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Contents November 2013 Ą Volume 1 Ą Issue 11
42 50 By Ellis Smith
The Eastern Band of the Cherokee Indians is building a $110 million casino in Murphy, North Carolina. The new Harrah’s Valley River Casino, scheduled to open by early 2015, will include a 300-room hotel and 60,000 square feet of gaming space. By Shelly Bradbury
New Ad Age A new breed of ad and marketing firms is springing up to help companies promote and protect themselves on the web and through social media.
Above photograph by John Rawlston
Betting On Murphy
56 By Mike Pare
Baking Up Success McKee Foods Corp. has grown into a $1.2 billion-a-year bakery developing its own products over the past 80 years.
This magazine and the plastic bag it is mailed in are recyclable.
Contents November 2013 Ą Volume 1 Ą Issue 11
Skill Sets 24 Profile
Unum’s chief investment officer handles $40 billion portfolio.
32 Industry Insight
Airnet keeps political campaigns, business appeals running.
10 At the Office
40 Business Acumen
When is it time to call in the Red Team for a word of caution?
Telling your business story through financial projections.
12 Entrepreneurs From carpet backing to Peachy Clean dish pad.
41 Management Team
Steak N Shake franchisee focuses on employees, customers.
EPB’s smart grid saves $50 million annually, looks for more.
18 On the Block
Downtown Dalton office is leased but looks for buyer.
20 Business In Action
New investments bring more than 5,000 jobs to region.
62 Quotables How businesses respond to crime.
What are metro Chattanooga’s biggest banks?
Who is on the move and where are they going?
64 Power Tools What’s in your bag? Tips from a frequent flyer.
30 Young Guns
Donna Williams heads new city economic development office.
Matt Brock puts his best face forward with NovaWhite teeth-whitening retail business.
NOVEMBER 2013 ŕĄŕ
Editor’s Note EDGE MAGAZINE Jason Taylor
President & Publisher
Gambling on Growth
Audience Development Director
Dave Flessner Editor
Design & Production WRITERS
ost Cherokee Indians in Tennessee, Georgia and Alabama were forcibly relocated by white settlers on the shameful Trail of Tears in 1838. But 175 years later, the descendants of those who remained in parts of western North Carolina as the Eastern Band of Cherokee Indians are reasserting themselves in our region’s economy. And they are counting on non-Native Americans in the traditionally non-gambling South for their revenue. Twenty-five years ago, the Cherokees opened their first casino in Cherokee, North Carolina and last month the tribe broke ground for another casino 60 miles away in Murphy, North Carolina. As Shelly Bradbury describes in this month’s cover story, tribal leaders expect Harrah’s new 300-room hotel and casino in Murphy will generate $177 million a year in revenues once it is completed in early 2015. That should push the Cherokees’ gambling empire over a half billion dollars a year. Gambling on Native American sites generated nearly $28 billion across the United States in 2012, or nearly $12 from every American adult. Indian gambling revenues grew by more than $700 million last year even though such gambling is still not allowed in Tennessee, Georgia, South Carolina, Kentucky or 18 other states. Tribal leaders see the $110 million investment in the new Murphy casino as a good bet, even though some of their Cherokee casino profits could be siphoned off by the Murphy complex closer to
Atlanta, Chattanooga and other cities. It looks like an even safer bet is being made by the makers of Little Debbie snacks in acquiring part of one of their bankrupt rivals. Mike Pare interviewed Mike McKee, the third generation CEO of the family-owned McKee Foods Corp., in Collegedale, Tennessee, for another story about a bold industry move made this summer. Pare describes how McKee picked up the Drake’s snack brands, acquired idled baking equipment and boosted its market share in the Northeast through its recent $27 million purchase of one of the shuttered Hostess Brands lines. The acquisition is the biggest in McKee’s 79-year-history, but it already appears to be paying off for the company and its more than 5,000 employees. Gambling on the future — or taking most any type of undue risk with investments — is what Breege Farrell studiously tries to avoid in managing the region’s biggest portfolio. Ellis Smith offers a look at Unum’s chief investment officer, and how the Chattanooga-based insurance giant invests its $40 billion of holdings to ensure policy holders are paid far into the future. With interest rates remaining near historic lows, earning adequate returns can be a challenge even if you have a lot of money to invest.
Dave Flessner Editor
Ellis Smith Shelly Bradbury Mike Pare PHOTOGRAPHERS
Dan Henry Tim Barber John Rawlston Angela Lewis Doug Strickland GRAPHICS
Laura W. McNutt CIRCULATION
Casandra Crosby 423-757-6308
EDGE magazine is published on the first day of each month by the Target Publishing Group, a division of the Chattanooga Publishing Company. Opinions expressed by contributing writers and editors are not necessarily those of the publisher, editor or EDGE magazine. Reproduction of the whole or any part of content herein is prohibited without prior written consent from the publisher. The publisher will not accept responsibility for submitted materials that are lost or stolen. Copyright 2013 by: EDGE Magazine 400 East 11th Street Chattanooga, TN 37403 Phone (423) 757.6505 firstname.lastname@example.org
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AT THE OFFICE Ą ENTREPRENEURS ĄŕENERGY ĄŕON THE BLOCK ŕ BUSINESS IN ACTIONŕĄŕLEADERBOARD
Start-Up “I thought, ‘Why can’t we use this new silicone we’re developing to solve this problem and really reinvent the way you clean in the kitchen?’” Zach Hubbs
co-owner of Cushion by Design
“Our cultural revitalization is being fueled by casino profits.” Bo Taylor
Eastern Band of Cherokees
“The way people read online is not the same way they read in print.” Jenny Hill
partner at Papercut Interactive
“We’ve been very, very conservative. Almost risk averse. But I think Drake’s will change that for us.” Mike McKee
president of McKee Foods
EPB’s investment in fiber optics is saving regional businesses millions. ON PAGE 16
A fully leased office building in Dalton, Georgia is on the market. ON PAGE 18
Reinvented Cushion by Design bounces back from the decline of the carpet industry with a revolutionary silicon dish scrubber called Peachy Clean. ON PAGE 12
AT THE OFFICE Lisa Earle McLeod
Three situations that call for a Red Team What if you had a team of people whose sole job was to find fault with your thinking? It’s called a Red Team. Used by the CIA, IBM, the Army, news organizations and other businesses, a Red Team is a group designed to penetrate your defenses.
n a recent episode of the HBO show “The Newsroom,” the news team was working on a big high stakes story. Some members of the news team were intentionally kept in the dark about a big scoop. When the team producing the story was ready to go live, they assembled the people who had been intentionally left out to form The Red Team. The Red Team’s job is to poke holes in the story. By keeping people in the dark, they’re not invested in the story, so they can be more objective. In the military The Red Team tries to penetrate your defensives. In the high tech world The Red Team tries to hack into your system. The Red Team finds the problems, risks, and bugs that the insiders miss. In high stakes situations, a Red Team can save you from making a terrible mistake.
For example, several years ago my husband and I bought a business. During the decisionmaking process, we enthusiastically discussed it with family and friends. But we neglected to appoint a Red Team. We never said, “Poke holes in this. Help us see the downside.” Instead, our friends and family were swept into our enthusiasm. If they had doubts they didn’t voice them because they didn’t want to rain on our parade. We asked our financial adviser, “Can you help us figure out how to make it work?” A better question would have been, “Can you help us figure out all the reasons why this might go wrong?” We bought the business. It was a disaster. It might have been prevented if we’d had a Red Team. You don’t have to be the CIA or IBM to create a Red Team. Two or three trusted (and competent) colleagues or friends will suffice. Here are three high stakes situations that call for a Red Team:
1. There’s a lot of money at stake.
Enthusiasm helps you accelerate success, but it can ruin your decision-making. I’ve seen organizations and individuals make terrible decisions when enthusiasm prevails over hard numbers. If the check has a few zeros in it, you need a Red Team of cynical nit-picky accountants. Ask them to strip away the emotion and just look at the facts.
Tattoos, first marriages, joining the Army, getting divorced, have lifelong consequences. It’s worth asking someone to play devil’s advocate. Before you cast off your spouse (or get her name carved into your forearm) ask an older, smarter, calmer person, “What potential negative consequences do you foresee?” Don’t argue with them just listen carefully to the answer.
3. Someone is rushing you.
I’ve learned if someone is pushing for a fast decision, it’s often because there’s something they don’t
want you to find out. Good leaders make crisp decisions, but they don’t make hasty decisions. If you feel uncomfortably pressured, take a day to check with your Red Team. Ask them where they see risks. The Right Red Team can help you avert disaster. But they’re only valuable if you listen to them. Lisa Earle McLeod has worked as a consultant for Apple, Deloitte and Pfizer. Her most recent book is Selling with Noble Purpose — How to Drive Revenue and Do Work That Makes You Proud.
2. The decision will be hard to undue.
NOVEMBER 2013 ŕĄŕ
BY SHELLY BRADBURY
ach Hubbs passed his new product out to a table of engineers. Try to figure out what it is, he told them. The product wasn’t packaged or branded. Just a rectangle, palm-sized chuck of orange silicone. The engineers passed the chunk from hand to hand. Some smelled it, others squeezed it. Finally, it reached the last guy. He held it up against his nose and inhaled deeply. It smelled good. Peachy, even. That’s when Zach dropped the bomb. “Well actually, I’ve been using this to wash my dishes for the last six months,” he said. The man immediately threw the silicone scrubber down in disgust. But then, not five seconds later, it hit him. It didn’t stink. It smelled good. “He literally jumped out of his chair he was so excited,” Zach says. “And that’s been the normal reaction from people.” Zach is the son half of the father-and-son team behind Cushion by Design, a company founded by Charlie Hubbs in 1995 that has continually reinvented itself to stay alive in the domestic manufacturing industry. Their newest product is the Peachy Clean Silicone Dish Scrubber — a silicone, antimicrobial dish scrubber that won’t smell, resists mildew and won’t scratch pots and pans. It hit local stores like Enzo’s Market in Chattanooga and Green Spot Superette in Dalton in December 2012. It’s available on Amazon (where reviewers give it a 4.5 of 5 stars), and could go national within six months. “We’re right on the cusp of some pretty exponential growth,” Zach says. “We really hope Peachy Clean will become a household name and will really change how people think about cleaning dishes.” The scrubber, invented and developed solely by the
Reinventions turn carpet cushion maker into innovative producer of “Peachy Clean” dish scrubber Hubbs, is the latest in a long line of products the company has produced during its 18-year history. Charlie started Cushion by Design by inventing a rubberized carpet pad when Zach was in elementary school. There was no other pad on the market like it. It was extradense and used Goodyear’s rubber. The patented design improved indoor air quality by reducing bacteria and extended the life of the carpet. Charlie pitched the pad to Bob Shaw at carpet-giant Shaw Industries, and Shaw sold it exclusively for about six years. “People bought his carpet because they wanted our pad,” Charlie says. The company sold 20 million square yards of carpet pad. But in the early 2000s, trouble hit. “The carpet industry changed,” the 63-year-old founder says. “Everything was going to hardwood floors, so Mr. Shaw changed the direction of his company.” Shaw gave the selling rights back to Charlie in 2002. And for a couple years, Charlie sold it independently. “I felt like we could go out there and sell the product,” he said. “But what I learned was we didn’t have the distribution to sell directly to the carpet industry. That’s what got me in trouble. The product was phenomenal. But you’ve got to have the power of a carpet mill like Shaw in order to get it into all the mom and pop stores.” It was time to reinvent the company. Photography by Angela Lewis and Doug Strickland
Worker Darrel Sharpe loads rectangles of foam onto a conveyor at the Cushion by Design factory in Dalton, Georgia.
Looking for new markets
The first iteration was building materials. Specifically, gutCushion by Design ters. Cushion by Design teamed up with foam manufactuer ēŕLocation: Dalton, Georgia FXI to produce a gutter filtration system. The foam strips, ēŕEstablished: Started in 1995 making rubber which are sold in Sam’s and Costco, are designed to prevent carpet pads for Shaw Industries gutters from clogging while allowing water to flow unimēŕOwners: Charlie and Zach Hubbs peded. ēŕStaff: 12 employees FXI delivers the foam to Cushion by Design’s 20,000ēŕHousing products: gutter filters square-foot Dalton warehouse, and the Hubbs enhance the (www.gutterclear365.com and www.leafdefier.com) foam so it’s fire-resistant, UV-protected and coated with ēŕMedical products: wheelchair cushions, silicone antimicrobials to prevent the growth of mold or algae. wound care products and medical bed overlays They’re still doing it today. But that’s not what they really ēŕDish scrubber product: Peachy Clean, get excited about. introduced in December 2012 That’d be silicone. Reinvention number two. (www.getpeachyclean.com) “We don’t want to do what we did,” Charlie says. “That ēŕAwards: 2008 winner of the Chattanooga was good for the day, but Technology Council’s Early Innovator Award we’ve got something so phenomenal with silicone, we want to develop that.” “That’s what we launched After the carpet into learn the technology. Not dustry fizzled (if it comes only does it improve pressure, back, Charlie’s willing to but it improves the microclioffer his carpet pad again) mate because it’s a breathable the Hubbs went down to material.” the local hardware store But the wheelchair pad is and bought a tube of silijust one step. They’re expericone to experiment with. menting with silicone pads Over time, they started to for saddles to improve the discover new uses for the horse’s comfort. They could synthetic material and branch out into silicone bed learned how to manufacoverlays for medical beds or ture it. start manufacturing silicone “That little blurb right bandages. That, Zach is quick there is four years of assto admit, is something they’d whoopings,” Charlie says, need a partner for. laughing. They’ve already hit on A clean sweep some winning combos But the Peachy Clean and the company earns scrubber is all them, all alone several million dollars a — from concept to producyear in revenue. One wintion to packaging to shipping. ner: Cushion by Design The idea hit Zach after he has run about 10,000 grabbed a piece of silicone wheelchair cushions over while washing his hands the last five years for a at the plant and discovered third party. that it cleaned remarkably “The silicone was a well. A few weeks later, he breakthrough in wheelwas disgusted by his smelly chair technology,” Zach kitchen sponge and the light says. bulb turned on. Zach Hubbs talks about products made by Cushion by Design in Dalton.
Jerry Hooper demonstrates how Peachy Clean sponges are cut at Cushion by Design in Dalton.
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â€œI thought why canâ€™t we use this new silicone weâ€™re developing to solve this problem and really reinvent the way you clean in the kitchen?â€? Each Peachy Clean scrubber retails for $7.99, and lasts for months. The Hubbs are targeting upscale customers who want an environmentally friendly alternative to grimy sponges or harsh chemicals. â€œWe donâ€™t have to compete on commodity,â€? Zach says. â€œWe have to compete on innovation, understanding our consumers and bringing value. I think thatâ€™s exciting.â€? The company currently employs a dozen people and doesnâ€™t immediately have the capacity to meet a spike in demand â€” like a national retailer signing on. But, Charlie says, they could scale up. â€œItâ€™s easy for us to add capacity,â€? he says. â€œThere are plenty of people looking for work. Weâ€™d probably run 24-7, like we did with the carpet pad for Shaw.â€?
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NOVEMBER 2013 Ĺ•Ä„Ĺ•
BY DAVE FLESSNER
Making Meters Smart
hen Chattanooga’s Electric Power Board began operations in 1939, customers in rural Hinkle, Georgia, didn’t have telephones and would alert EPB of any power outages by dropping a post card in the mail. Within a few days, electric crews would be dispatched to restore power to patient farmers and homeowners who relied upon kerosene lamps for light during the interim. Today, a voltage interruption for even a millisecond can trip computers, confuse electronic equipment and force costly shutdowns for businesses large and small. EPB President Harold DePriest recalls that a brief power outage to the Invista nylon plant in Hixson cost the company $175,000 in lost production. Another industrial customer recently complained about losses from a 30 percent voltage drop that lasted only 1/60th of a second. Electricity users and supplies agree that keeping the juice flowing reliably and controllably is key to limit costly power blips and peaks. With the aid of Uncle Sam, EPB has invested more than $310 million in smart grid and high-speed fiber optic links over the past five years to reduce electricity outages, improve power controls and offer the fastest communitywide Internet connections of any U.S. city. “We’ve gone from post cards to equipment that detects even millisecond interruptions,” DePriest says, reflecting on his 42-year career at the city-owned utility. EPB’s pioneering role in building a smarter grid with fiber optic communications and Intelliruptor power control devices quickly gained national attention. For its size, the Chattanooga utility won the nation’s biggest federal stimulus grant for smart grid development in 2009 when the U.S. Department of Energy awarded EPB a grant for more than $111 million to help expedite the roll out of the planned update. Despite objections from rival private telecommunication companies like Comcast and AT&T, EPB has won many accolades for its new services. The city utility was chosen by Power magazine this year as the Power Smart Grid Award Winner for the way it has implemented and used the new technology. The Tennessee Healthy Energy Campaign recognized EPB with its Energy Efficiency Star award last month, noting that the smart grid and other EPB programs and buildings have sought to reduce energy waste and conserve more power.
“They have taken significant steps to reduce the amount of energy they use and to make sure they and their customers use energy wisely,” says Sandy Kurtz of the Tennessee Sierra Club. EPB estimates its automated grid saves more than $50 million annually in lost productivity for the 170,000 customers it serves in its 600-mile radius. The fiber optic backbone and smarter switchers quickly isolate problems, reroute power and alert controllers about what fixes are needed and where. Jim Glass, manger of smart grid development at EPB, estimates the system has cut outages by 60 percent. “We have real-time information and control over our entire network in a way we never had before,” Glass says. A University of California at Berkeley study estimates that power outages nationwide cost about $80 billion a year in equipment damages and lost production. Based upon that report, EPB estimates its losses normally would be about $105 million a year and the smart grid savings should easily total more than $50 million annually. “We don’t save that at EPB, but that’s the value of what we believe these improvements are making for the businesses and people of Chattanooga,” Glass says. The more publicized value of the new fiber optic system has come from EPB’s cable and Internet services, which have allowed Chattanooga to become the first city with communitywide gigabyte-per-second Internet speed — even beating out Google’s publicized Gig city campaign. EPB has touted Chattanooga as “the Gig city” to draw tech entrepreneurs and gamers eager to try out the high-speed connections. “With community support, Chattanooga is leading the country in developing next-generation electric power systems and communications that improve our quality of life and drive economic development,” DePriest says.
New power controls
Starting this fall, EPB is hopeful of capitalizing on its smart grid in yet another way. EPB is joining a handful of municipalities and power cooperative in the Tennessee Valley to use smart grids to encourage power users to shift their consumption away from peak demand periods when electricity becomes more expensive.
HE TENNESSEE VALLEY AUTHORITY, which supplies the power that distributors sell to end users, is testing out a new pricing system with EPB and other participating distributors in Seven States Power Corp., the Chattanooga-based power cooperative formed by the Tennessee Valley Public Power Association. Powered by a demand management system developed by Open Access Technology International Inc., the coop will act like a virtual power plant turned on for TVA when electricity demand in the Valley is high and TVA would otherwise have to pay a premium for power. Participating distributors agree to cut their power use at peak periods. The smart meters ensure, in real time, that they do. Homeowners can shift energy-intensive activities like drying clothes or hot water heating to other less demanding times of the day. Businesses can shift some of their production, heating, cooling and other activities to other times of the day or week to help shave power usage in peak demand periods.
In addition to EPB, other distributors in the new pricing program include North Georgia Electric Power Cooperative in Dalton, Georgia, Volunteer Energy Corp., in Decatur, Tennessee, Smithville Electric System in Kentucky and Appalachian Electric Cooperative in New Market, Tennessee. TVA is paying participating distributors and customers a monthly fee in exchange for the right to call upon the power users to trim consumption at peak periods with only a 30-minute warning. With this year’s mild weather, however, TVA has not yet called upon the participants to cut their power use. “We’re starting out fairly small at this point as a pilot program to see how it works,” says Doug Peters, director of technical services at the Tennessee Valley Public Power Association. “But this has real potential to grow and help TVA effectively “dispatch” power through these arrangements when needed. With smart meters, the distributors and customers will know exactly when and how much to cut their load.”
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NOVEMBER 2013 ŕĄŕ
BY MIKE PARE
ON THE BLOCK
Photography by Tim Barber
In-Demand Dalton U
nlike many commercial buildings on the market, this one in Dalton, Georgia, is fully leased up. The five-story structure on South Hamilton Street boasts two high-profile tenants, according to commercial real estate company CBRE. Shaw Industries leases 56 percent while Wells Fargo is in the remainder. The building, raised in 1970, is of steel frame construction with exposed marble-type exterior walls. The roofing system is flat and covered with thermoplastic polyolefin membrane. In addition, the building has a parking structure on the property. Nearby is Gordon Street followed by a former printing company to the north. South Hamilton Street is followed by retail and commercial buildings to the west. Cuyler Street is followed by a parking lot to the south and a W&A Railroad spur to the east, according to the real estate company.
ABOUT THE SITE
› Location: 201 S. Hamilton St., Dalton, Georgia
› Price: $1.6 million › Building size: 33,496 square feet › Stories: 5 › Broker: James Pasquarella, William Tourtellotte, CBRE
NOVEMBER 2013 ŕĄŕ
BY DAVE FLESSNER
BUSINESS IN ACTION
AP Photo/The Leaf-Chronicle, Robert Smith
Tennessee Gov. Bill Haslam welcomes Seung Hwa Suh, vice chairman and CEO of Hankook Tire during an announcement Oct.14 in Clarksville Tennessee, that Korean Hankook Tire Co. will build an $800 million manufacturing facility, creating about 1,800 direct jobs.
Auto Makers Head South As sales recover from the recession, North American auto makers are increasingly looking South, either to Mexico or to the Southeast United States
ELCOME TO THE NEWEST WAR in economic development on this continent,” says Mike Randle, editor of Southern Business & Development, which tracks development in the region. “It’s the American South in this corner and Mexico in that corner fighting for the future of North America’s automotive industry.” Since Volkswagen picked Chattanooga for its $1 billion assembly plant in 2008, Randle said Mexico has been winning most rounds of the cross-country battle for auto-
motive investment. Since 2009, the last four major new assembly plants announced in North America have been in Mexico. But while Mexico is grabbing most of the auto industry’s new original equipment manufacturers — and is now competing with Chattanooga for a planned VW SUV production site — Tennessee, Georgia and Alabama continue to land automotive suppliers to serve the dozen assembly plants scattered across the Southeast.
IN THE PAST COUPLE OF MONTHS, a half dozen more foreign-owned automotive suppliers have announced plans to locate in Tennessee, Georgia and Alabama. Collectively, the new auto industry investments, mostly from foreign-based companies expanding in the U.S., are projected to add more than 3,000 jobs once the new facilities are up and running.
Auto suppliers locate in region
Hankook Tire in Clarksville - The biggest of the automotive investments coming to the region was announced last month by Hankook Tire Co. Ltd, which plans to build an $800 million tire production plant in Clarksville, Tennessee. The Korean tire maker expects to employ 1,800 workers in the 1.5 million-square-foot plant once it is in production by 2016. ARC Automotive in Knoxville, Tennessee - The airbag manufacturer, ARC Automotive, has begun a $3 million expansion of its Knoxville plant. The company plans to add 115 more jobs to expand production for both domestic and international customers. Yachiyou in Carrollton, Georgia - The U.S. subsidiary of the Japanese automotive supplier, Yachiyou of America, will build a 130,000-square-foot-plant to make plastic fuel tanks and sunroofs in Carrollton, Georgia. The $30 million investment is projected to add more than 200 jobs over the next three years. Hyundai Dymos in West Point, Georgia - Another supplier to the Kia plant in Georgia, Hyundai Dymos, is building a $35 million plant projected to add 350 jobs in West Point. The Korean-based supplier makes manual tranmsissions, axles and car seats and expects to be in production by November 2014. Bolta Werke in Tuscaloosa, Alabama - The Germanbased Bolta Werke, a member of the Purico Group, is building a $39.5 million plant in Tuscaloosa to supply parts for the Mercedes Benz plant in Vance, Alabama and the Volkswagen plant in Chattanooga. The plant, which will make specialtymolded plastic parts and chrome-plated surfaces, is expected to create 350 jobs by 2016. Donghee in Auburn, Alabama - The Koreanbased auto supplier Donghee America plans to build a $48 million plant in Auburn and employ 80 workers. The 172,000-square-foot plant will make fuel tanks for the nearby Kia plant.
But the automotive industry is not the only economic sector driving new investments in the region. Other major business announcements made in the past couple of months include flooring plant expansions, new support facilities and an expanded whiskey distillery. Combined, such projects will add more than 2,500 jobs.
Shaw Industries in South Pittsburg, Tennessee The Dalton, Ga.-based carpet maker, Shaw Industries Group Inc., is undergoing a $40 million expansion of its engineered hardwood manufacturing facility in downtown South Pittsburg, Tennessee. The 200-employee plant has already added 65 employees at the plant this year and expects the expansion to create another 25 jobs. Mannington Mills in Madison, Georgia - The world’s biggest maker of luxury vinyl tile, Mannington Mills is doubling the Madison plant it acquired through its 2012 purchase of Burke Flooring. Mannington is moving production to the U.S from China and expects the $50 million investment will add 219 jobs at the plant over the next couple of years. UBS in Nashville - One of the world’s largest banking and financial services companies, UBS, is establishing a shared services center in Nashville which will employ 1,000 workers over the next five years. The announcement Jack Daniel’s came just a month in Lynchburg, Tennessee after Aramark anBrown-Furman Corp., which owns nounced plans for a the famous Jack Daniel’s whiskey $20 million business distillery, is expanding its Lynchburg services center for facility through a $103 million investsupport operations ment in more stills, barrel warehousin Nashville, which es and other operations. Over the also will employ next five years, the addition will add 1,000 workers 94 more jobs. within three years. Surface Igniter in Maryville, Tennessee - The pioneer of the silicon carbon igniter used for the heating, cooking, clothes dryer and barbecue grill industries, Surface Igniter LLC, is moving production from Puerto Rico to a new $3.8 million facility being built in Maryville. The new 54,000-squarefoot headquarters and plant will help bring 108 jobs to Maryville. Shrivallabh Pittie in Sylvania, Georgia - The textile manufacturer based in India, Shrivallabh Pittie Group, is building its first U.S. plant near Sylvania. The $70 million plant will make carded cotton yarn and employ more than 250 workers.
NOVEMBER 2013 ŕĄŕ
Leaderboard BANK MARKET SHARE FOR 2013 CHATTANOOGA'S BIGGEST BANKS Total deposits in the 28 banks which operate in Chattanooga totaled $8.4 billion this year, down 2.5 percent from the previous year. Number of offices
CapitalMark Bank & Trust
Bank of America*
THE TOP 10
As of June 30, 2013
*National Association Source: Federal Deposit Insurance Corp. Graphic by: Laura W. McNutt
CLEVELAND'S BIGGEST BANKS Deposits in the 16 banks operating in metro Cleveland, Tenn., rose nearly 1 percent in the past year to $1.59 billion.
THE TOP 5
Number of offices
Branch Banking and Trust Co.
Bank of Cleveland
DALTON'S BIGGEST BANKS Deposits in metro Dalton rose 8 percent in the past year to nearly $2.2 billion from the 14 banks operating in Whitfield and Murray counties in Northwest Georgia. Number of offices
Branch Banking & Trust Co.
Bank of America*
THE TOP 5
As of June 30, 2013 *National Association
NOVEMBER 2013 ŕĄŕ
PROFILE Ą YOUNG GUNS ĄŕINDUSTRY INSIGHT ĄŕBUSINESS ACUMEN ĄŕMANAGEMENT TEAM
“The thing that scares us the most are people who are self-deceived, who believe what they’re saying but when you look at their books it’s something else entirely. It all boils down to trust, because in business, you can’t watch over everything.”
Managing $40 Billion Unum’s female investment head succeeds in male-dominated field Insuring success
reege Farrell set a record as the first Emory University student to complete a triple major in a just three years — economics, Spanish literature and psychology. But that wasn’t enough for the now-chief investment officer for Unum Group, who decided early on to pursue her destiny in the male-dominated world of high finance. Today, Farrell manages more than $40 billion in premium dollars pitched in by Unum customers, the largest such pile of cash in the Chattanooga region and among the largest in Tennessee. Of course, there’s no giant vault filled with gold coins or $100 bills. Most of the money is kept in the form of stable, long-term investments with municipalities and large corporations. While these don’t pay out a lot, there’s also not very much risk, which is important to insurers like Chattanooga-based Unum. PHOTOGRAPHY BY TIM BARBER
“AT THE END OF THE DAY, what we really don’t want to do is take risk, either with dicier credit or asset classes that aren’t going to provide the stated returns,” Farrell says. “Because at the end of the day that’s fatal to the company.” Such responsibility could be lot of weight on the shoulders of the 53-year-old mother of three teenagers. But if it gets to her, she doesn’t show it. Perhaps her cool demeanor originated with her decades of investment experience at well-known financial giants like Allstate, UBS and JP Morgan, competing against the best in the business. In her world, the difference of a few basis points — Wall Street talk for 1/100th of a percent — can mean the difference between making millions and losing millions, depending on the size of the bet. “It’s kind of like baseball, in the sense that it doesn’t look very exciting, then all of a sudden it looks very exciting,” Farrell says. These days, her struggle, as it is for many in the financial industry, is a meandering economy that has made the latest recovery look suspiciously like a longterm illness. The Federal Reserve’s efforts to juice up the economy through low interest rates have gone a long way toward waking up dormant markets at the expense of companies like Unum that are more interested in saving than spending. That’s because unlike day-traders or other investors, Unum’s investments are a means to an end. They’re not just trading to make a quick buck. Since the disability insurer writes insurance policies for which it could some day be liable, it has to keep enough money on hand to pay all future claims, even under a worst-case scenario in which more people are getting hurt or sick than the analysts predicted. That’s where Farrell comes in. Her job is to take the cash paid in premiums and safeguard it for that rainy day, growing it if she can. “Our money will come in over a long period of time, so we may have to reinvest up to $2 billion per year off of the portfolio,” she says. That’s a big chunk of change, especially considering the small size of her team — just 40 people — compared to the 9,000 other Unum workers across the U.S. and U.K. whose job is to actually issue policies. “We’re kind of the other half of the company,” Farrell says. The fifth-floor office, which is organized in a concentric circle with the most active traders in the middle and the analysts pushed off toward the edge, is called “the trading floor.” It’s perhaps the only financial operation of its size in Chattanooga, a city not typically mentioned in the same breath as Chicago, Dubai or New York. But
› Age: 53 › Family: Three teenage children › Job: Senior vice president and chief investment officer for Unum Group
› Education: Triple major at Emory
University in economics, Spanish literature and psychology, MBA from New York University’s Stern School of Business.
Unum’s experts are no less motivated, as they check in with brokers throughout the day, call the corporations in which they have an investment, and scan markets on their Bloomberg terminals. The team meets once per day to discuss world events and how that could affect the insurer’s investments, which represent a pile of money $8 billion bigger than what the U.S. Treasury had on hand in early October. “For nerds, we’re pretty interactive,” she says. “If you like it, it’s a lot of fun, because you’re constantly learning new things, seeing new challenges, some new company is coming to market, you’re spending a lot of time with new management teams.”
ASIDE FROM THE SCROLLING NUMBERS and screens of data, there’s a human element to the job, Farrell says. The company’s top investment officers meet personally with the management teams of companies when they issue debt, analyzing both their books and their body language to test the truth of their words. “Over time, you can start to see who’s doing a good job and being pretty transparent, versus people who are telling a story,” she says. “The thing that scares us the most are people who are self-deceived, who believe what they’re saying but when you look at their books it’s something else entirely. It all boils down to trust, because in business, you can’t watch over everything.” Not that she isn’t trying. From financial results to diversity on the management team, her group is on the look out for anything that might represent risk. Even seemingly innocuous statements by an executive can have repercussions for investors. “Someone might say, we have so much camaraderie and congeniality, and we also have a lot of diversity. But women and minorities, when they look up and see a sea of white and they’re all buddies, they see a good old boy system,” she says. “They don’t want to hear congeniality and we all get along, they want to hear that it’s a meritbased system.”
THOUGH INTELLECTUAL AND CULTURAL DIVERSITY can strengthen a company, much of the financial world continues to be dominated by males, despite more than 30 years of supposed progress, she says. Not that she’s been held back by her peers. There have been jobs where Farrell has made less than a man doing the same job, but she pushed through it. “I didn’t notice, and that’s the secret,” she says. “I was at a large energy convention, the kind of thing where you have the mega mega ballroom with all the screens, and I was sitting next to this nice gentleman in energy, and he turned to me saying how it must have been so interesting to start in this field when there were so few women. You must have seen such tremendous change,” Farrell recalls. “I looked around the room and there were no women. It hasn’t changed a bit, and it’s very odd.” The secret to her success in a male-dominated world is not to think of things in terms of male, female, black, white, old and young. Instead, she concentrated on doing a good job, and enjoying what she did. “If you really love what you’re doing, it really takes care of all that because you’re not focused on it, so you bull through. If I worried about it, I probably wouldn’t have gotten as far,” she says. Today, she works to make sure that others like her are able to have the same opportunity. She attends conferences and leads discussions in order to help ensure that other women like her have the tools and management that they need to succeed. But though it’s an important issue to her, Farrell didn’t get to become a senior vice president at Unum through hand-wringing and finger pointing. She’s driven more by a self-empowered streak than a quest for fairness, and believes that a good work ethic can overcome a bad company. Luckily for her, she’s having fun at Unum. She’s outside the fray of Wall Street, able to make calculated decisions without the hysteria of the moment creeping into the process. She looks up to Warren Buffett, one of the world’s most successful investors who makes most of his decisions from Omaha, Nebraska. “Somebody once asked him, how do you organize everything, how many meetings do you have per day? He said, ‘what meetings?’”
CHATTANOOGA’S DISTANCE from the worldwide financial markets makes it more difficult to hire expert financiers, but those that join Unum are less likely to leave because of the amenities of East Tennessee, she says. And today’s technology means that the distance between two buildings in Manhattan and between Chattanooga and New York is slowly disappearing in the digital age. The bigger struggle, she says, is her efforts at balancing work and life. For better or for worse, she’s an analyst at heart. When most people walk into a resort, they enjoy the landscaping or admire the view. She instantly begins calculating how many rooms there are, and how much the hotel is making per night. This is what she does, and she loves it. So balancing a home life can be a challenge. “I would say I’m still working on that,” Farrell says. “I have three beautiful children who I love to see, but there have been some times where I’ve said, ‘hey, come to the office and have dinner with me here.’” Whenever interns or students come through her office, they often ask her what it’s like to be involved in finance. They want to know how hard she works, and how much money she makes. But if their main concern is money, then they’re asking the wrong question, she says. “I always tell them, don’t do it for the money,” she says. “Because if you don’t do it because you love it, you’re going to be in competition with people who love it — and you can’t compete.”
Matt Brock Chattanooga native polishes new law degree with teeth whitening business
f Matt Brock knows one thing, itâ€™s what he doesnâ€™t know. â€œIf you can have one strength as an entrepreneur, itâ€™s to know youâ€™re an idiot,â€? the 31-year-old Chattanooga native says. â€œIâ€™ve never had a problem asking a stupid question.â€? A newly-minted attorney, Brock â€” who despite his last name, isnâ€™t a member of the famous Scenic City candy clan â€” has been running a teeth-whitening retail business by himself since 2011. As a law student in San Diego two years ago, he dropped $20,000 to buy the floundering company from a group of friends who were ready to kill it. He graduated and moved the company, NovaWhite, back to Chattanooga, where he spends his days selling gels, kits and tools that whiten teeth. And handling customer service. And shipping. And everything else. â€œIâ€™m CEO, secretary, janitor, like most small businesses,â€? he says with a laugh. â€œIâ€™ve learned a lot and Iâ€™m still learning every day through trial and error what works and what doesnâ€™t work.â€? He rents a room from Dexter White Construction on Broad Street thatâ€™s bare bones: two desks, a couple chairs, printer, boxes of envelopes and a utilitarian whiteboard thatâ€™s obviously well-used. Business has grown 70 percent since he took over â€” to revenues of about $125,000 last year â€” and Brock recently hired a part-time worker to help handle the growth. His teeth are furiously white and heâ€™s passionate about NovaWhiteâ€™s products. â€œItâ€™s amazing how great the product is,â€? he says. â€œWe have so many return customers. We provide what we believe is the least sensitizing product ever. Thatâ€™s what we hang our hat on.â€? A graduate from Ooltewah High School and the University of Tennessee at Knoxville, Brock dabbled in real estate in Chattanooga before heading to San Diego to study international business law in 2009. After buying the company in 2011, he moved NovaWhite back to Chattanooga in December 2012. One of the first business decisions he made was to develop packaging for NovaWhite products. Photography by John Rawlston
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Job: Owner of NovaWhite, a teeth whitening product Age: 31 Education: A Chattanooga native, he earned a political scientist degree from the University of Tennessee in Knoxville in 2005 and a law degree from Thomas Jefferson School of Law in 2012 Career: He worked as an associate broker at Prudential Real Estate from 2005 to 2009. He acquired NovaWhite in September 2011 and relocated the company to Chattanooga last year
Multifunction Machines Scanners Copiers
Printers Electronic Document Management Systems Managed Print Services
Politics Airnet’s data storage connects candidates with supporters, businesses with customers 3ŕ&&#-ŕ'#."
Jeff Averbeck smiles comfortably in his Chattanooga data bunker, watching as visitors ogle the bundles of wires and flashing lights that represent his livelihood. He waves his hand at a locked wall safe that holds priceless copies of his customers’ data. Backup air-conditioners stand ready to cool the stacks of servers that keep U.S. politics humming.
HIS IS AVERBECK’S EMPIRE. He knows just how loud he has to speak to make himself heard over the hum of his industrial-strength cooling equipment. He knows the right way to butt up against the electronic sensor, which detects the electronic passcard tucked into his wallet and unlocks the door. He also knows exactly which stories he can tell without compromising the political clients whose data is locked up underground behind out-of-place chain link fences.
Like a kid with a Lego set, he built the rows of stacked servers himself over many years, upgrading the technology and offering others the opportunity to park their data alongside his. Everything’s backed up at another site in Arizona, in case a freak grain silo explosion or nuclear meltdown shuts down his operation here, at the literal crossroads of the Internet. Fiber wire follows the railroad tracks north-south through Chattanooga on its way from Chicago to Atlanta, and across the nation’s beltline from Virginia to Los Angeles. If you want to be connected, all roads lead to Chattanooga. And Averbeck is nothing if not connected.
Jeff Averbeck, president and CEO of Airnet Group, Inc., in the company’s offices in downtown Chattanooga. Photography by John Rawlston NOVEMBER 2013 ŕĄŕ
Every two years, things get crazy for the president and CEO of Airnet Group and his 25 workers. Two years is how often major elections are held in the U.S., and election time is crunch time for the man trusted by the biggest Republican names in politics to run the unseen technical side of pivotal campaigns across the country. In 2012, campaign volunteers using his SmartCommunicator suite made 75 million phone calls to stir up donations and get out the vote, reaching about one in four Americans by phone alone. That’s up from 35 million phone calls made in 2010. Volunteers at 500 different locations routed as many as 5,000 simultaneous phone calls through his data bunker. For obvious reasons, he doesn’t disclose his client list publicly, other than to say that he’s the biggest player in the game. There’s a reason for that. With enough money and volunteers, his clients can slap together a next-gen call center operation anywhere in the country inside of a couple days. In his headquarters, a room stacked from floor to ceiling with boxes holding pre-configured phone systems keeps the company ready to ship out its call-center-in-abox product at a moment’s notice. Within 24 hours, volunteers can unpack the phones at a remote location, type in a passcode, and the system will automatically begin to dial numbers from a database. If someone answers the phone, the volunteer can read their script directly off the phone’s digital screen, entering a person’s answers using the dial pad. Volunteers don’t even need a computer. The data goes into Averbeck’s underground facility in Chattanooga, a non-descript location rarely seen but often whispered about by conspiracy theorists in dark corners of the Internet. With the information, campaign managers can choose specific subsets of people to call — divorced women with no kids making less than $45,000, for instance — and the volunteers are automatically connected through the magic of the Internet. It’s a cutting-edge set up, to be sure, but the company is already working on a successor that will put the current system to shame. With a little time between now and the next election, Averbeck’s team of Chattanooga-based programmers says they’re pushing the limit, raising the bar on what clients can do with data in 2014. “A lot of companies are really stingy with your data, but that’s not something we do,” said Adam Rutherford, an Airnet developer. “We give it back to you. Sometimes you get more back out than you put in.”
“The goal is, you anticipate where they’re going to be before they get there. That way, you get to take the first shot at them in their new-found conservatism, or in their newfound purchasing habits.”
Adam Rutherford, developer, left, and Garrett Bartley, director of research and development, work in the downtown Chattanooga offices of Airnet Group, Inc.
NOVEMBER 2013 ŕĄŕ
Industry Insight Personalizing data
The future of data, experts say, is personalization. That’s not just a buzzword, a marketing term or a Minority Report fantasy. Companies, politicians and non-profits, within a few years, are going to know you through Google searches, your Facebook posts, your tweets and any surveys you’ve ever answered. Computers can read a unique ID buried in a coupon barcode, notice that a consumer has started to buy diapers, and calculate that they’ll soon need baby formula. Click on a link to a Second Amendment website, and the system makes an educated guess that this person could be averse to gun control. Anyone with access to the data can figure out what you like, how you vote, and could even hazard an educated guess as to how your children are likely to vote. And the data is always being updated. “The goal is, you anticipate where they’re going to be before they get there,” Averbeck says. “That way, you get to take the first shot at them in their new-found conservatism, or in their newfound purchasing habits.” It’s inevitable, and it’s already happening. The missing piece of the puzzle is the best way to harness that knowledge to encourage people to take an action, either through making a donation, buying a product or voting a certain way. Right now, if the phone rings and a stranger on the other end begins a monologue that sounds like it could be leading up to a political survey, many people hang up or politely decline to participate due to time constraints, unfamiliarity with the subject or simply because they don’t feel like it. In sales, it’s called an objection, and salesmen train their whole life to overcome every possible objection. In Averbeck’s world, it’s called the door of familiarity, and he’s learning how to use technology and data to transform the stranger on the other end of the phone into a trusted confidant. “You’ve got to break through the first barrier, the ‘who the hell are you, why are you calling me’ part,” he says. “We’re trying to create a dialog with data.”
It’s surprisingly easy. Campaign managers can already select people to call based on demographic info or voting patterns. Many voters start out fairly liberal, but become more conservative once they start a family, or get promoted and begin to pay more in taxes. Airnet can track this and predict when a person is “ripe” for contact. But they can also collect the same information about their volunteers. Young, old, conservative, liberal, col-
Alan Pitner, Airnet director of education programs.
lege drop-outs and Ph.d’s, new software allows them to program the system to ensure that volunteers are calling people with whom they have something in common. Colleges are already doing it, matching fundraising volunteers with donors in the same field. Alan Pitner, director of educational programming at Airnet, says the company plans to expand that model in the education field and in the non-profit world. The idea is to take the personalized approach that schools already use with big donors, and democratize it. “If you’ve got a lot of college students who are helping your fundraising effort, it’s nice to just be able to say, ‘log in from your dorm, we know you’re playing Xbox, so you don’t even have to show up to work,’” Pitner said. “You can have volunteers calling from their kitchen table, their couch.” The best part for schools is that the slackers will be talking to other slackers and the over-achievers will be talking to other A+ students, which turns some of the hang-ups and rejections into leads and conversions. “That’s what the system has got to do these days, is break down the first couple barriers using data,” Averbeck says. Using the technique of matching volunteers up with people with whom they share similarities is just the first step. Even now, the company is working on a mobile app that will do the same thing in real life. Because the volunteers will “know” everybody in that neighborhood, the system can dynamically route certain volunteers to certain houses.
“THE COOL THING we’re working on right now, we have a mobile app that’s used for door-todoor type surveys,” Averbeck says. “We’re going to build it so we can route friends to friends. We’ll have multiple people walking down the same street, and they’ll be knocking on every fifth house because they know them. We’re going to walk people through the neighborhood, and we’re not going to hit every door.”
Airnet’s data bunker
With the political campaigns currently dormant, the company is working to market their software and services to other markets, especially non-profit companies, said Joe McCall, the company’s CFO, to avoid the feast and famine cycles of the on-again off-again political game. The growth opportunities are in the data center and managed services,” McCall said. In English, what that means is that the company is encouraging customers to store their data and run their services from Airnet’s Chattanooga headquarters using a process called virtualization.
Joe McCall, Airnet chief financial officer.
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NOVEMBER 2013 ŕĄŕ
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THROUGH A WEB BROWSER, a customer can manipulate the SmartCommunicator as if it resides on their own computer, when in fact it’s running from Airnet’s data bunker, which McCall says has never been hacked. “That’s kind of how the whole call-centerin-a-box thing got started. You shrunk the capital demands of spinning up a call center which, in its infancy, was ledger paper and pencils, then a server and a bunch of computers, and that’s a capital-intensive process,” McCall said. At the end of the day, it’s all about using the data to tell a story about a person, Averbeck says, even in real time. The more accurate of a picture Airnet can build about every potential voter or customer, the more valuable their service becomes. And as volunteers become comfortable dealing with people they’re familiar with, the questions can become less by-the-book and more like a conversation. “In the past, we did an ungodly number of calls, but it wasn’t personal, it was more of a large call center calling whoever was next on the list,” Averbeck says. “This time, we’re going to tell the volunteers that we need these four pieces of information, you figure out how to get it. A conversation starts, and hopefully the personal dialog will cause an action and reaction. You give the tools to volunteers, and that makes ‘em smart.”
Consultant Mike Wade works on a project in the offices of the Airnet Group in downtown Chattanooga.
Telling your business’s story through financial projections
inancial projections, or financial modeling, should tell a story about the future of your business. Building a credible ‘story’ is an essential tool for selling or seeking investment funds, and also helps you make quantifiable decisions about your business — such Investors and as what your sales buyers want to goals should be based read a sensible on your sales closing rate, how many story that employees you should explains how have, when you should they’re getting hire them and more. back what they’ve Investors and buyers want to read a put in, along with story that shows how an attractive much sales revenue you return. expect to bring in and The right story how much money is left over once all expenses can mean are paid. A good story the difference will give them a solid between a best understanding of your seller and a bomb. business’s cash flow, validate that your service or product is profitable, allow them to calculate the potential return on their investment and otherwise help them determine if your business model is a compelling investment.
How do you tell your business’s story?
Start by making assumptions about the future performance of your business through the extrapolation of previous data. Your financial projection story should focus on cash flow drivers and keep the data simple and transparent, clearly showing all assumptions and avoiding overly complicated formulas. On average, reviewing and analyzing 36 months of data is a good indication of how your business performs.
The various ‘chapters’ of your story should answer these questions: › What are the units that drive revenue and costs? › How do you market your product/service and what does that cost? (Typically, the service or product unit that drives revenue also drives cost.) › Have you considered all relevant support and infrastructure expenses? › What kind of return should an investor reasonably expect? To thicken the ‘plot’ of your story, be sure to include: › Income Statements. Clearly explain how, at any given point, you will have the funds or cash to finance the ongoing needs of your business. An income statement should include an analysis of revenue, cost of goods sold (COGS), and selling, general and administrative expenses (SG&A). › Balance sheets. Clearly review assets and liabilities to show: Accounts Receivable (A/R): How long, on average, does it take your customers to pay? Inventory: How much is appropriate to keep on hand? 60 days, 90 days, etc.? Property, Plant & Equipment (PP&E): What is the cost of the infrastructure needed to sustain your business? Accounts Payable (A/P): How quickly do you pay your vendors? Overall, investors and buyers want to read a sensible story that explains how they’re getting back what they’ve put in, along with an attractive return. And like any good page-turner, the plot needs to be both exciting — in terms of ROI — and easy to follow, and the key characters in your drama — such as your clients, vendors and employees — must be well described. The right story can mean the difference between a best seller and a bomb. Chris Rowe is a partner in Four Bridges Capital Advisors in Chattanooga. He previously was chief financial officer for Edge Flooring and worked as an accountant and senior consultant for Decosimo Certified Public Accountants and PriceWaterhouseCoopers.
Management Team Debbie Pitchman, right, is all smiles with her corporate managers, from left, Jason Hale, director or operations; and her two sons, Michael and Matthew Richman, vice presidents. General managers of each of the area Steak N Shake restaurants in the back row are, from left, Glomar Huerta, Christopher Chandler, Matthew Elder, Cyndi Bowen, Elizabeth Silvey and Joreen Gainer.
Steak â€˜Nâ€™ Shake franchisee Debbie Richman rebounds from recession
n her first five years in business, Debbie Richman was hungry to add more to her plate. As a Steak N Shake franchisee, she opened five Steak N Shake restaurants in the Chattanooga area and five years later she added a sixth location in Athens, Tenn. But when the Great Recession hit in 2008, Richman was forced to put the business on a bit of a diet.She closed the Athens unit and cut menu prices at her other restaurants. â€œIt was really tough in 2008, 2009 and 2010 and I think I was as close to bankruptcy as I could be without actually having to file,â€? she says. â€œBut we hung in there, tried to take care of our employees and customers and
fortunately the business has come back. Last year, I was able to pay back a lot of debt to help my operating income.â€? Lowering customer prices helped spur more business, but Richman hasnâ€™t lowered the health, retirement or other benefits for her full-time staff, which has earned her national attention in the industry. Last year, Richmanâ€™s Deboâ€™s Diners Inc. was recognized as Franchisee of the Year by Steak N Shake. Sheâ€™s even looking at other sites to add more restaurants in the region. Richman came to Chattanooga in 1995 after working for Steak N Shake and other restaurant chains in Indianapolis. She started as a server so she knows the restaurant business up close and personal. Her two sons, Michael and Matthew, now help her manage the 400-employee business. â€œIf you take care of people, they take care of you,â€? she says.
The Sizzle Returns
Photography by Tim Barber
NOVEMBER 2013 Ĺ•Ä„Ĺ•
Betting On Murphy
Architect’s rendering of Harrah’s Valley River Casino in Murphy, North Carolina
Cherokees gamble that $110 million North Carolina casino & hotel will pay off Story by Shelly Bradbury
Photography by John Rawlston
The winding dirt road weaves away from the main highway, under orange leaves and through rolling hills to a landing where a house once sat. A furry stray dog wanders about, surrounded by North Carolina mountains, in no hurry to get anywhere.
t’s a quiet scene that won’t last long. In about 18 months, the rural site just outside of Murphy, North Carolina, will be transformed into the $110 million Harrah’s Cherokee Valley River Casino & Hotel. The casino and eight-story, 300-room hotel will be the Eastern Band of Cherokee Indians’ second casino in North Carolina and it is expected to draw gamblers from throughout East Tennessee, North Alabama and North Georgia. It’s a development that could bring an about-face to the sleepy town of Murphy — the project will add around 900 jobs to a county with an 11.4 percent unemployment rate. It also will forever link the town of 1,700 residents to the gambling industry, and everything that comes with it.
Cherokees double down
Casinos are tried and true for the Eastern Band of Cherokee Indians. The tribe’s first location, Harrah’s Cherokee Casino & Resort, opened in 1997 in Cherokee, North Carolina, about 60 miles northeast of Murphy. It earned $467 million in revenue during the last fiscal year. More than $250 million in profits went back to the tribe. About 4 million visitors spent an average of $150 each at Harrah’s Cherokee last year. The casino and resort employs 2,600 people and the on-site hotel will finish the year with a 99 percent occupancy rate. The company turns away an average 120,000 hotel booking requests each year because there’s just no room in the inn. “We do feel we have the knowledge and expertise to go into a new market and be as successful, if not more successful,” says Leeann Bridges, vice president of marketing at Harrah’s Cherokee. The Murphy casino won’t be a carbon copy of the Cherokee location. It’ll be much smaller and heavily gaming-focused, without
The new Harrah’s Valley River Casino is scheduled to open in late 2014 on this hillside near Murphy, North Carolina.
the frills Cherokee offers. Harrah’s Valley River Casino will include 60,000 square feet of gaming space with everything from slots to live table games — that’s half as much space as Cherokee — and it won’t have a spa, resort or live entertainment like Harrah’s Cherokee. But the tribe still expects to pay off the $110 million loan from Wells Fargo in five-and-a-half years, says Ray Rose, chairman of the Tribal Casino Gaming Enterprise Board of Advisors. The project will be built in phases, with the gambling floor up and running by early 2015. The 300-room hotel will follow. After the build out, the combo is projected to earn $177 million in revenue during the first fully operational year, Bridges says.
Betting on Murphy
There are many reasons why little, isolated Murphy was chosen to host the new casino, Rose says. First and foremost, the casino was legally required to be built on Cherokee land. But also, the move pushes Harrah’s into a geographic area that’s largely an untapped market. Within a 250-mile radius of Murphy, about 2 million people hold a Total Rewards card, which can be used at 40 casinos worldwide, including all Harrah’s casinos. But only 475,000 of those people have ever visited Harrah’s Cherokee, Rose says. “So about 75 percent of that potential market is not coming,” Rose says. “We see that as upsell. We’re not looking for a different type of gamer, we’re looking to attract new gamers of the same type. We’re looking for the avid experienced player — the AEP.”
CASINOS by category As of Dec. 31, 2012
New Jersey 88
North Carolina 25
Rhode Island South Dakota 2,071
North Dakota 8
1 34 1
3 Total 14
Land-based or riverboat casino Source: American Gaming Association
Number of states
Electronic gaming device Graphic by: Laura W. McNutt
Avid experienced players are typically men and Tribal roots and revenues women in their mid-50s who visit a Harrah’s casino At a formal groundbreaking for the Murphy facility in about every two weeks. The segment makes up about a October, a group of about 20 Cherokee tribe kids danced and third of gamers and they usually spend less than $500 per sang for the roomful of dignitaries. trip, but they account for 80 percent of the casino chain’s reveDressed in traditional garb, the elementary-aged kids from nue, according to a 2008 book by Wall Street Journal reporter the New Kituwah Academy — a school created in 2004 to Christina Binkley, who examined the gambling industry. immerse Cherokee children in the tribe’s culture — danced Of course Harrah’s Cherokee is well within that 250-mile the ‘Ant Dance’ and sang the hymn ‘Guide Me Jehovah’ in radius that Harrah’s Valley River the Cherokee language. hopes to pull customers from Bo Taylor, a Cherokee tribe and the company is prepared for member who played a drum Casino tax revenue by state some cannibalization between the and guided the children resorts. 2012 through the dance, says “We think that we’ll have about the tribe’s casinos are State 2012 Change $50 million in gaming revenue that a critical lifeline for the from 2011 will migrate to Murphy,” Bridges Eastern Band’s 14,000 says. “It’s not a huge percentage. Colorado $104.26 million + 2.0% registered members. The way I look at it, we will have “Our cultural revitalization is Delaware $217.44 million - 5.5% some folks who become domibeing fueled by casino profits,” he Florida $161.76 million + 12.6% nant to the facility in Murphy just says. “There are some people who because of geography. But I think don’t see the need for this casino, Illinois $74.34 million + 17.4% with the resort experience we have but our first task is to make sure our Indiana $806.56 million - 4.7% in Cherokee with the spa, showpeople are taken care of. Culturally, room and dining options — I don’t Iowa $334.43 million + 4.0 that needs to be first and foremost.” think we’ll lose those folks.” A varying percentage of casino Kansas
operating profits are funneled into the tribe. The casino gave 32 percent of operating revenue to the Maine $43.11 million +48.3% Nationally, gambling generated tribe in 1998, and that rose as high Maryland $218.20 million + 143.7% $37.34 billion in gross gaming as 60 percent in 2005, which was revenue in 2012 and $8.6 billion Michigan $319.75 million - 0.3% about $225 million. in gaming taxes to state and local The casino’s contribution is split Mississippi $272.73 million - 0.6% communities. 50-50 between the tribe’s operatConsumers spent $948 million Missouri $471.41 million - 2.8% ing budget — funding infrastrucon commercial casino gaming in ture, schools, jails — and the tribe’s Nevada $868.60 million + 0.4% West Virginia and $2.25 billion in enrolled members, who receive New Jersey $254.84 million - 8.2% Mississippi during 2012, according a check twice a year. (Lately that to the American Gaming Associacheck’s been averaging about New Mexico $62.79 million - 3.0% tion. $4,000 per member.) New York $822.67 million + 38.6% But there’s a dearth of gamThe economic impact of bling facilities in the Southeast, Ohio $138.18 million NA Harrah’s Cherokee on the surwhere state laws restrict casino rounding region is undeniable, Oklahoma $20.38 million +11.4% gambling. Tennessee and Georaccording to a 2011 study Pennsylvania $1.487 billion +2.1% gia both have no casinos, while by the KenanAlabama has three tribal-owned Flagler Business Rhode Island $328.98 million +6.6% casinos. School at the South Dakota $16.62 million + 1.6% And while the debate has raged University of for years, it’s unlikely that either West Virginia $402.50 million -1.0% North CaroTennessee or Georgia will legalize lina at Chapel Source: American Gaming Association casino gambling in the near future. Hill. By 2009, Graphic by: Laura W. McNutt And that’s what the Eastern Band the casino’s esis banking on with the Murphy timated impact location. on neighboring The company aims to pull players from Atlanta, ChatSwain and Jackson counties was estimattanooga, Birmingham, Nashville and Knoxville, with a large ed at $300 million, with an additional $82 population of day-trippers. million in capital investments.
The gambling payoff
Dancers wind their way through the crowd at a groundbreaking ceremony for the Harrahâ€™s Valley River Casino.
Socially, the UNC study says that the casinoâ€™s profits have helped to lift tribe members out of poverty, pushed Cherokee students to enroll in community colleges at above average rates and eased spikes in seasonal unemployment. About 500 of the Cherokee locationâ€™s 2,600 employees are enrolled tribe members. In Murphy, the annual payroll will range between $32 and $39 million. And one tribe member, Sheree Peters, who is 1/16th Cherokee, hopes to be on it. After 10 years in the banking industry, she moved to Murphy in 2008 but couldnâ€™t find a job. â€œI was overqualified for entry-level positions but under qualified for management because I didnâ€™t have a degree,â€? she says. She went back to school and earned an associPrincipal Chief Mitchell Hicks of the Eastern Bank of Cherokee Indians greets children ateâ€™s degree in business administration. Between from the New Kituwah Academy, a Cherokee language immersion program, before a scholarships and aid from the tribe, she didnâ€™t have groundbreaking ceremony for the Harrahâ€™s Valley River Casino. to spend a penny on it. Now sheâ€™s keeping her fingers crossed for a job at the new casino, and may go back to Consumer casino gaming gaming Consumer spending on casino school for a second associateâ€™s degree in casino management 2003-2012 while itâ€™s being built. â€œI think the casino will make Murphy and Cherokee a $37.34 destination,â€? she says. in billion dollars But will it? $35.64 $37.52
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Both Harrahâ€™s Cherokee and Murphy locations are designed to be self-contained islands of spending bliss. Players can eat, drink, shop and gamble without ever stepping off casino property or spending a dime in the town of Murphy. And some, Rose says, will do just that. â€œSome folks enjoy using their discretionary dollars on gaming and thatâ€™s what they want to do,â€? he says. â€œThey do not want to visit the area. A lot do both. But some gamers are very gaming centric.â€? Even Murphy Mayor Bill Hughes recognizes that some players will roll in on the new road the state is building for the casino and roll right back out again without ever visiting any other Murphy businesses. â€œThose players are going to come in on the bypass, theyâ€™ll go straight there, gamble and go out,â€? he says. â€œThe difficulty Cherokee has had is getting people out [of the casinos and into other shops].â€?
Tillet and the majority of Murphy residents are fiercely Most criticisms of the planned casino optimistic about the casino’s impact on the community. “I revolve around the morality of gambling know there will definitely be some changes for the better and and the changes the casino could bring to some for the worse,” Mayor Hughes says. “Those for the betthe Murphy community. “I think it’s a bad ter will far outweigh those for the worse. idea, because it’s going to promote probably drinking “How many small towns and certainly gambling and in the United States I don’t go along with gamwould give anything bling,” says Greg Horner, to have this oppora resident of neighbortunity?” he adds. ing Andrews. “I know “This is a second they’ve got high hopes Cleveland Murphy 27 chance for us to of winning, but the 75 64 get up and going odds are against N.C. Chattanooga Tenn. 24 again after a long them and it’s going to recession.” cause people to lose Ga. Long-time more money than 75 they’ll gain. It’s going resident Kathy Tompa Dalton to hurt families. I’m a worries about an Graphic by: Laura W. McNutt believer in honest work.” increase in crime and But most locals are thrilled people. But she says the allure of the to have the 900 casino jobs in a jobs is impossible to ignore. county where nearly one of every nine “Part of me is for it because of the jobs, but part of me is against too much of a change in my town,” she says. workers is now unemployed. “As long as it “But an increase in jobs, you know? Progress is progress. brings jobs to the town, we’re good,” says resident Moe Tillet. You’ve got to roll with the flow.” “We need jobs. This is a long time overdue.”
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NOVEMBER 2013 ŕĄŕ
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Papercut Interactive staff Photo by Dotson Studios
on’t get the wrong idea — companies still need these firms to appeal to the American dream if they want to sell cigarettes, plane tickets or candy. That’s what most marketing firms still do. Billboards, along with radio, TV, newspaper and magazine advertisements, more often than not, are created at a marketing agency to sell more widgets, make the public feel better about a company or help diminish the memory of a particularly nasty corporate scandal. (ŕ."3ŕ1),%þ
Bill Colrus, center, director of content marketing at UpTik Media, talks strategy with Brady Callahan, left, and Bart Simpson, during a weekly planning meeting at the UpTik office in Hixson, Tennessee.
ut the rise of online commerce has brought with it a new breed of digital marketing firm that usually doesn’t indulge in swanky offices, tailor-made suits or a large staff of secretaries — oops, administrative assistants. These firms can be found in industrial parks, their employees wear whatever they want, and the teams often consist of just a few workers who make their own coffee and copies. Brady Callahan, who carries himself with the excitement of a scientist on the verge of a breakthrough, is the new prototype for today’s digital marketing expert. Like many in the field, his title — lead SEO Strategist at Uptik Media — is a real head-scratcher. The easy explanation is that Callahan is into web analytics, or the art of gathering huge amounts of data about what users click on and how long they look at something. By looking at human behavior online, marketers can continually hone their campaigns. “Web analytics are very involved at this point, where you can have a really good picture of how much traffic Facebook is driving, then how much of this traffic is converting [to a sale] on this page, or you can tell that these views are coming from a white paper you released that was picked up on X website,” Callahan says. “There are really specific ways that you can drill down and find that this was the exact value of your marketing campaign. You can even drill down for dollar values.” Though these firms themselves are usually small, the number of digital marketing firms in the Chattanooga region has grown in recent months. Their branding carries an air of mystery: Bantam, Papercut, Uptik, Full Media, Flypaper, Riverworks, Fancy Rhino. The nature of their work is just as mysterious. Through
Photo by Brian Shakley
Digital marketing tips
1) Check the references of anyone who claims to be in digital marketing. Call a company’s former clients, even the ones they didn’t provide as references. 2) Push for a responsive website that works across multiple platforms, including mobile. 3) Do not make a decision based solely on cost. 4) The sales process can often be indicative of what long-term experience can be like. If someone is taking two and a half weeks to get back to you, maybe they’re too busy for you. 5) If you’re an established business, and you want a long-term relationship with a vendor, which is what you really need, you have to make sure not to choose someone that’s a flash in the pan. 6) Find digital marketers who have worked on websites like what you want. You don’t ever want to be their first. Source: Jenny Hill, partner at Papercut Interactive
some unknown combination of magic and moxie, these digital wizards are seemingly able to manipulate the fabric of space and time itself in order to help companies show up in Google searches. They’re able to coax stunning websites out of complex technology, designing a digital front door for large and small businesses. They can wave a hand and generate content for social media websites that sounds as if it’s coming from the company itself. “The way people read online is not the same way they read in print,” says Jenny Hill, a partner at Papercut Interactive. Hill, the firecracker wife of company co-founder Jason Hill, has been doing this for 12 years now, which means Papercut has become a seasoned digital marketing veteran in the Chattanooga region. “When we read in print, we’re studying photos, then photo captions, then the headline, then the subhead, and maybe the story. Online, people scan like crazy, but once they find what they want they will stay, and stay, and stay,” Hill says. “They read wide, then they go deep.”
t’s easy to spot the moment when one of these firms takes over the digital reins. All of a sudden, a boring public school is imbued with soul. A run-of-the-mill electronics company is suddenly crowing about how it empowers the individual. A business that was founded two years ago begins suddenly appealing to our nostalgia. They begin telling stories. In the process, we get to know them better — and buy more of their stuff. All of this leaves the owner to actually run his business rather than worry about how many times he’s tweeted today or responded to an online comment. And though these services come at a price, digital marketers argue that it’s a price business owners can’t afford not to pay.
Digital marketing is all about the story. Like others in the writing profession, digital marketing experts look for that one detail that brings a business to life, and they brainstorm the best way to communicate it through the web, on Facebook or through a tweet. They don’t think of digital marketing as an add-on, an optional extra that adds a little icing to a company’s cake. They see it as survival. “If your website is four years old and hasn’t changed, people are getting a less-than-favorable first impression,” Hill says. “You could even be getting a negative impression.” Turning off a potential customer isn’t the only danger, though it is a real danger. Missing out on local customers searching on the web for dining, retail or other options in their area takes revenue directly out of a company’s pocket and gives it to someone else with more foresight.
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In the old days, many smaller companies turned to kids — typically high-school or college-age — for help in creating a website. Paying students was hit or miss, depending on the student, and once they got another job or moved away, no one could quite locate all the passwords or figure out how the website actually worked. Those situations left a bad taste in everybody’s mouth. The subsequent explosion of social media activity generated a similar panicked response. Unsure of how important a Facebook page was, executives recruited young interns to manage the social media experience, or simply tacked those duties onto the job description of a middle-manager who couldn’t tell a tweet from a text. Young interns are great, until they accidentally tweet out their political beliefs or romantic feelings using the company account. Either way, businesses ended up throwing away a lot of money, Hill says. “In our industry, there are a lot of people who work in their mom’s basement. There are a lot of people who run a web company between jobs, or as a freelancer in addition to their jobs,” she says. “There are a lot of ways to waste money.” Not that businesses should completely rule out hiring a young person, especially if they just want to spend $500 to create a single page with a couple of phone numbers and the company’s hours of operation, Hill says. It’s just that in this day and age, consumers expect more. Much more.
ut that’s not really as big of a problem as it once was. The number of businesses that have no web presence or an embarrassing web presence is always shrinking, thanks to a growing number of do-it-yourself tools. And since most executives these days know from personal experience that customers use their phone or a computer to check out just about anyone they do business with, there are fewer and fewer officials holding back their company’s online efforts. For Internet marketers, the more aggravating problem today is that some companies have paid a lot of money for a website or digital marketing plan which they think is good, but which is actually terrible. Taste can be fairly subjective, and an executive who personally signed a large check to create a website that isn’t working could be blind to the problems because of how personally invested he is. There are lots of ways that websites can be bad, making customers mad. The easiest way is to send them on a wild goose chase, marketers say. The journey typically begins with a Google search. A person types a phrase into the popular search engine. Perhaps they’re looking for tips on buying a home, as an example. Up pop countless pages created by real estate agents, who often flood their pages with what they think are keywords in an attempt to trick Google into placing their page above that of a competitor. Attorneys often do this too, Hill says. But when users click on the page, they’re dismayed to find out that the Realtor or attorney actually has very little usable content. “It’s horrible,” Hill says. “Web users, usually, they leave. You do not get the conversion that you want. You do not get someone digging in. They bounce.” The word “conversion” is marketing-speak to describe the moment that people take an action a company wants them to take. Perhaps they enter their contact info, sign up for a service or buy a product. Some companies just want people to call them. But without the information that rings true, without the story, users are unlikely to take that desired step, says Bart Simpson, founder of Uptik Media. It’s not just to make people happy, Simpson says. Google is slowly figuring out the difference between websites filled with a bunch of random words designed to attract the attention of search engine robots, and websites filled with interesting and engaging content that people actually want to enjoy. This is a good thing for consumers, and a bad thing for spam websites filled with broken links and bad grammar. “One of the best tactics in an SEO (search engine optimization) campaign is to create something that people will actually read,” Simpson says. If companies do this, consumers will link to the content. Perhaps it will be a tweet or a post on Facebook. Perhaps they’ll blog about it. Maybe it will make the news. All of these things are good because Google is constantly tweaking a long algorithm that measures these connections, which is part of how it ranks sites. Google uses about 200 known factors, and thousands of
FullMedia internet marketing analysts Pete Intza, right, and Jean Marie Davis work in their offices in Suite 700 of the SunTrust building at 8th and Market Streets.
“unknown” factors to calculate where a page appears. The company doesn’t show the exact algorithm, for fear that smooth operators would try to find a way to game the system. But the search giant will broadly describe each update, in addition to giving them names like Penguin and Panda, allowing marketers enough detail to point them in the right direction. These days, that direction is interesting, sharable content, says Bill Colrus, director of content marketing for Uptik. Websites that are full of spam typically get demoted until they don’t appear on the front page anymore. Those with interesting content, as judged by Google’s robots and a site’s audience, get promoted up the list toward the coveted No. 1 spot. “We try to get people to think of brands as publishers, and consumers as audiences, and build that brand affinity and trust so that when people do need to make a brand decision, they’re top of mind,” Colrus says. “You’re not going to grab people’s attention if it’s not useful and entertaining.”
While it’s always a good idea to build a smart-looking website that opens correctly and looks good on any device, it’s just as important to continually update a page with new posts, and constantly communicate with customers through social media in order to be effective online, says Maggie Hodges, an Internet marketing analyst at Full Media. In fact, that’s what Full Media, which is one of the larger marketing firms in town with 35 workers, spends much of its time doing. “When you hear about all the Penguin or Panda updates on Google, and people suddenly lose traffic, typically when those things have happened our clients have benefited, because those changes are intended to weed out people who are gaming the system, and actually show relevant results,” Hodges says. If a potential customer is searching for a good place to eat, and the last update to a diner’s Facebook page was 2010, a person might wonder if the eatery is even still open. That’s why marketing firms are increasingly offering long-term services to companies, offering to tweet, make posts and even create white papers on behalf of a client, says Kris Nordholz, CEO of Full Media.
e have 120 clients or so that we’re working with on a monthly basis, and they would tell you that they view Full Media as their outsourced web marketing department,” Nordholz says. That could mean that the blogs you find on a company’s website are actually written not by employees of that company, but by third party vendors like Full Media. The person with whom you’re communicating on a company’s Facebook page could even be in a different country rather than at the business headquarters. A single Internet marketer may manage six to 10 corporate relationships. For each one, they’re researching the industry, researching the company, and doing the legwork to become knowledgeable enough to strike a chord with potential customers. From there, the digital marketers will make posts on third-party websites like blogs and bulletin boards, create case studies to post on the website, make daily Facebook posts and tweets, and generally give off the impression that a company is interested in a relationship with its customers. “Our goal is to generate content that’s unique, that’s helpful to the end user, and something that’s shareable,” Nordholz says. As an example, Hodges works for a dental client trying to drum up business online. So she writes articles to pitch to industry blogs, family-related sites, mom blogs, and health-related sites, she says. “It’s this really delicate blend of creativity and strategy,” she says.
is owned by WEHCO Media, which also owns the Chattanooga Times Free Press and publishes Edge magazine. Vasquez, a veteran of the digital marketing world — even if at 23 years old he’s a little young — is blunt when asked if there are companies that don’t need to embrace digital marketing. “If you’re not putting advertisement dollars into your SEO campaign, then you’re losing money to someone else who is,” he says. “From our point of view, there are local Chattanooga businesses who are leaving dollars on the table.” Even if a company isn’t ready for a fullfledged yearlong media campaign, there are little things they can do to clean up their web presence. Because with the ability to search from any mobile device, customers turn to web research before they buy, before they make a phone call, before they even get in the car to go somewhere. Not two minutes of research, 30 seconds of research. And whatever pops up in that 30 seconds, that’s going to represent all their knowledge about a service or business. “We can go through and pull every negative review a company is mentioned in, and if it’s a negative review, provide a professional response,” Vasquez says. “Chattanooga doesn’t feel like a huge metropolis, but the fact is that we have a lot of people here at the college and university, a lot of those people are doing the majority of buying decisions online, so those searches can provide real results.” Companies can also skip all the blogging, posting and tweeting, and just buy raw search engine advertising through a firm like Full Media, Papercut, Uptik or Flypaper. But that still is only as effective as the website where users land. The very best advertisement in the world, if it redirects customers to a difficult, unhelpful website, isn’t going to be a very effective advertisement, says Amanda Haskew, a search engine specialist with Papercut. “If all else fails, just do a one-page,” Haskew says. “Buy your URL for $10 per year on GoDaddy. Do a Facebook page. Tweet, or something. You don’t need a decent website in three years, you need a good website six months ago.”
“You don’t need a decent website in three years, you need a good website six months ago.”
In the end, not everybody is going to shell out tens of thousands of dollars for a yearlong marketing program. Perhaps they don’t think there will be a return on the investment. Perhaps they’re primarily business-to-business and believe they don’t need a consumer-focused strategy. But even those companies need a good-looking front door, says Adam Vasquez, sales manager at Flypaper. Flypaper, a recent startup in Chattanooga,
Meet a local digital marketing agency › Uptik Media — This fiveman operation, launched this year, specializes in search-engine optimization through storytelling › Papercut Interactive — Founded 12 years ago by husband and wife team Jason Hill and Jenny Hill, Papercut bills itself as a “superfriendly” firm specializing in responsive website design › Full Media — Founded in Gainesville, Georgia in 2008, Full Media has expanded to three offices and 35 employees, and works out of the SunTrust building in Chattanooga. › Flypaper — Newly launched, Flypaper is a wholly-owned subsidiary of Little Rock, Arkansasbased WEHCO Media, which also owns the Chattanooga Times Free Press, publisher of Edge Magazine. › Bantam — Co-founded by former Area203 creative boss Tavis Salazar, Bantam is made up of a small team that brings in freelancers for specific projects as needed. › Riverworks — With clients like Public House, Hullco Exteriors and the Chattanooga Tent Co., Riverworks brings a strong local flavor to the digital marketing scene. › Fancy Rhino — This small Chattanooga agency launched from humble roots to national stardom, uses its video and design expertise to work national contracts from coast to coast. › Southside Creative Group — From retailers to restaurants, Southside Creative Group brings a veteran team to help with regional projects.
NOVEMBER 2013 ŕĄŕ
Success Story / Mike Pare Photography / Dan Henry
When Mike McKee talks about his grandfather and grandmother, he hearkens back to values which McKee Foods Corp. put into place at the company’s outset 79 years ago this month. Founder O.D. McKee was the entrepreneur, the company CEO says. His wife, Ruth, established the way the business treats employees and how it grew, he says. The Collegedale-based company still holds onto those core beliefs, which McKee says has helped the venture become the nation’s largest snack-food maker and a business that’s on the move.
“We’ve got a lot to work on,” McKee says in an interview from the company’s Collegedale headquarters. McKee Foods, which employs between 2,500 and 3,000 people at its Hamilton County plants making its Little Debbie snacks and other products, undertook the biggest acquisition in its long history this year with its $27 million purchase of the Drake’s snack cake brand.
cKee Foods has restarted the sale of the Drake’s line of snacks cakes, popular in the Northeast, such as Ring Dings, Devil Dogs, Coffee Cakes and Yodels. “Orders have been strong,” says McKee. “I’m certain we’ll have good success.” The 51-year-old CEO isn’t a new face at McKee. He has spent 35 years at the business, beginning when he was 16 years old in areas such as distribution, the thrift store and later in production when he was old enough. “All the jobs in production, we did,” he says, citing a brother and two cousins. “We learned a lot about the inner workings of the business. In addition, McKee says, he made friendships that he still maintains today. “It’s important for family members to build Mike Mckee, President/CEO of McKee Foods, in the company’s Collegedale offices. credibility,” he says. “That was a big part of it, for employees to see us in action and get to helped McKee Foods become successful. Among those are know us.” focusing on people, integrity, responsibility, quality, producMcKee said the only time he wasn’t working in the busitivity and innovation. ness after age 16 was when he went to the University of North Today, McKee Foods is a $1.2 billion a year business. Carolina at Chapel Hill to gain a graduate business degree afCEO McKee says the company sells throughout the United ter studying engineering at UTC. He said the so-called “Four States and has “a pretty good business” in Canada. It doesn’t Gs,” short for the family’s fourth generation, have a similar directly sell outside North America, though some distribustructured orientation. However, a new requirement calls for tors do offer its products in the Caribbean. them to work outside the company for two years if they want Through the years, McKee Foods continued to build its to gain a position in management at the business. The family brands into household names, expanding to additional proemployment policy also demands a college degree, he says. duction plants in Virginia and Arkansas and to a distribution McKee was named company president in 2002, and he center in Arizona where it services the West. took the CEO post in July 2007 from his father, Jack, who is But it was about a year ago when circumstances vaulted retired but remains on the board. Jack McKee’s brother, Ellsthe business into a new growth trajectory. McKee says the worth, is chairman of the board. “They built it into the form it company was having a year of “good solid growth.” McKee is today,” McKee says. Foods and its major competitor, Texas-based Hostess Brands, Their parents, O.D. and Ruth, had bought a three-employwere running neck and neck in terms of market share. ee bakery on Main Street in Chattanooga in November 1934. But labor union disputes and other economic problems led Four months after they purchased the business, they added Hostess Brands to file for bankruptcy in May 2012. By last a second shift. A year later they moved the business to larger November, the maker of Twinkies, Wonder Bread and other quarters on Dodds Avenue and the company was off and bakery products shut down its remaining operations and put running. up its brands and assets for sale to pay its creditors. The company lists on its website “guiding values” which
McKee Foods in Collegedale, Tennessee.
McKee through the years ēŕ1934 - O.D. and Ruth McKee buy a small bakery in Chattanooga ēŕ1952 - After moving to Charlotte, North Carolina, and opening another bakery, they buy a business from Ruth’s brother, Cecil King, and return to Chattanooga ēŕ1957 - Entire business moves to Collegedale and is called McKee Baking Co. ēŕ1960 - Little Debbie brand of family pack snack cakes, named after Ellsworth McKee’s oldest daughter, is introduced ēŕ1967 - Construction begins on second Collegedale plant.
ēŕ1977 - Plant 2 doubled in size ēŕ1982 - Gentry, Arkansas, plant opened ēŕ1990 - Stuarts Draft, Virginia, plant begins production ēŕ1991 - Company changes name to McKee Foods Corp. ēŕ1997 - Another plant built in Collegedale ēŕ2005 - Company reaches more than $1 billion in sales ēŕ2013 - McKee makes biggest single acquisition when it buys Drakes brand Source: McKee Foods Corp.
Ruth McKee NOVEMBER 2013 ŕĄŕ
efore the shut down, McKee Foods officials were aware of Hostess’ Drake’s brand, but not necessarily thinking about acquiring it,
McKee says. “We were focused on Hostess and what happens and how it affects us,” he says. But, McKee says, a company helping out Hostess with its asset sale reached out to the Collegedale business. “Once the conversation started, we quickly responded,” he says. “As we got into the details, we got more and more excited. It turned out to be the leading bid. It happened fast.” Before the acquisition, Drake’s in its Northeast U.S. sales territory was outselling Little Debbie by a two-to-one margin, McKee says. “That illustrates why it was attractive to us,” he says. “In that area, it’s a very, very strong brand.” Over the years, McKee Foods has grown its business organically and shied away from acquisitions. In contrast, a competitor such a Flowers Foods has had about 100 acquisitions over the last 80 years, McKee says. “We didn’t have that experience until Drake’s,” he says. “This is really going to be big for the psyche of the company. It’s really exciting. It really is.” Ron Harr, the Chattanooga Area Chamber of Commerce’s chief executive, notes that buying other companies or products isn’t the way McKee Foods has typically grown, but he terms its officials as “smart business people.” “It’s a good situation because Chattanooga benefits,” Harr says. “We’re rooting them on. We’d love to help them any way we can.” McKee thinks the deal will make company officials more open to the idea of other acquisitions. “We’ve been very, very conservative. Almost risk averse,” he says, adding that the company didn’t have the impetus to make a lot of purchases because its core business was good and growing. “But I think Drake’s will change that for us,” he says. The CEO says the company is delivering on reproducing the Drake’s taste and expects to garner repeat sales. Plans are to keep Drake’s in its existing market and the brand is expected to be a good addition to the company’s revenues. Remaining to be seen is if the restructured Hostess is able to recapture a big part of its former business. McKee says that when Hostess shut down, Little Debbie sales jumped nationally as retailers suddenly found themselves with a big gap in their product pipeline. “We had 10 years worth of growth overnight. Production lines were going full out,” McKee says. “It was a shock to the system.”
McKee Foods warehouse in Collegedale, Tennessee.
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Mike Mckee discusses the company’s acquisition of the Drake’s brand, a snack cake line popular in the Northeast.
McKee says the opportunity to grow its business was “a crisis of a good kind. It stressed everybody. But the great thing about our company and our culture is that everybody stepped up. Everybody is focused on the same thing.” The company has boosted hiring by nearly 800 people since last November, and McKee Foods sales are running 10 percent ahead of a year ago. “That’s very unusual in our business,” he says. Employees saw the results of their work through profitsharing checks, McKee says. He wouldn’t say how much money went into profit-sharing but terms the impact as “big” locally. “It was fun. It was a spectacular year,” McKee says. The company chief says he’s hopeful about this coming year, but there are uncertainties. Hostess’ Twinkie and other brands were bought out of bankruptcy for $410 million by private equity firms Apollo Global Management and C. Dean Metropoulos & Co. Earlier this summer, some of those products hit the market again. McKee says Hostess is coming back with a different business model. “We’re waiting to see how that plays out. Depending on what happens, it could have really big implications on the upside going forward,” he says. “If Hostess comes back with less than what the new owners hope, we could continue to see strong growth.” But, McKee says, if Hostess meets expectations, the two companies could be back to the horse race it was before the bankruptcy. “It’s too early to say,” he says.
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On Kennedy Jewelryâ€™s move from East Main Street to East Brainerd after an attempted robbery and gunfight this summer
â€œIn light of what we went through, itâ€™s time to move out of the neighborhood. Crime has a lot to do with it. For the safety of us and our employees and customers, itâ€™s best. Dad built the building. Heâ€™s excited but a little sad to leave what he started and what he built down here.â€?
â€œI actually feel that in the past five to 10 years, things have gotten better here. Crime kinds of ebbs and flows with the development of the city. The more goings on, the better, because it keeps the criminal element down.â€?
Michael Alfano owner, The Comedy Catch on Brainerd Road
owner, Trestle Side Antiques in Ringgold, Georgia
QUESTION OF THE MONTH
Tennessee had the highest violent crime rate in 2012. How has crime affected your business?
â€œI put an alarm system (at Trestle Side Antiques) since I bought the store back in December, just as I have in my home. Itâ€™s good to have some extra security, but I havenâ€™t had any crime problem and donâ€™t expect any. This seems like a pretty safe community.â€?
â€œOur cost-ofliving, tax rates, access to medical care and average temperates are all very favorable in Tennessee. The only area we donâ€™t rate favorably is crime, which we try not to talk much about. Our governor has made public safety one of his five pillars and hopefully Tennessee is addressing that problem.â€?
executive director, Retire Tennessee, which promotes the state to relocating retirees
Who is on the move?
Coca-Cola Bottling Co. United has chosen John Sherman as senior vice president and chief commercial officer.
Ron Payne has been promoted to director of information technology risk and compliance for BlueCross BlueShield of Tennessee.
Thompson Engineering has named Harry Hawkins as manager of its Tennessee operations.
PrimeLending has added Jill McLean as a loan officer at its Shallowford Road office in Chattanooga.
Richard Brame is the owner of the newly formed LTC Business Insurance LLC in Ooltewah.
Stephen A. Wilson
Mike Davis has been chosen as sales manager for East Tech Co.
Chambliss Center for Children has promoted Elizabeth Blasbery to executive director of residential services.
Joy Veenstra has been named curator of education at the Museum Center at 5ive Points in Cleveland, Tenn.
Stephen A. Wilson was named chief operating officer for Life Care Physician Services, LLC, a subsidiary of Life Care Centers of America
Gary Clough, a former senior vice president of operations for Arby’s, has been named chief operating officer of the Krystal Company.
NOVEMBER 2013 ŕĄŕ
Shared Resources POWER TOOLS
What to Take?
Propex exec and world traveler Randy Powell shares his secrets for successful business trips ŕ
acking for a trip is stressful. Far away from the comforts of home, you’ll be stuck with whatever you remember to bring, and you may or may not be able to beg, borrow or buy the items you forgot. And even if you do find a place that sells jackets in your size, now you’ve spent money you didn’t need to spend on an item that duplicates something you already have at the house. Even worse, many travelers have little idea what they’ll be doing when they arrive at their destination, what the temperature will be or whether their cell phone charger will work at the hotel. Some compensate by packing everything in their checked luggage, which is fine as long as the airlines don’t lose it. Then, the real nightmare begins. But professional trip-takers suffer from none of this stress. They don’t worry about packing something for every situation because they buy items that have multiple uses. They don’t fear that the airlines will lose their checked luggage because they pack everything in a carry-on. They don’t sweat during travel because for the pros, an inter-continental plane ride can be a chance to catch up on reading, play games and truly relax. Randy Powell, chief operating officer at Chattanooga-based Propex and 10-year veteran at the company, does his fair share of globe-trotting. Propex, a geotextile and carpet backing manufacturer, has seven sites around the world, including four overseas. Powell visits all of them to ensure that operations are proceeding according to the company plan.
Spending much of his time in transit could be an aggravation, but Powell makes the most of it through smart buys and smarter packing. Here’s what’s in his suitcase:
Randy’s Fossil brown soft leather briefcase: iPad — [Pro tip] “I keep all my music, all my e-books and my games on there, so I just pull out my iPad whenever I have time, listen to music and read books. Thumb drives File folders Binder Pens Ibuprofen Ear buds — [Pro tip] “I don’t carry noise canceling headphones because if I use airline’s headphones over the earbuds, that cancels the noice.” Power adapters Quick-charge iPhone charger — [Pro tip] “I carry a mobile charger, it’s the size of an iPhone and it holds two charges, so you can charge your phone up if you’re at a train station or wherever and can’t plug your phone in.”
Randy’s Samsonite Curv carry-on (manufactured by Propex)
Last book I read during a flight: The Name of the Wind, by Patrick Ruthfuss Last souvenir I bought: wool scarves from Scotland for my son and daughter Keepsakes I bring with me: pictures of the grandchildren on my iPhone
She loves working with kids. As an education major at UTC, she’s gaining the experience and skills to teach all students. Because of her, a lot of students’ dreams are going to come true in the future—including her own.
At UTC, our students achieve, and so will you.
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Polo Ralph Lauren khakis, brown and blue Business shirts Casual camping shirts with sleeve snaps Necessities (toothbrush, undershirts, etc.) Blazer Portable fabric steamer — [Pro tip] “I have a secret weapon. I bring a portable fabric steamer, about the size of an office phone receiver. So if I have to pack a dress shirt or a suit, like I did at a facility opening recently, instead of an ironing board I can hit it with the steamer and take those wrinkles right out.” Dress shoes — [Pro tip] “I wear hiking shoes all the time. I can take them off on the plane, and walk in them forever, and they don’t hurt my feet. The dress shoes stay in my suitcase.”
Shared Resources CLOSER
Entrepreneur Donna Williams blends development efforts at City Hall Within hours of being confirmed by the City Council as administrator of Chattanooga’s new Depart-
ment of Economic and Community Development, Donna Williams faced her first challenge just a block away from her new City Hall office. An electrical fire in the 11-story Patten Towers forced 241 tenants — many of whom are physically or mentally challenged — out of their homes. Williams immediately called upon friends from her previous community volunteer work and marshaled most of the city offices within her department to find alternative housing and to work to ensure the apartment owners fixed problems in the downtown high rise. “There’s still work to do, but it’s dramatically better than it was and I think we showed the value of everyone working together,” she says. Williams, who gave up her job as director of the local Habitat for Humanity to join the administration of Mayor Andy Berke in May, thinks she has found her calling at City Hall. Despite the long work hours and occasional project setbacks — including the failed attempt this summer by the city to buy and renovate Tubman Homes — Williams insists she loves her new job. Williams’ department oversees about 125 employees in the city’s public art, Outdoor Chattanooga, land development office, neighborhoods services, community development and regional planning agency. She says she is eager to complement, not compete, with other Chamber of Commerce and state economic development programs. Williams brings a diverse entrepreneurial business and philanthropic background to the job. A Chattanooga native and resident of Glenwood, Williams attended the University of Tennessee at Chattanooga and worked for a variety of computer and technology companies in Chattanooga and Atlanta before starting her own consulting and development firm in Chattanooga. She worked on ML King Tomorrow Initiative before joining Habitat for Humanity as director in June 2012 and has served on a host of community boards.
P HOT OGRA P HY BY DA N HE NRY
“I know Mayor Berke wants to be more proactive in changing our city,” Williams says. “As an entrepreneur that’s what I like.”
©2013 Porsche Cars North America, Inc. Porsche recommends seat belt usage and observance of all traffic laws at all times.
Drive the Porsche that saw the sky as the limit. Then broke it. Limits were meant to be broken. Built around a proven mid-engine design, its handling places it firmly atop the roadster class. And its technology ensures it stays there. Like the available Porsche Doppelkupplung (PDK), which makes quick, seamless shifts, and Direct Fuel Injection (DFI), which creates even more efficient use of the increased horsepower. With such constant improvements, it’s no surprise that the Boxster has made Car and Driver’s 10Best list an impressive twelve times. Visit our showroom today and experience the Boxster that broke through barriers. Porsche. There is no substitute.
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