There are always costs involved with fulfilling a contract, something Carroll learned the hard way after the company failed to net a profit from its inaugural deal. “I found out how quickly a $25,000 task could disappear because you spend that money fairly rapidly,” says Carroll, the president and CEO of Huntsville, Alabama-based Tec-Masters Inc. (No. 53 on the BE Industrial/Service Companies list with $71.9 million in revenues). “You spend every penny on it.”

It was roughly a year before a second deal was in place, with Carroll spending much of his time identifying new customers and learning their conditions. “It’s not so much how good you are or what you know, it’s all about a customer’s requirements,” says Carroll, who has a doctorate and master of public administration from Nova University; a bachelor of science in electrical engineering from Howard University; and graduated from the Defense System Management College in Fort Belvoir, Virginia. “It’s your job to try to understand them and try to convince that customer that you’re the one who can satisfy.”

Carroll also learned firsthand that the biggest challenge for any entrepreneur is cash flow. “My survival kit was the very fact that I had retired and I had a guaranteed income, so I could take things and stretch them out and go without for an extended period,” he says. He also notes another strategy potential contractors can employ to secure funds during the lulls. “You can also call ‘rich uncle’ and ask to borrow enough money to cover expenses for a two-month period. And by ‘rich uncle,’ I mean First National Bank and First Commercial, and they charge you interest on that money you use [to cover expenses] while you’re waiting to be paid by the government.”

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An early lesson was learned and Carroll went on to build a company that now boasts nearly 180 employees and such top-tier clients as NASA and the DOD, as well as industry giants Lockheed Martin Corp. and Raytheon Co. Despite that growth, Carroll looks to diversify his company as government spending patterns continue to change.

A TEAM EFFORT
Founded in 1988 to provide technical support to the DOD as well as commercial customers, Tec-Masters is primarily involved in three areas of business:
• Scientific, Engineering, and Technical Services: This includes training and organizational development, experimentation, modeling, and simulations. The company also provides support services such as technical manual development, integrated logistics planning, and support for government agencies such as the Department of Defense.
• Information Technology: Tec-Masters Inc. provides worldwide information technology services that include designing new systems, maintenance, testing, training, network communications, and cyber security.
• Creative Multimedia: This includes video production from concept to creation, virtual and 3-D simulations, animation, digital media design, and website development.

Before launching the company, Carroll designed simulations for anti-tank missiles that often ended up as actual missile systems. His work on the TOW (Tube-launched, Optically tracked, Wire-guided) missile system helped him progress to the management of missile systems, which involved development, testing, manufacturing, and building. He served as the deputy project manager and chief engineer for the HELLFIRE/Ground Vehicle Laser Locator Designator project office of the U.S. Army Space and Missile Command.

Carroll’s background working with the military helped instill the value of a solid team and the understanding that no one man could do it all, a mindset he carried over to Tec-Masters. “At the end of the day, the business exists because we have people that possess these skill sets required by customers,” he asserts. “I try to support and encourage, of course, but with all of this high-tech stuff that we keep talking about, you’ll find it with other people. You have to take the steps to try to get the best people to do the job that’s required by your customer.”

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Members of that team also keep abreast of the fast-changing world of high-tech. “As part of the benefits package there are educational benefits for employees to further their education [if it] is relevant to the business,” says John Broyles, vice president of operations. “That keeps your employees competitive in terms of what’s going on in academia and those kinds of things.”

That strategy has helped Tec-Masters land projects such as:
• A $24.8 million five-year contract to provide systems engineering and technical assistance support to the Fires Center of Excellence at Fort Sill, Oklahoma.
• A portion of a $100 million five-year military contract to provide support services to the U.S. Army at the Maneuver Support Center of Excellence in Fort Leonard Wood, Missouri.
• A $12.2 million contract for the integration of payloads into the Microgravity Science Glovebox (MSG) aboard the International Space Station to ensure that interface and safety requirements are satisfied. The MSG is a controlled environment inside the station that allows astronauts to perform experiments.

VICTIM OF INSOURCING
Carroll acknowledges the challenges that lay ahead and looks to keep the company agile enough to react to changes in government spending. With increased pressure to cut spending, many former contracting opportunities were taken in-house by Uncle Sam. “In this environment we are looking for other areas where there are growth opportunities—areas, typically, we have not looked before,” he says. “We’re looking more at places such as the Department of Commerce, Department of Energy, or the Department of Education.”

While those aren’t areas Tec-Masters has sought business from in the past, Carroll contends that the company’s workforce has skills sets that are applicable to those areas. “I think that as a result of fully looking at opportunities in other areas, the company will still grow.”

Over the last few years, Boyland (who was Black Enterprise’s Automotive Dealer of the Year in 2003) and his management team made some painful decisions to stay in the black. With nine dealerships in five states, Boyland Auto Group had overhead costs that were tremendous. With the economy at its worst in 2008, management assumed a proactive stance. “We needed to make the same amount of money even if there was a 20% decrease in revenues,” says Boyland. So adjustments were made in headcount, benefits, assets—including new and used cars, and salaries. Boyland also sold his two least profitable locations.

Those painful moves are now paying exceptional dividends. Though the health of the economy remains uncertain, new vehicle sales for Boyland Auto Group, which sells Dodge, Ford, Nissan, Mercedes-Benz, Honda, and Hyundai, are on the rise; revenues for 2011 rose some 28% from 2010 to more than $400 million, and net profits rose more than 30% over 2010. In an environment where many African American auto dealers faced bankruptcies or were forced to close by manufacturers responding to reduced demand, Boyland Auto Group is prospering—sending a message that while black dealerships may still be reeling, they’re not down for the count.

From Starting Lineup to Bottom Line
Boyland, a nearly 30-year veteran of the automotive business, began his professional career in a much different arena. A second-round draft pick in 1976 for the Pittsburgh Pirates, the 6-foot-4-inch first baseman and graduate of the University of Wisconsin was part of the team that won the 1979 World Series. Boyland retired from professional baseball in 1983 and decided to put to work his bachelor’s degree in business administration and computer science. While contemplating a job offer—systems analyst with chipmaker Intel Corp.—Boyland received a call from Ron Tonkin, owner of one of the largest auto dealer groups in the U.S. and a past president of the National Automobile Dealers Association. He offered Boyland a sales position at a dealership in Portland, Oregon.

Boyland loved the business and within two months was promoted to assistant manager. He relished the competitive environment and faced new customers the way he had faced new pitchers. In 1985, Boyland and Tonkin went into business together and acquired a pre-existing Dodge dealership (of which Boyland owned 30%). “Dorian is a very driven, successful guy with vision,” says Dan Kaiser, who also sold cars with Boyland in the early ’80s and is now a partner in four of his dealerships. “He’s got the moxie and savvy to put deals together. I was kind of the operator guy. Dorian could put all the deals together and I would help him operate the deals.”

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Boyland would take the plunge into majority ownership, and over the years go on to become one of the country’s more successful African American athlete–entrepreneurs. He succeeded by focusing on the bottom line. “Don’t get into business as a hobby,” he says. “If you own a business, make it about profit. If your business is your hobby, don’t expect to make any money.”

Playing Through the Pain
So when the global financial downturn devastated the automotive industry in 2008, Boyland and his management team came up with a game plan for the business. “Our operations became streamlined and our net profit as a percent of sales increased, although our total sales decreased,” says Boyland. “We experienced a slight drop in net profits for that first 12 months. Then after all the cuts started to realize and all the economies of scale and operation—fat cut out that we probably didn’t need in the first place—started to take place, our net profit as a percent of sales skyrocketed.”

Management made adjustments to maintain revenues even if there was a 20% drop in sales, so the team looked at what assets were needed—and which weren’t—to effectively function at that lower level.

They made the following moves:
• Instead of carrying a 90-day supply of new cars, they carried a 60-day supply; they went from a 60-day supply of used cars to less than a 40-day supply.

• The number of company dealerships was reduced from 11 to nine. Underperforming locations in California and Ohio were sold.

• Employee count was reduced by about 12%, which in turn reduced payroll, taxes, insurance, and the costs of other benefits.

“We stopped paying for cell phones. The people that had health coverage from their spouses, we pay them to not take the insurance we provide.” As a result, personnel expenses were reduced 13%.

• Boyland decreased or eliminated his own compensation, depending on the location.

• Boyland, who owns the property at seven of his nine locations, reduced the rent to equal 10% of the total monthly gross profit.

• Management renegotiated with vendors, requesting a reduction in costs. “We had a substantial success with ADP and all our national vendors and local vendors as well.”
All told, expenses were cut 22%. “We were pretty lean going into it so we weren’t so fat that we really had to make a lot of adjustments,” says Kaiser. “Dorian’s dealership businesses are lean. The management is pretty well trained in making sure that we’re not spending silly money on things that aren’t doing anything for us.”

Boyland plans to continue running lean and awaiting the next opportunity. “Credit is going to be available, and our cash position will be good. So I’ll have people ready to move into those slots,” he says, “so whenever a call comes [to acquire a new dealership], I’ll be prepared for it.” 

For Williams, reading the article proved fortuitous. While Norristown, Pennsylvania-based Pride Enterprises had fairly steady revenue gains, the building, construction management, and consulting firm generated nearly 35% of its revenues at that time from projects for the Department of Veterans Affairs. And a lot of those revenues were being shifted toward companies led by military veterans. “Almost overnight [business with the department] went down to zero,” Williams recalls. “We looked at that situation and thought, ‘Man, we have to figure out a way to replace that revenue stream.’”

Williams concluded that if his company was to continue to do business with the Department of Veterans Affairs, he needed to partner with a veteran and establish a new business. The veteran, Richard Bennett, seemed tailor-made for the task. After all, he studied architecture and the article stated his interest in a career in the construction industry. “I thought, my God, this is my guy. So we tracked him down through the author of the article and set up an initial meeting,” says Williams, 44. “I brought him in and told him what I was thinking, and we talked about it for a while.” During that period, Bennett worked for Pride Enterprises as an estimating coordinator and Williams’ mentorship role began.

In less than a year, Bennett and Williams felt they could do business together and formed Fidelis Design and Construction L.L.C. in 2009. Bennett has a controlling ownership stake in Fidelis; however, Williams, who owns less than 40%, shares in the profits. “I helped him develop the branding strategy, and he came up with the name, came up with the logo, and we collaborated on the business plan,” recalls Williams. A little more than two years later and Fidelis Design & Construction generates just more than $10 million a year. And Williams, whose firm is a newcomer to the be 100s, may well help usher in one of the next generation of be 100s CEOs.

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Father Figure
Pride Enterprises, whose clients include the General Services Administration, the Army Corps of Engineers, the U.S. Air Force, and the Department of the Interior, was founded in 1996 after Williams himself benefitted from a familial mentorship. Currently, some 90% of the company’s revenues come from government contracting. A graduate of Syracuse University with a bachelor’s degree in business management, Williams joined his father’s construction business, Robert I. Williams & Associates Inc., in 1990. Over seven years, Williams worked his way up from laborer all the way to vice president of the company. “I guess it’s fair to say that I was on the inside track,” Williams says.

While working for his father, Williams would sometimes handle small projects for local restaurants or churches that weren’t really core to R.I. Williams. “So because he wasn’t paying that much attention, he let me tackle those projects as kind of a side venture.” That side venture, which later became Pride Enterprises, began to grow when Williams realized that focusing on the government space could prove lucrative. “The development of my company became a focus, and I relied on my father, as I always did, for advice and support.”

By working with his father, Williams gained insight into customer relations, corporate culture, motivation, and leadership. “So many of the qualities and abilities that a corporate leader needs, I learned directly from my father,” Williams says. “Fostering a family atmosphere within a company and really developing that all-for-one, one-for-all mentality all came from my dad.” Williams, whose father died in 2001, would later impart these lessons to Bennett.

A Soldier’s Story
As a combat engineer for Bridge Company, 8th Engineer Support Battalion, Pfc. Bennett was accustomed to hard work. A Marine, Bennett was part of a unit responsible for facilitating movement and support of friendly forces. This included everything from building bridges to carrying out demolitions and working with explosives. While fulfilling those duties, Bennett’s unit came under a mortar attack while helping move a 700-pound panel for a bridge. “There were about eight or 10 of us lifting it while we took mortar fire,” recalls Bennett, a native of Montego Bay, Jamaica.

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By the time Bennett—who received several unit commendation awards and medals—was discharged from the Marine Corps, he ended up with traumatic brain injuries and a spinal injury that left him 80% disabled. When he’d met with Williams, Bennett was hoping to find a surgeon willing to attempt the high-risk surgery of fusing or replacing his spinal disks so he could return to duty. Williams, however, had other plans. “The good thing about me partnering off with Craig was he’s been helping me to hone my skills more on the business side,” says Bennett.

Both Williams and Bennett say the relationship is mutually beneficial. It gives Pride Enterprises restored access to a revenue stream while Fidelis (whose name hails from the U.S. Marine Corps motto, “Semper Fidelis”) benefits from the support and business experience of a more seasoned management team. “One of the keys to the relationship Craig and I have is a mutual respect for not just each other’s personality but for each other’s ideas,” says Bennett. “If we evaluate something and come up with two different results, we’ll pretty much sit and discuss it and figure out what happened, why we didn’t arrive at the same end result. From there the logical answer is clearer.”

With nine contracts completed, the largest of which was a $5.85 million renovation of the Philadelphia VA Medical Center, Fidelis is projecting $13 million in revenues for 2011. “My plan, as far as a relationship with Pride Enterprises, is to buy out Pride’s minority ownership interest and continue moving forward with them using them as a consultant, obviously maintaining the relationship and friendship I have with Craig as my mentor,” Bennett says.

Stimulus Projects
For Pride Enterprises, Williams sees slow but steady growth ahead. For 2008, the company generated $12.6 million, which dipped slightly to $12.3 million in 2009. Revenues for 2011 are expected to rise some 10% to $25 million. “Oddly enough, we’ve managed to grow in this environment, partly because of the stimulus dollars that the government spent,” says Williams. “We’ve also managed to evolve and stay in front of the money, if you will. With those strategies of diversifying within the niches of the federal government, we’ve managed to grow our business.”

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For Pride Enterprises, the challenge ahead is diversifying its revenue streams. “Having the majority of our eggs in one basket feels risky. The potential for a government shutdown is real, which could disrupt our operation,” Williams concedes. As the economy recovers, he intends to re-establish clientele in areas outside the government—corporate clients, churches, and small businesses. Having completed projects with solar energy components, Pride Enterprises is exploring strategies to enter the solar market and may acquire an electrical contracting firm as part of that plan.

In the meantime, Williams will continue his mentorship role while maintaining the partnership with Bennett. “Clearly, what made Richard attractive to me was, he was a construction-oriented person. This is a guy who had the experience and interest in this industry, in addition to being a veteran. It wasn’t that I could just find any veteran walking down the street to pursue this with. This guy was tailor-made for me.”     

In it for the long haul (Image: Thinkstock)

Dorian Boyland started Boyland Auto Group in 1987 (No. 4 on the BE Auto Dealers list) with less than $100,000. Over the years, he’s built up an automotive empire that now consists of nine dealerships in five states that collectively generated nearly $400 million in 2011. Based in Orlando, Boyland Auto Group’s brands include Dodge, Ford, Nissan, Mercedes-Benz, Honda and Hyundai

Here, the former first baseman for the Pittsburgh Pirates turned automotive mogul shares some of the lessons he’s learned on the road to becoming a successful entrepreneur:

Understand that projections are only as good as they are realistic. “Don’t forecast or make projections based on guess work or anything that you haven’t seen yet,” recommends Boyland. “All of your projections and forecasts should be based on prior history, of prior performance.”

Maintain a solid debt-to-equity ratio. This is a measure of a company’s financial leverage. Boyland recommends a 1:1 ratio. “If you’ve got a dollar in cash of your own then only go borrow a dollar in cash. Never let your debt, exceed your equity.”

Remember that cash is king. Boyland advises small business owners keep one-and-a half months to two months of expenses available in cash to avoid a cash flow crunch. “Because 50 to 75 percent of your sales might be in receivables that might not be paid for 45 days or so.”

Don’t guarantee salaries. Boyland suggests tying salaries for managers and key personnel who generate sales to performance and productivity. “Their pay should be based on percent of the profit of gross that they generate that they control,” he says. “Everyone that’s in any type of sales environment or position needs to have an incentive for what they want to do other than just coming to work.”

Negotiate with vendors for the best rates. “All small business owners should negotiate with all of their vendors and all payables should be negotiated prices so that they know they’re getting the best deal,” he asserts. “Every vendor has a different price for people that they work with. You got to find out what your price is.”

Don’t just be an owner – take ownership. Don’t let the failure and success of your company be dependent on other people. “Those things, as an owner and operator of a business, should be 100 percent solely dependent on you,” advises Boyland. “You can always change the players but you cannot change your goals and operations, and controls, and the things you want to accomplish.”

Really understand how your business works. “It’s very critical for the owner/operator of a business to be an expert in the knowledge of that business and how to operate that business. You have to be educated on a business and not get into a business as a hobby,” he recommends. “Learn, understand, the business so that the people work for you know that you understand everything that they do. You need to understand what every person within your organization does – not necessarily how they do it, but what it is they do.”

Oversee all expenses. “If you own and operate a business, you need to approve 100 percent of every expense that goes out that door.  You should have the people in your operation know that they cannot, and doesn’t have the ability, to approve and sign any expense,” he says. “At the end of the day it is your responsibility to control the checkbook. Every check that goes out that door, before it’s even cut or written, should be approved and understood what it is by the owner and operator of a business.”

Mitchell, president and CEO of Washington, D.C.-based Industrial Bank (No. 8 on the BE Banks list with $382 million in assets), knew that while the bank hadn’t been involved in the subprime market, there was no way it could remain unscathed. A lot was at stake. Industrial is a third-generation family business that was founded in 1934 by Mitchell’s grandfather, in the midst of the Great Depression. The 49-year-old Mitchell wasn’t about to let it fail now.

But the economic climate at the time of the Great Recession meant nothing was safe. More than 35% of Industrial’s outstanding loans are tied to residential mortgages and home equity lines, 32% are linked to commercial real estate, 20% are with local churches, and 10% with small business loans. As the U.S. continued to hemorrhage jobs, tithing declined in churches, affecting their ability to make loan payments. “We’ve had quite a few problem loans—mostly in commercial real estate—that we’re still working through,” says Patricia Mitchell, executive vice president of sales/operations and sister to the CEO.

Despite these challenges, the bank managed to keep costs low in order to consistently remain profitable—even when the economy was the worst it’s been in a generation. And now, Industrial faces the challenge of increased regulation while eyeing the possible need to consolidate to grow assets and resources.

From Great Depression to Great Recession
In the 1930s, Jesse H. Mitchell was a vice president at Industrial Savings Bank, a black-owned bank that closed during the Great Depression. “So, my grandfather and a few of the people who had been associated with Industrial Savings got together and formed Industrial Bank because there wasn’t any other black-owned bank in D.C. at the time,” says Patricia, a graduate of Drexel University. In the middle of the Great Depression, Industrial Bank opened with $250,000 in assets and 470 shareholders on the corner of 11th Street NW and U, an area in the Shaw neighborhood known as Black Broadway since it was one of the few places where African Americans could go to enjoy nightlife. Over the years, the bank expanded and now has eight locations and 28 ATMs in the Washington, D.C., metro area.

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But that growth hasn’t been without its share of challenges, the most daunting of which came courtesy of a global financial crisis that left banks of all shapes and sizes scrambling to meet liquidity requirements and seeking government aid. “We didn’t think it would affect us as much as it did, but obviously that happened after September 2008, as panic went through Wall Street and the large banks,” says Mitchell. “We didn’t have any exposure to [mortgage-backed derivatives], but as the economy got worse it started to affect areas of our portfolio.”

As unemployment rose, the team began to identify potentially troubled loans as quickly as possible to ensure that the bank had the proper reserves. They began reappraising property—since values declined so sharply— and took write-downs on properties that were underwater. To ensure that borrowers could keep making payments, they contacted them and renegotiated terms.

“We’re still attempting to do modifications for some of our borrowers and shore up where we can,” Mitchell says, “but we’ve made provisions for loan losses.” Funds that would have gone toward the bottom line were reallocated, and reserves for bad loans were increased to $2.5 million in 2009, $2.1 million in 2010, and are likely to reach $2 million for 2011. “That’s a lot of money, but fortunately we did it before the examiners made us do it.”

But other measures needed to be taken as well. For example, vacant positions at the bank weren’t immediately filled. “We stopped officer bonuses, executive management bonuses.
We froze salaries for executive management,” says Mitchell, a graduate of Rutgers University. “We did everything we could to get through this. It didn’t feel good, but we have employees who understand that these are tough times.”

Financial results took a hit, but Industrial stayed in the black. Profits for 2008 totaled $1.8 million. For 2009, a year when many banks posted losses, Industrial netted $77,000. By 2010, profits grew to $303,000, and 2011 is forecast to come in at around $1 million.

Regulation Blues
While Industrial Bank deals with the aftereffects of the crisis, it must also contend with stricter regulation. Community banks have to comply with much of the regulation that’s aimed at curtailing the big banks that received bailout funds. But these smaller institutions, unlike the big banks, often struggle to secure the manpower and financial means they need to ensure compliance. As a result, Industrial is identifying new revenue lines.

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The traditional banking model is simple: Consumers deposit funds that a bank lends to businesses or other consumers while collecting fees for ATM use and other services. According to the Mitchells, Industrial is considering selling insurance and investment products, or offering such fee-based services as financial planning. Consolidation is also on the table. “We want to do an acquisition because the bank needs to be larger,” says Patricia. “There’s thousands of dollars in new compliance costs as a result of the new regulations, and the only way to absorb a lot of that is to grow. We are currently in a strategy to raise capital that will, in turn, lead to an acquisition.”

How to Obtain Bank Financing for Your Business

While small business loans slid 4.1% from 2009 to 2010, there was still some $310 million that banks extended. So while credit may be tight, capital is out there. But what do banks look for these days before extending a small business loan? “I think a lot of people have the impression that banking is rocket science,” says Douglas Dillon, senior vice president of commercial lending for Industrial Bank. “But even non-bankers can understand the basics.” He says banks look for the following criteria:

• Strong historical cash flows. A banker will first examine your income statement and bottom line, and then add back a few things that are fairly essential to the cash flow analysis, such as depreciation, a noncash expense. They’ll use the business’ interest expense to come up with a rudimentary cash flow number. “That’s important because bankers just want to have an idea of your capacity to repay their loan,” says Dillon.

•  A good debt-service coverage ratio. This is the ratio of cash available for debt servicing to interest, principal, and lease payments. The banker will calculate this by adding annual net income with amortization/depreciation, interest expense, and other items, and dividing that sum by the borrower’s loan principal, interest payments, and lease payments. “This is the key ratio that most bankers are going to look at,” Dillon says. He notes that most banks consider a debt-service coverage ratio of 1.20:1, or 1.25:1 to be very good.

•  Core financial strength versus just operational strength. Dillon cites loan applications from two restaurants, both of which look good operationally. “One has a little bit stronger following—both serve good food. But one negotiated a lease with a rent that’s below market and has low annual escalations. It’s also in an excellent location with major tenant improvement allowances from the landlord. Plus, it’s secured a contract, so some of its revenue is assured. The second did a good job establishing a financial foundation, but not as good as the first.” As a result, while both have operational strength, the first one also has a more established financial foundation.

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•  A solid credit score. There’s no getting around the fact that banks will look at the majority shareholder’s credit history. “It’s important to know your credit score. If it’s lower than 660 or 680, you need to start thinking about ways to improve it, if at all possible, before you walk into the bank,” says Dillon. “Now, if you don’t have a 660 credit score people may still take a look, but it makes it a bit harder. At some banks, your personal credit score for small business is one of the key determinants of whether the bank is willing to lend or not. That’s not necessarily the case with us, but a credit score is an indicator of ability and willingness to repay personal debt.”

•  Collateral. The C-word isn’t something many small business owners want to hear from a banker, but according to Dillon, collateral can come into play right behind cash flow in terms of importance. It is even more critical now as banks continue to try to mitigate risk. “We need to have a secondary source of repayment behind the operating cash flows of the business,” Dillon says. “That can be hard to find these days, so we sometimes use Small Business Administration guaranties to make loans where collateral strength is minimal. We’re utilizing the SBA’s CAPLines line of credit product and actively seeking out clients that need lines of credit. The SBA has made the product more attractive to lenders, and it helps mitigate some of the collateral concern so that we don’t necessarily need a 100% collateralized loan.” 

According to John C. Liu, Comptroller of the City of New York, the city how has some $6.1 billion currently managed by MWBE firms. “I’m a firm believer that the public is served best when we level the playing field and allow everybody to show what they can do,” says Liu. “This is part of our on-going efforts to bring along emerging managers and to give emerging managers a chance to show what they can do.”

According to Liu, a previous investment with Vista earned a rate of return of 29.4%, a solid performance when compared with the turbulence of the financial markets. “Vista Equity is an emerging manager that has clearly emerged.” Vista, which was founded in 2000, has offices in San Francisco, Austin and Chicago and primarily invests in privately held software development companies.

Robert F. Smith, CEO of Vista Equity Partners, the transaction will bring the firm’s assets to nearly $6 billion. “I have to applaud John [Liu] for this – looking at the communities they serve and trying to find vendors who are managed and owned by people who look like the people who they serve,” he says. “And they’re very conscious about it, very thoughtful about it and very deliberate about it.”

The industry is much more cluttered with public relations firms, consumer promotion agencies, and media-buying companies, as well as sports and entertainment marketing firms, and digital and social media agencies. Boutique firms must confront all those entities and contend with ever-increasing competitive pressure from larger general market agencies as they continue to grab for market share overlooked during more prosperous times.

Walton Isaacson (No. 8 on the BE Advertising Agencies list with $12 million in revenues) is one of those boutique agencies. The Los Angeles-based company, which also has offices in Chicago, New York City, and Tokyo, was founded by Aaron Walton and Cory Isaacson, and is now in its sixth year, boasting a client list that includes Jim Beam Brands Co., Tequila Avión, Philips, Lexus, and Unilever. The firm uses a holistic approach that marries research and target marketing with the creative means that influence consumer behavior.

So when the firm was tapped to develop a strategy for Lexus’ hybrid CT 200h, a vehicle the automaker wanted to target toward younger consumers, the agency combined art with science. By applying market data from the automaker, and conducting focus groups and brand analysis, the team was able to craft a multiplatform campaign that included innovative television spots, live events, a strong digital component, and music downloads on iTunes. As a result, the CT 200h exceeded Lexus’ sales targets by 109%.

Digging through the data
It all begins with a big idea: how to create an emotional connection with the consumer. To do that the key word is research. “We found that thirty-somethings want what they want. We know that Gen X and Y believe in independence, they are free-spirited. Also, they’re used to the information age, and everything is catered and customized for them,” says Ed Han, Walton Isaacson’s executive creative director, general market. “So we wanted to suggest that the brand did not do things the way that conventional car companies might, and suggest that the CT was born out of this idea of independence and free thinking and doing things your own way.”

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Developing that message sometimes involves trial and error, which is where focus groups come in. “In addition to gaining a deeper understanding of how consumers feel about a particular model or advertising platform that we have developed, focus groups also provide us with a platform to explore similar relationships consumers may have with our competitors,” says Walton. “One of the things we try to understand is how consumers feel about the brand and how they are interacting with all forms of media. We like qualitative data because it can unveil a rich picture that often quantitative  data cannot. It helps us gain a better insight into their lifestyle dynamics.”

The research goes deeper. The team looks at specific sales by region and by product model to understand consumer purchasing patterns, and determine what is attracting consumers to certain models. If it applies, the team analyzes recall, as well as the use of creative to push a given model, and whether it’s moving the brand in the right direction. In the case of the CT 200h, Walton Isaacson wanted to bring younger consumers into the franchise. They evaluated the prior work of the brand to help develop creative that would appeal to this younger consumer segment. “Are people watching the commercials and remembering what brand is in the commercial? Are they being moved by the work? We look at a lot of different measures to see how we’re doing, and how we’ve done versus other spots that we’ve done in the past,” says Walton.

Then digital strategists, social media moderators, copywriters, account reps, and creative directors work with the client to develop a message that targets the particular consumer, and create a plan to deliver that message across various platforms. “There’s a whole mix because consumers don’t live in a channel. They live out in the real world, they’re walking to the bank, they’re watching TV, and they’re online,” explains Isaacson. “You want to make sure you’re putting out the right and most effective mix for your budget and for your audience.”

Moving the needle
The team developed four targeted television spots for the Lexus campaign, created events where consumers could experience the vehicle firsthand, and produced a digital campaign. One 30-second television spot shows the hybrid driving through a computer-generated three-dimensional landscape. The driver, a young man, guides the vehicle through constantly changing urban terrain to the beat of electro-pop music.

A similar Spanish-language spot was developed that shows the car driving through the streets of a city that looks much like Miami, past restaurants and nightclubs with young people taking notice. Print was well represented, as was radio. There were also events such as the Lexus CT Challenge, featuring actor Hill Harper, where attendees could drive the car through an obstacle course.

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Then they got creative and took a look at the nonconventional ways they could tap into Gen X and Gen Y consumers. The CT Remix program combined the music of the CT campaign with ringtones and music downloads from notable DJs and producers.  “We released the music on iTunes, and a portion of the proceeds went to people that were impacted by the tsunami [in Japan],” says Walton. “We were promoting it in clubs so people heard the music in the club, they heard it at conferences; we really were trying to envelop them in a way that they understood what the brand message was all about.”
The strategy hit the mark, according to Lexus. “The messaging really focused on the fact that not only is this a car that gets 42 miles per gallon, but it’s also a car that you can have fun with,” says Brian Bolain, national manager of Lexus marketing communications. “If you look at the public perception of hybrids, oftentimes consumers believe—whether it’s right or wrong—that there’s some sacrifice that goes along with owning a hybrid. I think the work that Walton Isaacson created communicated that there’s no sacrifice involved with this car.”

At the end of the day, it’s about selling product. That’s the benchmark. Lexus had precise goals set for the CT 200h. The automaker wanted 30,000 hand-raisers—people expressing interest in the vehicle—identified by the time the car was available for purchase, particularly younger buyers. Once the vehicle hit the market, the sales target was 1,000 units per month. “We were at nearly 35,000 [hand-raisers] when we launched.” If you look at the average since we launched, we’ve been higher than 1,000 [units sold],” says Bolain. He adds that the CT 200h is on track to sell more units than planned for 2011. “We’re really happy with the sales results and we’re also happy to see that the median age of [consumers purchasing] that vehicle is dropping each month.”

Despite the economic climate, Walton Isaacson is forecasting a 40% increase to its top line, and the firm looks to continue to set itself apart from its competitors by effectively marrying creative talents with the science of the sell. 

So he did something few entrepreneurs do—he fired himself. “The problem was that it didn’t grow. I attributed that stagnation to myself,” recalls Freeman, adding that he believes CEOs often overstay their terms. “I had gone past my shelf life and just because I was the owner did not mean that I should have stayed in that role. If I’m not performing, if I can’t grow the company to the next level, then I’m not the right person for the job,” he says.

So in early 2007, he brought in Steven Howard Smith to helm the company. Freeman felt Smith had the experience to grow Zycron since, as an executive with SCB Computer Technology Inc., he helped grow that company from $2 million to $150 million before it was acquired by CIBER Inc. Since then, revenues for the information technology services firm have risen some 60%—a growth rate Freeman attributes directly to the hiring of the new boss. Now the duo and their team look forward to continuing the growth track and reaching Freeman’s goal of turning the be 100s newcomer into a $100 million enterprise.

A Steady Ascent
“We work with IT departments and [chief information officers] and we manage every facet of IT including other vendors, software purchases, hardware purchases, and more important applications such as delivery and applications maintenance,” explains Smith. With clients that include the Tennessee Valley Authority and FedEx, the company derives some 60% of its revenues from government contracts.

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Among Zyrcon’s clients is Hospital Corporation of America, which owns and operates 164 hospitals and approximately 106 freestanding surgery centers in 20 states and London. “[Freeman] has good people on his leadership team.  He’s a good businessman and understands our business,” says Noel Williams, senior vice president and chief information officer for HCA, which has about 60 Zycron consultants at various locations. “We have used them to help with our electronic health record implementation, to help with custom in-house application development. They’re very good business partners.”

Despite a stagnant economy, the company has generated fairly impressive growth. Revenues grew from $21 million to $29.3 million in 2010. Management projects the company—which was started by Freeman in an office the size of a closet with $2,000 in savings and a bunch of credit cards—to reach $35 million by the end of 2011.

First Flight
Freeman’s background initially was in electronics, having attended Kirkman Technical High School. After graduating he moved to Atlanta and by his own account, “nearly starved to death. I had an apartment with three roommates, and times were very, very difficult,” he recalls. But fate intervened. A friend dropped out of Middle Tennessee State University and asked Freeman’s help moving his belongings. Freeman, who grew up in a family of five where neither parent graduated high school, was surprised at what he saw.

For someone sharing a cramped apartment with three other adults, collegiate life was a virtual paradise. “I said to him, ‘You mean to tell me this is your own dorm room with your own phone?’” recalls Freeman. “And, he said, ‘Yeah.’  ‘And there’s a cafeteria where you can go eat?’  He said ‘Yeah.’  I said, ‘Well, this is where I’ve got to go to school.’” And in the fall of 1983, he enrolled at MTSU.  Freeman would earn his bachelor’s degree in computer technology and later a master’s in industrial studies from the university.

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After just a year in corporate America and at the age of 26, Freeman decided to become an entrepreneur. What he lacked in experience, he made up for in youthful exuberance. “That’s what you do when you’re young, and you don’t have any idea about the potholes that lie ahead, and you’re not thinking about all the problems that you might run into,” he says. “At that point, I didn’t try to count what the obstacles would be. I just decided I’d do it.” Among those obstacles was—as one can imagine—insufficient capital. Freeman maxed out all his cards and found himself with nearly $30,000 in credit card debt.

Course Correction
Making matters worse, the initial company was in a low-margin business—buying, reselling, and installing computer systems. “If you wanted to buy a computer from me, or two computers, I would charge those computers on my credit card. When I sold them to you, I would bill you,” Freeman recalls. “Hopefully, you would pay me within the time period needed before my bill was overdue. I can remember going to get gas one day and my credit card was not taken because it was overdue.” The company’s first contract: a $9,000 network installation in 1992 for Minorico Supply Co, a local industrial business.

Profits were scarce and with e-commerce taking off in the ’90s, competitive pressure skyrocketed, forcing retailers to lower prices. Zycron’s current model was no longer sustainable. Fortunately, Freeman knew that successful entrepreneurs have to be flexible and be prepared to adjust their business models. “I saw that coming and said, ‘Hey, we’re going to focus on the service side of the business because it’s very hard to commoditize a service,’” Freeman says. “Also, with a service, you get a chance to add some value and establish relationships with the clients.”

The strategy worked and by year’s end in 2006, revenues grew to $19.4 million, a 17.8% increase over the prior year. But Freeman says the company hit a wall and wasn’t confident the company would continue to grow at a rate he was happy with, which was closer to 25%. As the chief executive, Freeman says the fault was his.

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Becoming a Co-pilot
In early 2007, Freeman recruited Smith, who started in IT back in the ’80s. He also had a track record for revenue generation, having helped grow a prior company from $2 million to $150 million in annual revenues during his more than 14-year tenure. Nearly one-third of that growth came by way of acquisitions. “A lot of times the reason a guy can’t let the reins go is ego—if you’ve built it you believe no one can run it like you can,” says Smith. “But Darrell didn’t say that. He called me and said ‘I don’t think I can take this thing anymore by myself.  I can’t propel it the way it needs to be propelled.’”

Smith hit the ground running. “The elements of success were already here, but I knew we needed a management structure. Darrell didn’t have anyone else in an appointed senior leadership position,” recalls Smith. So he and Freeman filled several positions, either internally or otherwise, including a chief operating officer, an executive vice president of sales, and a director of IT governance. Then Smith oversaw the acquisition and installation of an internal software system that tracks performance and discerns trends. “We’re now seeing things we didn’t understand before—things we’re doing right and things we’re not doing right.”

Once the management team and internal systems were set up, Smith began to create a culture of discipline and accountability. “We judge ourselves internally as if we were publicly traded,” he says. “We don’t answer to Wall Street, but we answer to each other. For instance, how does Q2 of 2011 compare with Q2 of 2010? What trends have affected us? We have a very strict budgeting process.” With those measures in place, the company has experienced steady growth and now has its sights set on other regions—domestically and internationally.

According to Smith, the company recently launched Zycron Latin America and is in final talks with a new South America-based partner, Productura de Software Latin America (PSL), a renowned software provider. The team sees potential future growth in other regions as an avenue to reaching Freeman’s stated goal of taking the company to the $100 million level. “We plan to do most of our growth organically. We don’t mind growing at 10%, 15%, 20% a year,” says Freeman, 46. “I’ve seen companies come and grow, and go out of business. In some cases, the growth is what killed them. We want to make sure that we grow at a rate that we can digest.”

On an average day, more than 240,000 passengers board or disembark from an average of nearly 2,700 arriving or departing planes. Every bit a megamall as much as it is an airport, Hartsfield-Jackson—with its more than 260 retail stores, convenience outlets, and eating and drinking establishments—contributes more than $32.5 billion to the metro Atlanta economy. The South may have a reputation for being more relaxed and slower-paced, but this airport clearly marches to a quicker beat.

In this setting, it’s no surprise that the highest grossing T.G.I. Friday’s in the U.S. has operated here at Concourse B since 1996. Servers efficiently take orders, serve meals, bring out the check, and usher guests in and out—turning tables. Most diners are concerned about time since they want to catch their flights. Faster turnover equals more business. With revenues projected to reach $8.2 million this year, the 3,300-square-foot casual dining location is small but well-managed. A second store, opened in Concourse E in 2006, is expected to add an additional $5.3 million in sales for 2011.

Though strong performers, even these bustling locations were affected by the economy as business travel dipped. For their owner and operator, Jackmont Hospitality Inc. (No. 71 on the BE Industrial/Service Companies list with $50 million in revenues), it meant three consecutive quarters of slightly lower revenues. “Business at the airports fell off 6% to 8%, and 4% to 5% on the street [not at an airport], so it was nothing significant,” says Daniel J. Halpern, Jackmont’s CEO. Since opening its first location in 1996, Jackmont has expanded and now boasts 10 T.G.I. Friday’s locations and has another two in the works. Now that the worst of the recession is hopefully over and done with, Halpern has his sights set on further expansion.

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LOCATION, LOCATION, LOCATION
Jackmont Hospitality’s business model is simple. It’s based on building stores in urban areas where there are few services and, ideally, unmet demand. The company looks for a dense population in high-traffic areas as well as other metrics, such as homeownership rates and the length of time residents have lived in the community. But the team also kicks the tires, so to speak. “You kind of start off doing more intellectual research,” says Halpern. “But it always ends up with just getting in the car and driving around—at lunchtime, or Saturday night at midnight. Just to see what’s going on in the area.”

That approach has helped the company maintain sales in spite of lean times. “We have been fortunate in that we are almost always beating our comp sales,” says Brenda Branch, vice president of operations, describing the restaurant chain’s year-to-year sales performance. The company has the rights to open T.G.I. Friday’s locations in the metropolitan areas of Washington, D.C.; Maryland; and Philadelphia, in addition to Georgia.

Halpern points to the company’s newest location in District Heights, Maryland, that opened in March as a perfect fit for the company’s model. Located at a major intersection—Pennsylvania Avenue and Silver Hill Road, just a couple of miles from the Suitland Federal Center complex of several government agencies (and their 11,000 or so employees)—it’s easy to get to. “And there’s not another casual dining restaurant within a 3-mile radius,” Halpern says. He also notes that it’s outperforming most of the company’s other locations when they were at this stage.

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A LITTLE HELP FROM A LEGEND
The company’s beginnings were as humble as those of many others—but Jackmont’s include a helping hand from a legendary mayor. While studying at Cornell University’s School of Hotel Administration, Halpern met Brooke Jackson Edmond, daughter of the former Atlanta Mayor Maynard Jackson. Upon graduation, Halpern went to work at The Gourmet Cos. (No. 20 on the BE Industrial/Service Companies list with $199 million in revenues). Later he decided that he and Jackson Edmond should go into business together. “I was another 31-year-old that wanted to be an entrepreneur. I wasn’t quite sure what I was going to do, but I knew it was going to be in the food service space,” he recalls. “Maynard was about to leave office and we figured we could get him involved to help us a little bit.”

With the mayor on board, the three launched Jackmont (the company’s distinctive name hails from the nickname given to the family resort of Jackson’s parents). Halpern says of those early years, “We started out with a desk and a phone at the Maynard Jackson Youth Foundation, and then began figuring out what we were going to do.”

During the ’90s, the business model for airports shifted. Initially places with a few convenience stands, airports were transformed into shopping mall-like places complete with chain restaurants, retail outlets, and other services. So when the Jackmont team learned that food and beverage contracts were coming up for rebid at the airport, they wanted in. Concessions International, owned by H.J. Russell & Co. (No. 15 on the BE Industrial/Service Companies list with $268.71 million in revenues), bid on the entire block of concessions with Jackmont in as a subtenant on what would be the first T.G.I. Friday’s location there. But that required money, and that’s where Jackson stepped in. “We couldn’t make the initial capitalization happen, without somebody who had something to borrow against,” recalls Jackson Edmond, the company’s senior vice president and founding principal. “We went and spoke to him on that premise, and he thought it sounded like a good idea.”

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TRAGEDY STRIKES
By 2003, Jackmont was a solid, profitable business, and Halpern was thinking about expanding. “We were still trying to figure out if we were going to stay in the airport space or migrate out to doing restaurants on the street,” he recalls. “I don’t think any of us wanted to have all our eggs in one basket, which meant being involved in the public sector, and we wanted to have a little bit more autonomy.”

Before they could make any moves, though, tragedy struck. Jackson, the man who had helped the company access financing and who could pick up the phone and reach out to virtually any decision-maker, died in June 2003. The loss of one of the leading champions of black business sent shockwaves throughout the business community—in Atlanta and across the country.
Shortly after Jackson’s death, in a strange twist of timing, Carlson Restaurants, the parent company of T.G.I. Friday’s, offered to sell Jackmont four additional locations. But it wasn’t without risk. The purchase price came to nearly $11.5 million—a lot of money for a company in Jackmont’s position.

The offer came at a sensitive time. “That was a big test for us,” says Halpern. “I’d be lying to you if, after Maynard died, I said people didn’t think we’d be out of business. This man gave us an opportunity, got us in business, and got us to this point.”
For his daughter, Jackson’s death was, of course, a deep and personal loss, but she was confident that the business would continue. “He was hands-on when it came to strategic planning, or assisting us with important connections, or helping us to pull together some initial financing,” says Jackson Edmond. “But he wasn’t part of the day-to-day operations.”

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In light of the company’s strong financials, ideal locations, and track record that showed that the Jackmont team knew how to run the business, the financing came through and the deal was completed in December 2003. “We weren’t going to squander his efforts and let the naysayers be correct,” says Halpern. Since then, the majority of Jackmont’s focus has been on building Friday’s on the street, though a location at Miami International Airport is scheduled to open this month.

BACK TO SCHOOL?
In addition to its franchise business, Jackmont has existing contracts to provide food services to Morehouse College and Spelman College through joint ventures with Sodexo and Aramark, the food and facilities management giants. Though only about 1% of the company’s total revenues, food services is an area management is considering expanding. “The Friday’s business has been our bread and butter for a number of years, but we look at the education market as an opportunity,” says Branch.

For the time being, however, the company will continue to focus on its restaurant locations in urban areas. “They have a solid leadership group with a proven track record that knows how to drive restaurant businesses,” says Nick Shepherd, president and CEO of Carlson Restaurants. “They’ve mastered running urban locations where there’s high volume and a good mix of bar business as well as restaurant, in very competitive markets where they focus on driving high-quality service because they know how to attract and retain great talent.”