. He is responsible for a team of 11 fiduciary advisors in Wealth Management.

Shawn has gained extensive experience in wealth management since joining the PNC team in 1996 and serving in a variety of leadership roles. He is a certified Trust and Financial Advisor and an IRA Services Professional. Shawn specializes in relationship management and the administration of personal trusts, IRAs and estates.

FINANCIAL SERVICES

Gallagher Benefit Services is pleased to announce that Joey Ellwood is joining the Ohio team as an Area Vice President, Employee Benefits Consultant. Joey has over 10 years of industry experience including work in supplemental benefit solutions, in addition to employee benefits. He will be a great asset in building and maintaining our corporate partnerships.

Ulmer & Berne LLP

LAW Frantz Ward LLP Thomas E. Cardone has been elected Partner.

Tom’s practice is focused on construction law, government contracts and commercial litigation.

He assists construction professionals in all aspects of the construction process from contracting through project close-out. Tom earned his J.D., with Honors, from Emory University School of Law and his B.A. from Auburn University.

LAW

Ancora

Cavitch, Familo & Durkin Co., L.P.A.

We are pleased to announce that Mr. Nicholas S. Malik has joined Ancora as an Assistant Vice President, Client Service & Support.

Nick will be responsible for providing customer service to Ancora’s retirement plan clients and their participants and serving as their first line of contact. He has previous experience in customer relations, operations and advertising. Nick earned a Bachelor of Arts from Marquette University. We look forward to working with Nick and are happy to welcome him to the firm.

Cavitch, Familo & Durkin Co., L.P.A. announces Eric Sarmiento has been elected to shareholder at the firm. Eric is a member of the firm’s corporate practice, concentrating on corporate, financing, and real estate matters. He represents buyers and sellers in mergers and acquisitions, primarily in the middle market. Eric serves as general counsel on a variety of business matters, including business formation and structuring, commercial lease agreements, loan agreements, and employment agreements.

18 | CRAIN’S CLEVELAND BUSINESS | January 13, 2020

LAW

Ulmer is proud to announce that Kristin W. Boose has been promoted to Partner.

Boose is a real estate attorney who focuses her practice on assisting lenders, borrowers, and developers in financing matters, and she represents clients in all facets of commercial real estate and commercial lending. She also represents developers in transactions utilizing new markets, low income, and historic tax credit transactions.

She received her law degree from Case Western Reserve University School of Law.

Frantz Ward LLP Thomas G. Haren has been elected Partner.

Tom represents growing businesses at each stage of their development. He is also one of the most sought-after attorneys serving the Ohio and national cannabis industry. Tom received his J.D., cum laude, from ClevelandMarshall College of Law and his B.A. from John Carroll University.

OEC Rebecca Smith has been named General Counsel for OEC and is responsible for providing guidance on corporate governance, contract negotiations, compliance matters, software licensing, trademark protection and other legal matters surrounding ecommerce development for OEC. Ms. Smith previously served as Associate General Counsel and has more than 11 years’ experience practicing corporate law.

TECHNOLOGY

MEDIA LAW

TECHNOLOGY

ESPN Cleveland Brock Thompson was named ESPN Cleveland’s new General Sales Manager, where he will lead and oversee local sales and partnership development for 850 ESPN Cleveland, 1540 ESPN Cleveland, and ESPN digital assets.

Brock has built a career focused on overseeing media sales at multiple well-renowned brands including Time Warner Cable, Spectrum Reach and MAVTV. Brock will be a key leader in reaching new local sales heights for some of the most powerful brands in sports.

MCPc MCPc, a global data protection company, promotes Jason Taylor to President. Taylor has served as a key executive of MCPc since 2007 including his most recent role as Group President of IT Asset Disposition division. Taylor has been a driving force behind the operations, strategy, and development of MCPc’s Technology Logistics and IT Asset Disposition services. Taylor will be focused on developing strategic partnerships and driving global growth.

MERGERS

Top 10 states for law firm acquisitions in 2019

From Page 1

The increase in deal volume last year came with an increase in small deals in particular, several by Dentons. The average size of the acquired firms in 2019 was 18 lawyers, which is down 33% from the prior year.

Large firms are looking at large deals as well, Clay said, but those naturally take longer to come together. He added that in general, the law firm M&A pipeline remains full with multiple combinations in the works large and small.

A variety of factors underpin these M&A trends.

Acquirees are increasingly open to combinations as leaders in the aging baby-boomer generation eye retirement. That is generally spurring M&A across the business landscape, and law firms are no different.

Meanwhile, the need for modern, expensive technological capabilities may entice a smaller firm to pursue a combination with a partner that already has those.

Among acquirers on the larger end of the spectrum is a general desire for scale, talent or a strong presence in a new market. Most large firms are regularly on the hunt for firms to roll up in a play for talent and clients in a competitive market, something that’s all the more important as the average billable hour per partner trends down compared to pre-recession levels, Clay said.

Indeed, the legal services business has been adapting to a post-recession landscape in which clients increasingly call the shots and scrutinize legal spends, pushing an evolution in the delivery of services and putting pressure on billable hours and law firm revenue.

Interestingly, while the number of hours lawyers report working remains somewhat comparable to 2007, though down slightly, and lawyer headcount across the industry is up, the average number of billable hours per lawyer has fallen since then, according to the 2020 Report on the State of the Legal market by Thomson Reuters. That loss in productivity is eating into firm revenues that may be good but not growing as much as they could be. All the while, the costs of running the business are rising.

“One solution is to get rid of unproductive people. But firms don’t really want to do that,” Clay noted.

“They just don’t have the will to do it, except for here and there where the issues are egregious.”

Dentons, the most active player in the legal industry’s M&A scene, adds

crainscleveland.com

MN 6

Publisher/editor Elizabeth McIntyre (216) 771-5358 or emcintyre@crain.com Group publisher Mary Kramer (313) 446-0399 or mkramer@crain.com Managing editor Scott Suttell (216) 771-5227 or ssuttell@crain.com Sections editor Michael von Glahn (216) 771-5359 or mvonglahn@crain.com Creative director David Kordalski (216) 771-5169 or dkordalski@crain.com Web editor Damon Sims (216) 771-5279 or dasims@crain.com Associate editor/Akron Sue Walton (330) 802-4615 or swalton@crain.com Assistant editor Kevin Kleps (216) 771-5256 or kkleps@crain.com Senior data editor Chuck Soder (216) 771-5374 or csoder@crain.com Editorial researcher William Lucey (216) 771-5243 or wlucey@crain.com Cartoonist Rich Williams

NY 8 OH 5

PA 5

NJ 4 MD 5

CA 9

TX 6

Ohio-centric law firm mergers of 2019 After rather little activity through the start of the year, law firm mergers across the U.S. “exploded” in the second half of 2019, according to Altman Weil MergerLine. A number of Ohio deals played into last year’s overall merger frenzy, most of which had some relevance to the Cleveland area itself.

Deals connected to Ohio include: `Porter ` Wright Morris and Arthur (Columbus, 196 lawyers) acquired Rubin Butler Saltarelli & Boyd (Chicago, 19 lawyers) in January. ``Frantz Ward (Cleveland, 56 lawyers) acquired Kadish Hinkel & Weibel (Cleveland, 11 lawyers) in July. `Taft ` Stettinius & Hollister (which lists Indianapolis as its main office, but was founded in Cincinnati and is among the larger firms in Cleveland; 474 lawyers) acquired Briggs and Morgan (Minneapolis, 135 lawyers) in August. ``Green and Spiegel (Toronto, 34 lawyers) acquired Ritter Halliday (Beachwood, four lawyers) in September. `Walter ` | Haverfield (Cleveland, 80 lawyers) acquired Hurtuk & Daroff (Cleveland, seven lawyers) and Nardone Ltd. (Columbus, two lawyers) in October. ``Dinsmore & Shohl (Cincinnati, 672 lawyers) acquired Dawson & Associates (Columbus, four lawyers) in October. ``Ulmer & Berne (Cleveland, 160 lawyers) acquired Kaufman & Co. (Cleveland, 10 lawyers) in December. *FIRMS ARE LISTED WITH HEADQUARTERS AS LISTED BY EACH COMPANY AND TOTAL NUMBER OF ATTORNEYS AT THE TIME EACH DEAL WAS ANNOUNCED. SOURCE: ALTMAN WEIL MERGERLINE

GA 6 FL 7

REPORTERS

a unique wrinkle to all this merger activity.

The firm — which has amassed a headcount of more than 1,100 lawyers in the U.S. and more than 10,000 worldwide — has been poking around the Cleveland market in search of a merger partner since announcing its “Golden Spike” project/merger strategy in October. The name derives from the celebratory track spike that completed the first transcontinental railroad.

The approach supports the company’s stated efforts to establish the “first truly national law firm in the U.S.” Its merger model calls for affiliating with firms that could roll under the Dentons umbrella but otherwise maintain their own leadership and general autonomy while sharing resources (like technology) and revenues with the parent company.

Cleveland-based Benesch, the fourth-largest firm in Northeast Ohio by in-market lawyers, according to Crain’s research, is one of the firms that’s been targeted so far by Dentons as it sends out flares to gauge where interested targets may lie.

The Benesch footprint includes nine U.S. offices plus a location in China — where Dentons combined with the country’s largest law firm, Dacheng, in November 2015 — and more than 270 lawyers. It’s firms of that size that seem to be of interest to Dentons, which last year merged in firms in New Zealand, Pittsburgh and

Indianapolis of 113, 144 and 178 lawyers, respectively, in addition to several smaller rollups of firms ranging from six lawyers to a couple dozen.

But Benesch managing partner Gregg Eisenberg said he’s not interested in a combination. The firm prefers to stay independent and grow on its own.

“Our strategy is to grow by adding lateral talent only and strategically select talent to execute on our plan,” Eisenberg said. “Our growth as of late has been tremendous and we see no reason to combine.”

Dentons would not comment on its deal pipeline or specific targets, but did verify that Cleveland is one of the locations it wants to be in as it builds out its American footprint.

“We are contacting firms with offices in most of the top 100 markets in the United States and are talking to the best firms in all of those markets,” said Dentons spokeswoman Lisa Sachdev. “Cleveland, as a top U.S. market, is high on that list.”

In overall law firm M&A, Clay thinks 2020 could again surpass the prior year.

“In absence of something that makes firms skittish, like a recession, I don’t see any reason any of this would stop,” Clay said. “Big firms are always looking to siphon up new firms with good lawyers and good clients.”

Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile

THE WEEK HEALTHY MOVE: Health insurer Medical Mutual is bolstering its wellness offerings with the acquisition of Bravo, a Cleveland-based provider of employee well-being services with more than 1 million users nationwide.

Terms weren’t disclosed. Bravo, founded in 2008, will become a wholly owned subsidiary of Medical Mutual. Bravo founder and CEO Jim Pshock will continue to lead the company and its 170 employees. The acquisition pairs Medical Mutual’s “service-oriented insurance offerings and Bravo’s achievement-based wellness model that helps individuals reduce preventable health risks and employers lower health care cost,” the companies said.

THE RETURN: April Miller Boise is on her way back to Cleveland. Power man-

automotive supplier based in Troy, Mich. She worked at Thompson Hine from 1999 to 2011.

Bravo founder and CEO Jim Pshock will continue to lead the company as a wholly owned subsidiary of Medical Mutual. | CRAIN’S FILE PHOTO

April Miller Boise has been named executive vice president and general counsel of power management company Eaton. | CONTRIBUTED PHOTO

agement company Eaton named Miller Boise — a former managing partner of the Cleveland office of law firm Thompson Hine — as executive vice

president and general counsel. Miller Boise most recently was senior vice president, chief legal officer and corporate secretary for Meritor Inc., an

MAKING A DENT: Dealer Tire kicked off 2020 by making a big deal. The Cleveland-based tire and automotive parts distributor agreed to buy Dent Wizard, a national provider of automotive reconditioning services and vehicle protection products. The combination of the two companies “will create the leading aftersales dealer services platform in North America,” Dealer Tire said. Terms of the deal, which is expected to close in the first quarter of the year, were not disclosed. Dealer Tire, backed by majority shareholder Bain Capital of Boston, is acquiring Dent Wizard from Gridiron Capital of New Canaan, Conn.

Stan Bullard, senior reporter, Real estate/ construction. (216) 771-5228 or sbullard@crain.com Jay Miller, Government.

(216) 771-5362 or jmiller@crain.com Rachel Abbey McCafferty, Manufacturing/energy/ education. (216) 771-5379 or rmccafferty@crain.com Jeremy Nobile, Finance/legal/beer/cannabis.

(216) 771-5255 or jnobile@crain.com Kim Palmer, Government.

(216) 771-5384 or kpalmer@crain.com Dan Shingler, Energy/steel/auto/Akron.

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