Crain's Cleveland Business

VOL. 39, NO. 6

FEBRUARY 5 - 11, 2018

Source Lunch

Akron Howard Parr is the Rubber City’s theater master. Page 20

Ed Buchholz, director, Start in CLE Page 23

The List

CLEVELAND BUSINESS

The largest engineering firms in NEO Page 18

GAMBLING

Jack is betting work will pay off By JAY MILLER jmiller@crain.com @millerjh

Dan Gilbert’s gambling operations in Northeast Ohio — Jack Entertainment LLC’s Jack Cleveland casino in downtown Cleveland and Jack Thistledown racino in North Randall — are working hard to regain ground lost to the regional leader of the pack, Hard Rock Cafe International Inc.’s Hard Rock Rocksino in Northfield, the highest-grossing gaming hall in the state. First, it was a $70 million makeover of the Thistledown operation that was completed last year — a new entrance, new games and restaurants, and a parking deck. Now, it’s Jack Cleveland’s turn. Jack Entertainment is building, for an undisclosed cost, a gambling club for the next generation of gamblers, to be called Synergy Table Games, on the first floor of the three-floor operation within the Higbee Building on Public Square. Industry analysts lauded the move. “It will be a major differentiator for the Jack,” said Jay Masurekar, head of gaming, travel and Internet investment banking with KeyBanc Capital Markets, a unit of Cleveland’s KeyCorp. “It’s not your typical casino experience. They are trying to position (the downtown casino) for future growth.” Jack Entertainment has already installed a Synergy Table Games operation in its Greektown casino in Detroit and is installing one in its Jack Cincinnati casino. In an email, Mark Tricano, general manager of the Jack Cleveland, said the Synergy setup in Cleveland will be similar to what has been installed in Greektown, “providing an SEE JACK, PAGE 21

Chief Wahoo was the Cleveland Indians’ primary logo for nearly 70 years, until it was replaced by a block “C” in 2014. (Ken Blaze for Crain’s)

SPORTS BUSINESS

Logo isn’t primary producer Inside: Editorial

By KEVIN KLEPS

Chief Wahoo’s exit is overdue. Page 8

kkleps@crain.com @KevinKleps

The Cleveland Indians’ decision, with a strong push from Major League Baseball, to remove Chief Wahoo from their uniforms after the 2018 season brought heated reactions from both sides of a decades-long debate over a logo that’s been

Focus: Middle market U.S. midsized companies are flourishing, but the results in the Buckeye State aren’t nearly as uplifting. Page 11

criticized as racist because of its depiction of a red-faced, wide-grinned Native American. Indians fans who, in the words of owner Paul Dolan, “have a longstanding attachment to Chief Wahoo” were upset at a move that was announced Monday, Jan. 29. They took to social

SEE LOGO, PAGE 10

HEALTH CARE

Clinic, Oscar exceed hopes By LYDIA COUTRÉ

Entire contents © 2018 by Crain Communications Inc.

media and online comment sections to threaten to cancel their season tickets, though it’s unlikely that anger will result in meaningful gate losses for the Tribe. And plenty of the Chief Wahoo opponents — of which there are many, especially nationally — said the Indians’ move wasn’t enough, because the club isn’t doing away with the logo until 2019 and can still profit from the sales of Wahoo gear.

lcoutre@crain.com @LydiaCoutre

Cleveland Clinic and New York City-based Oscar Health’s co-branded insurance product secured what they estimate to be a 15% share of the individual market in the 2018 open enrollment season, exceeding the partners’ expectations. The more than 11,000 members

who enrolled in the new “Cleveland Clinic | Oscar” health plan, which was offered both on and off the Affordable Care Act insurance exchanges, for 2018 was 30% to 40% greater than expected, said Kevin Sears, executive director of Cleveland Clinic Market & Network Services. “I think a big part of it is just how easy and simple Oscar is to understand and to use,” Sears said. “I think the second part of it is the Cleveland

Clinic brand. I think that people, particularly in Northeast Ohio, recognize that brand as a high-quality care brand and are excited to have access to the Cleveland Clinic network.” The partners’ early success is significant for several reasons. For one, it marks the Clinic’s first heavy play in the insurance business after years of flirting with the idea. In recent years, provider-sponsored plans have struggled and few have reached

SEE CLINIC, PAGE 19

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CRAIN’S CLEVELAND BUSINESS

N.Y. brewery expanding on NEO presence By JEREMY NOBILE jnobile@crain.com @JeremyNobile

At the Lakewood, N.Y., headquarters for Southern Tier Brewing Co., there has always been a tight connection with Northeast Ohio. The 16-year-old brewery is only about two hours from Cleveland, which has developed into one of the core markets — its best-selling beers here comprise the flagship 2XIPA and the more sessionable Nu Skool IPA. The company has established its brand here organically and through word of mouth. Vacationing Ohioans often learn about the business or plot stops there when roadtripping to the nearby ski resorts or visiting Chautauqua Lake. So as the brewery considered its next expansion, when the opportunity arose to plant a facility in the heart of downtown Cleveland, Southern Tier CEO John Coleman saw a chance to not just capitalize on an already strong brand presence here, but to use the location as a portal to test innovative and experimental products through. “We are in the brand-building business. The way we look at taprooms is we use it purely as a brand-building opportunity. We use them to sample test beers and perfect them,” Coleman said, pointing out how their Nu Skool IPA went through 11 iterations before being widely distributed. “We’re concentrating on

sours and barrel-aging. And we’re going to develop some beer we think would be very cool for Cleveland.” The brewery recently announced plans to open a facility around May at 811 Prospect Ave. East, which is across from The Winking Lizard and just south of Euclid Avenue. It will use both the main space ground-level space plus utilize the basement, previously used solely for storage, for barrel-aging and a second tasting room. The whole portfolio of Southern Tier beers will be in rotation. It also will launch some market-specific beers branded as “Cleveland Brew’d.” Cole said the project marks an investment around or “slightly north” of $2 million. The brewery employs roughly 130 people today, which includes the sales team and a taproom in Pittsburgh. Cole estimates that between 80 and 100 people will work in Cleveland. A handful of those positions, including brewmaster, will be filled by company veterans in New York who will move here for the new project. The space was last occupied by 811 Kitchen Bar Lounge, which RED Restaurant Group opened just ahead of the Republican National Convention in the summer of 2016. RED closed the location abruptly last June after barely a year in business. At the time, Jonathan Gross, president and CFO of RED, said in a news release that the company was closing to redesign the restaurant in that space. The plan was to reopen in the fall, but

Southern Tier CEO has Bud, Pabst ties John Coleman, CEO of Southern Tier Brewing Co., spent 23 years of his career with Anheuser-Busch, which he left the company as a senior vice president of sales and marketing. Afterward, he spent a couple years as president and COO of Pabst Brewing Co. plus did a short stint in the spirits business before he was sought by Southern Tier founders Phin and Sara DeMink about three years ago to help manage the brewery’s growth. Southern Tier itself is part of a North Carolina-based holding company, Artisanal Brewing Ventures, which also has a subsidiary in Downington, Pa.-based Victory Brewing Co. (whose offerings include HopDevil and Golden Monkey). That holding company was formed via

Southern Tier said it now ships more than 100,000 barrels of beer annually to 33 states. The company also created Southern Tier Distilling Co. in 2015. It makes about 40 different beers annually today, according to its online beer portfolio. — Jeremy Nobile

that never happened. Gross did not respond to numerous requests by Crain’s for insight on what went awry with those plans. Expanding is helpful in terms of claiming new market share in the increasingly crowded space for craft beer. But as Mary MacDonald, executive director for the Ohio Craft Brewers Association, emphasized during a keynote at the trade group’s annual conference in Cleveland last week, innovation will be critical for brewers to stand out in a vast field of brands. And that’s what Southern Tier is

emphasizing in Cleveland. Superior Beverage Group, the company's distributor in this market since March 2016, encouraged Southern Tier to enter the scene. Coleman was sold on the project shortly after visiting the prospective space in the Gateway District last October. “We love the idea of being downtown. We love the energy in the downtown area. And especially as more folks are moving back downtown in cities around the country, and we’re seeing that in a lot of different markets, we thought Cleveland

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a partnership with New York investment firm Ulysses Management and Southern Tier shortly before Coleman came on board. Victory Brewing joined with Southern Tier under that management umbrella during its 20-year anniversary in February 2016. Coleman said the partnerships were created as a model for the craft brewers to flourish with their combined resources as each eyed the increasingly competitive market for craft beer.

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would be a perfect fit,” Coleman said. “We asked Superior their opinion on it, and they were in favor of it. They love the idea of doing some unique beers specific to Cleveland. So we moved pretty quickly.” He didn’t want to share too many details about some of the special Cleveland products in the works, but said they’ll be along similar lines that inspired beers like the recently released Imperial Blueberry Tart Ale. He said sours will be the initial focus, “though we’ll be brewing across all styles of beer with lots of different flavors in the spectrum.” Asked about the recent density of craft brewers that have entered the Cleveland and Ohio markets, Cole said he still sees plenty of room to gain share. According to The Brewers Association, as of 2016, craft beer composed just 12.3% of the national beer market. Its share is growing while overall beer consumption remained static, which means craft beer is nibbling away at Big Beer’s dominance. And Cole sees Southern Tier as a player in that movement. The brewery hasn’t been looking at new states yet because he thinks there’s plenty of room in their core markets of New York, Ohio and Pennsylvania. “We think there is a lot of running room in general for craft beer as part of total beer,” Cole said. “Innovation lets you capture more use occasions, more consumers. And we think there is plenty of opportunity out there.”

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At the Table

Symon’s social media followers, marriage get noticed January found Cleveland chef-restaurateur-superstar Michael Symon in the spotlight in a pair of New York Times articles — one sweet, the other less so. An extensive story in the Times’ Jan. 27 Technology section titled “The Follower Factory� focused on the industry springing up around the sale of Twitter, Facebook and other social media followers, which includes Cleveland’s Iron Chef among the buyers — conscious or unwitting. Devumi, an otherwise obscure marketing company apparently based in Florida, is selling fraudulent followers on Twitter, YouTube, SoundCloud and other platforms. The Times review of business and court records showed roughly 200,000 Devumi customers — from celebrities, sports figures, politicians and other public figures. Robotic devices called amplification bots “follow, retweet and ‘like’ tweets sent by clients who have bought their services,� according to the report. Symon is well known as owner of Lola Bistro, B Spot restaurants and other properties around the country. He’s also the co-host of ABC’s daytime show “The Chew.� The story, which describes Symon as “a celebrity chef and Devumi client (who) has almost a million followers,� charts the evolution of social media followers, from a handful of legitimate friends and fans to an explosion of bot-generated imperson-

ations based on stolen profiles. “Records reviewed by The Times show Mr. Symon bought 100,000 Twitter followers from Devumi in September 2014, Joe and another Crea 500,000 in November 2015,� according to the report. “An earlier tranche of bots appears to have been purchased in early 2013. “ ‘I thought it would drive traffic,’ said Mr. Symon. ‘I thought it was going to be influencers and people in my field. It’s embarrassing.’ � When we reached out to Symon, he declined to comment on any further action being taken. Symon enjoyed more favorable coverage by The Times. In a Jan. 10 story headlined “Their Marriage is a Little Like Comfort Food,� he and his wife-business partner Liz Sanderson Symon were included in the newspaper’s ongoing series “It’s No Secret.� Featuring a lovely image of the chef and Sanderson Symon, the story recounts the couple’s early years together as fellow restaurant employees and their gradual — then meteoric — rise to success and stardom. “I’ve learned there are things I’m right about, and things Liz is right about,� said Symon in the interview. “If she feels strongly about some-

Cleveland celebrity chef Michael Symon has been part of two recent New York Times stories: one about his marriage and the other about fake social media followers. (Contributed photo)

thing, I don’t debate her, and I’ve learned not to doubt her and to trust her instincts in business and in this marriage.�

Traction for ‘surge pricing’ A new approach to restaurant menu pricing is taking root in the United Kingdom. After a popular London eatery, Bob Bob Ricard, adopted “surge pricing,� other restaurateurs are considering similar policies.

The approach is simple. Businesses adjust meal prices according to the demand for tables. It’s kind of like a dressed-up “early bird� menu. According a Bloomberg News report, Bob Bob Ricard owner Leonid Shutov offers a 25% discount on menu pricing during non-prime hours. For example, a diner who books a pre-show table on Friday or Saturday nights in London’s West End theater district will pay more than someone who wants one on a Wednesday evening. “We are not changing the menu,� Shutov said in the story. “We are not trying to entice customers with anything from what they know and love. We are just saying that on certain days it will cost less. It’s what we learn in economics 101.� Uber has long implemented the approach. In the case of the ride-sharing service, during peak hours clients either pay more or wait longer for service. The calculation varies depending on demand, location and time of day “and can change quickly,� according to Uber’s website. Would it fly in Cleveland? My guess is it’s highly unlikely — certainly based on the city’s population mass and culture. Given the sheer number of well-regarded dining options close to downtown entertainment magnets such as Playhouse Square, The Q and FirstEnergy Stadium, it’s easy to imagine potential patrons declaring “Oh hell, no!� to any such surcharge.

Gluten-free options If you or someone in your party (or family) deals with gluten-sensitivity issues, you may want to know about Boaz Cafe in Cleveland’s Ohio City. Earlier this month, cleveland.com reported on the spot at 2549 Lorain Ave. Patrons either order off the menu or choose options from buildyour-own buffet. Most of the other options — appetizers, salads, juices and entrees — are gluten-free. Boaz isn’t the only such restaurant in town. There’s also Cafe Avalaun, 4640 Richmond Road, Warrensville Heights. Opened in 2015 by Brian (“the Chameleon Chef�) Doyle, the restaurant-bakery is 100% gluten-, peanut- and soy-free. Many other places, though not fully dedicated, offer such options: Town Hall (Ohio City); Adega, Lola and Urban Farmer (downtown Cleveland); and L’Albatros (University Circle) all have offerings — to name just a few. It’s always best to check online menus and call ahead before arriving. Boaz Cafe is open 11 a.m. to 9 p.m. Monday through Saturday, and 11 a.m. to 6 p.m. Sunday. Call 216-4589225, or go to boazcafe.com. Cafe Avalaun is open 7 a.m. to 3 p.m. Tuesday through Friday, and 8 a.m. to 3 p.m. Saturday and Sunday. The shop is closed on Mondays. Call 216-245-6666, or go to cafeavalaun. com.

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Inca Tea has invested about $300,000 in two Fuso machines. (Contributed photo)

Inca Tea is pumping up production, biz options By RACHEL ABBEY McCAFFERTY

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Inca Tea is piping hot. Its path hasn’t been without hiccups or hurdles, but it has been steady since its founding four years ago. And the company’s most recent investment will bring a significant amount of production to its headquarters in Cleveland‘s Slavic Village. Ryan Florio started the purple corn tea company in February 2014, inspired by a trip to the Inca Trail in Peru a couple years earlier. That first year, the company was based in Florio’s parents’ home and sales were a little less than $50,000. In 2018, the company has its own headquarters in Slavic Village, with plans to soon open a freestanding cafe nearby, and Florio expects the company’s sales to reach $1 million, including franchise fees and proceeds from a licensing agreement. Up until now, the company has outsourced the manufacturing of its main product: bagged tea. But Florio, who describes himself as the company’s TeaEO, has wanted to bring that in-house since the beginning. At the end of January, Inca Tea received two Fuso machines, one to make tea bags and one to automatically put those bags into envelopes. The machines, which cost about $300,000 together, can make rectangular or pyramid tea bags, turning them out at 80 bags a minute. The addition of the machines will lower production and shipping costs and allow the company to package just-in-time products, Florio said. The company will no longer have to meet an outside co-packer’s minimum run requirements. Inca Tea will continue to get the majority of its tea blended off-site, but will now package all of its bagged teas and assemble the boxes in-house. It has six different blends of bagged tea available, in addition to a variety of looseleaf blends, which the company also packages in tins on-site in Cleveland. And Florio is looking to use the new equipment to serve as a co-packer for other companies, a business he’ll run under the name Burning River Tea Co.

“Right now, my current production would maybe occupy that machine about a month out of the entire year,” Florio said. “So I’ve got 11 months that machine sits dormant that I can co-pack for other people.” Inca Tea has stretched its reach in other ways, too. Last year, Florio had hoped to begin bottling tea. Instead of doing that on its own, Inca Tea entered into a licensing agreement with a local company to produce Inca Buch, a bottled kombucha. Inca Tea receives 10% in royalties for the product, Florio said, and with the parameters the company has set, it is set to receive at least $25,000 from the agreement. The product entered the market in September. Inca Tea has also begun making unpackaged blends for restaurants and cafes and partnered with Cleveland’s Platform Beer Co. to create a cider with its chai blend, both in the fourth quarter of 2017. Last year, Inca Tea made about $600,000 in sales, Florio said. One plan for 2017 that didn’t come to fruition was the opening of a cafe at the company’s then-new headquarters at 6513 Union Ave. “If I can’t do something the right way, whether it’s packaging, or the perfect blend of tea, I’m not going to release it to the public,” Florio said. “And this wasn’t the right thing.” Instead, Florio and his business partner and good friend, Zach Colodner, bought a building at 5601 Broadway Ave. in May of 2017, where Inca Tea will soon open a freestanding cafe. In total, Florio and Colodner now own seven buildings in Slavic Village, the majority of which will be rented out. Those were purchased in 2016 and 2017, and Florio said the two have spent about $700,000 in total. That includes renovation of the space for the Inca Tea warehouse and cafe, as well as the purchase of all seven buildings, he said. Christopher Alvarado, executive director for Slavic Village Development, said Inca Tea’s investment in its headquarters on Union Avenue is helping to change the perception of the neighborhood. He doesn’t think the Cleveland Chain Reaction investment competition — a program inspired by LeBron James’ “Cleveland Hustles” reality show — would have come to Slavic Village if it wasn’t for Inca Tea. That competition is leading

to the opening of some new small businesses. (Inca Tea took part in the program but didn’t end up receiving any investments.) Alvarado said it’s “meaningful” to see a company like Inca Tea show that work can be done in less expensive neighborhoods like Slavic Village, which sits on Cleveland’s southeast side. Slavic Village has a strong location and a high commercial vacancy rate, but its historic buildings need a lot of work to be habitable again, he said. Anisa Rrapaj, managing partner at Inca Tea Cafe, expects the Slavic Village cafe to open within two to three months. In addition to the tea, that location will have food, coffee and a kombucha bar. The cafe will be about 1,400 square feet, more than double than what the original plan would have offered, Florio said. The Broadway location also has more traffic passing by it every day than the headquarters on Union, and parking will be less of a problem there. Inca Tea also has plans to open a second cafe at Cleveland Hopkins International Airport, where its first cafe is located. The new location is expected to open in February. Rrapaj said she will manage all three of the company’s cafe locations. Florio recently hired 15 new employees for the cafes, bringing Inca Tea’s total employment to 24 full-time and part-time workers. Rrapaj got her start at Inca Tea about three years ago as a part-time barista, but Florio’s “passion and dedication” has inspired her to stick with the company and help him grow it. Both new cafes will be franchises. Florio and Rrapaj will be the owners of the new airport cafe, while the Slavic Village location is a five-person partnership that includes Florio, Rrapaj and Colodner. Though Florio has gotten interest over the years from people who wanted to franchise Inca Tea, he wanted to make sure he had the right people behind those franchises. “I’m still in that process of building my brand,” Florio said. And now, he has three models for potential franchisees to choose from, as well. So far, he said he’s gotten interest from people who want to set up franchises in other airports across the country, and he plans to do some site inspections in the next couple of months.

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Bouts of brutally cold weather have not kept Alison Benoit, a real estate agent in the Pepper Pike office of Keller Williams, from writing six accepted offers on homes last month. That figure is as much as the 20-year veteran of the residential market says is typical for hot sales months in summer. “For me it’s not been all that different than working with a buyer who is pre-qualified with a lender,” Benoit said of searches she has undertaken from Cleveland Heights to Medina that resulted in two closings. However, the difference is that Benoit is working with people who will lease a home they select for three years from San Francisco-based tech startup Divvy Homes. After that time, if they want to stay, they will get to buy the house with a bonus for appreciation as well as credit for part of the equity they contribute. The Cleveland area — technically from Amherst to Akron — is one of two markets, along with Atlanta, that Divvy is expanding into following the Jan. 25 completion of a $7 million round of funding from DFJ of Los Angeles and Caffeinated Capital of San Francisco. Rent-to-own is an old game, but Divvy’s technology changes it in a big way. Rather than having to rent a home a landlord is offering on a lease-to-own basis, approved Divvy clients may choose the home they qualify for from the for-sale market. Many of its listings mirror those of

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the local Multiple Listing Service, as well as Divvy’s analysis of how much home the applicants can afford. Brian Ma, Divvy CEO and co-founder, said in a Jan. 30 phone interview that Divvy differs from the predatory aspects of traditional rentto-own programs because it’s focused on getting tenants to become buyers. “We started with the idea of, ‘What are the chances of taking a highly qualified renter and putting them into a program for home ownership?’ So we set out to create a flexible housing solution after focusing on housing affordability,” Ma said. “Compare us to what you pay to rent a single-family house without getting anything back.” The basic idea is that qualifying tenants put about 2% of a home’s cost

SEE DIVVY, PAGE 21

FedEx plans to occupy 36 acres of Green space By STAN BULLARD sbullard@crain.com @CrainRltywriter

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Once they select a price range on Divvy Homes’ website, prospective leasers can find what their down payment would be, as well as their monthly rent.

in with Divvy, and they try to wind up with 10% in equity back at the end of three years as the house appreciated. The firm’s technology tracks changing home equity in each area and automates other parts of the buying and managing process. Such a strategy would seem more attractive to test in hotter residential real estate markets than Cleveland. “Home prices in Cleveland are where we want them to be,” Ma said. “It’s a stable market. We’re not speculators. We want to be good owners, landlords and transition people to ownership.” Divvy funds the purchases on the front end with the idea tenants get mortgages to exit the rental and own the home they picked. Adena Hefets, the co-founder of Divvy Homes, said during a Jan. 30 interview that with the median home price in Cleveland at $140,000, well below the national figure of $190,000, the region offers a large inventory of affordable homes. “We underwrite on our side and want to only buy homes that are good for our customers and will appreciate,” Hefets said. “The majority of the homes on the market we can buy, but we don’t buy every single one.” Divvy will pass on a home that’s not habitable or if the seller won’t make point-of-sale improvements. Given the trends that have roiled the region’s housing market — from foreclosure to out-of-town investors who operate like day traders in property — single-family buying strategies and the profusion of investor-owned rentals breed extra caution.

Plans for a proposed $16 million, football field-sized industrial building for FedEx Freight are getting poised for takeoff at CAK International Business Park in Green, adjacent to the Akron-Canton Airport. Richard McQueen, CEO of the airport known as CAK, said he and a consultant from NAI Daus of Beachwood are negotiating final terms of a lease of the airport-owned land before the project takes wing. He declined to disclose specifics, but it’s not a new situation, for hundreds of acres of excess airport land already have been developed at CAK. “It’s an exciting potential development,” McQueen said in a phone interview on Friday, Feb. 2. He said he hopes to have a pact ready for the airport’s board of trustees in a few months, but noted the project has cleared most of Green’s construction review hurdles. The project for the unit of Memphis-based FedEx would occupy about 36 acres. It would be the first taker in a 140acre expansion of the park finished with an expansion of Global Parkway in 2014.

The proposed building would be leased to FedEx Freight and constructed by KW-AKR LLC, an affiliate of Telluride, Colo.-based KiernanWest LLC, which has developed dozens of FedEx facilities around the nation. Dubbed a “cross-dock” facility, the loading dock-rich property would consist of a 42,800-square-foot building incorporating the rows of docks, and more than 8,000 square feet of office and dispatch-center space. A separate, 9,718-square-foot maintenance shop also would go onto the site. The project would bring a payroll of about $3.8 million annually to Green, according to a tax abatement agreement Green City Council approved in December. Under the agreement, the developers will receive 100% abatement for five years. They are investing approximately $16.5 million in the facility and plan 74 full-time and 34 parttime jobs, with the potential to add 12 full-time and six part-time jobs over the five years after the property is completed. In exchange, the tax abatement would save the building’s operators $1 million in property taxes over five years, and the logistics firm would pay the schools directly the amount the district would have received in

taxes over that period. Wayne Wiethe, Green planning director, said the proposed FedEx Freight property is significant because it will kick off construction in the park’s next phase. He said the real estate developer won conditional approval from the city’s planning commission in December. Prior phases of the park still have sites available, but the project has brought revenues to the airport — and taxes to Green — for two decades. McQueen said the airport could sell sites to businesses, but it elected to use ground leases for the land to produce continuing revenues for the airport. That revenue provides security for airport operations, McQueen said, as most of its revenues ebb and flow with the volume of air service and taxes paid by airlines. The park also occupies land that is as much as 30 feet below the end of the nearest airfield, so it’s unlikely to be needed for aeronautical expansion, McQueen said. Wiethe said he believes the facility will replace an existing one in Coventry Township. Neither FedEx nor KiernanWest returned emails about the proposed project.

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CRAIN’S CLEVELAND BUSINESS

Opinion Personal View

Mr. Beams is another success for startup scene By RAY LEACH

Editorial

Going, going gone In many ways, Cleveland has worked tirelessly over the years — with demonstrable success — to shed its reputation as a tired town defined by abandoned factories and a river that caught fire. But in the shadows of those favorable headlines sat a figure with a toothy grin and ketchup complexion that stood in direct contrast to the progressive image of a modern city we’ve tried so hard to project. We’re talking about Chief Wahoo, of course, and last week’s announcement that the upcoming season would be his last on the Indians’ uniforms was a welcome one. Our distaste for the Chief is well-documented — we called for his ouster in a frontpage editorial back in 2013 — and our current editor and publisher did the same in a column in late 2016. The Dolan family’s move is not one, we believe, rooted in a spineless desire to be politically correct, as many have argued, but rather about simply doing what is right. A logo should not define a city, or a professional sports team for that matter. The bleacher-shaking thump of John Adams’ drum, Tony Pena with arms raised, Albert Belle’s defiant flex, Kenny Lofton’s leap toward the heavens — those are the images we should hold dear, not Wahoo. Chief Wahoo’s final lap around the majors will be the 2018 season. Despite his looming retirement, glimpses of the Chief will still make us cringe, and it’s disappointing his removal wasn’t immediate. We’re hopeful the focus this season will be on the team’s push for another World Series berth and not a Wahoo victory lap akin to Derek Jeter’s daunting farewell tour. Based on our reporting, the Tribe’s decision to still sell Wahoo merch in its team shop is based more on its desire to control the logo’s trademark rather than continuing to make a few bucks. After all, as we reported in a Page One story this week, Wahoo’s merch sales, once divided among MLB clubs, are almost negligible. It’s true many Northeast Ohioans have an emotional connection to the Chief. Charms, watches, clothing and caps donning his likeness are in many of our closets and, for some, still in regular rotation. And yes, the Chief’s gleeful glory may have never

meant offense. Still, clinging to a demoralizing caricature of a race of people that have been systematically oppressed for tradition’s sake is not an argument worth making — not ever and certainly not in 2018.

Strike up the brand A different and promising branding opportunity for Cleveland — one focused on the city’s arts excellence rather than its sports passions — is building momentum. FRONT International: Cleveland Triennial for Contemporary Art last week announced it’s partnering with four key institutions — the Akron Art Museum, the Cleveland Museum of Art, MOCA Cleveland and Oberlin College — to present new commissions and shows for the event running July 14-Sept. 30. FRONT, inspired by biennial and triennial contemporary art shows popular in Europe, previously announced it will install works in public venues including the Cleveland Public Library, the Federal Reserve Bank of Cleveland and St John’s Episcopal Church. In total, works by about 70 local, national and international artists will be on view at more than 20 locations regionwide. Founder Fred Bidwell, a major arts patron in Cleveland, is assembling an event with a budget exceeding $4 million (he's still raising money) and hopes of attracting 300,000 people — with perhaps as many as 100,000 of them coming from outside the area. Bidwell said the goal for FRONT is to be no less than the “most important contemporary art event in North America”. ArtNet News last month said it’s shaping up to be “the most thoroughly programmed” such event here. “Our image is changing, though people still don’t think arts and culture first when they think of Cleveland,” Bidwell said. The event’s theme is “An American City.” With support from local arts institutions, corporations and volunteers, Cleveland can show the world it’s much more than just a sports town.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com)

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Last month at CES 2018, fast-growing California home security startup Ring announced the acquisition of Cleveland’s own Mr. Beams, an LED lighting company that has quietly become one of Northeast Ohio’s fastest growing startups — doubling in employee size over the past 12 months alone. It seemed pretty clear to the national press covering the acquisition that these two companies are a great fit for one another. Ring has become a leader in their industry through video doorbells and lighted security cameras. Mr. Beams has done the same through battery-powered LED light fixtures. Before the acquisition, Mr. Beams’ lighting products were already consistent best-sellers on Amazon and had been named “the best way to light a closet” by The Wall Street Journal. Acquiring the Mr. Beams brand positions Ring perfectly in the home security market. What’s even more exciting for our region is that Mr. Beams is staying in Cleveland, where it will be set up as an independent unit within Ring. This “Ring Beams” division will continue to grow locally, with former Mr. Beams CEO and co-founder David Levine staying on as division president. Levine is on record praising the scrappy team the company has built in Cleveland — a team that has generated more than $1 million in revenue per employee so far. So, it makes sense that Ring Beams continues growing right here in Northeast Ohio. For those of us who invested in Mr. Beams, its acquisition is yet another example of a homegrown startup competing and succeeding on a global scale. Like the massive CoverMyMeds deal in January 2017, this acquisition is a perfect example of the great things that can happen in the Midwest when entrepreneurs with the right idea get matched with the right local funding and resources at the right time. A little bit of help certainly went a long way for Mr. Beams. Since launching in 2006, the company has been incredibly capital efficient — one of the hallmarks of successful Midwestern startups — leveraging just $1.1 million in funding to grow its sales to more than $25 million. Both Mr. Beams and its investors quickly realized that they were early to the LED lighting party, and the company positioned itself for the future by growing smartly and methodically — focusing on partnerships with major retailers like Home Depot and Amazon.com, while acquiring dozens of critical patents to protect their valuable intellectual property. Ultimately, it was this combination of customer traction and strong IP that helped attract Ring to acquire Mr. Beams. In many ways, Mr. Beams is a model for using the advantages of a Midwestern base to build a tech company. Levine and his team envisioned how an industry could change with new technology — in their case LEDs — but they also stayed patient, focusing on being efficient with their funding, and gaining popularity by making great products with a great team and letting their customers tell their story. The Mr. Beams story is obviously great on its own merits. However, it becomes even more impressive when you add it to the growing string of major successes for startups founded in Northeast Ohio over the course of the last decade and a half — successes like CoverMyMeds (founded in 2008, acquired in 2017) TOA Technologies (founded in 2003, acquired in 2014), CardioInsight (founded in 2006, acquired in 2015), Explorys (founded in 2009, acquired in 2015), etc. As both a startup investor and a supporter of our region, it makes me very excited to see what’s to come for the next batch of great companies who are currently scaling their operations here — not to mention the young Northeast Ohio startups that are just now getting started. Leach is CEO at JumpStart, Inc.

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

CRAIN’S CLEVELAND BUSINESS

Personal View

Maintaining state’s strong energy security is pivotal By CHRIS VENTURA

As we continue to make our way through this winter season, it’s worth remembering the steps Ohio has taken toward energy security — and the work that lies ahead. Families and businesses here pay about 5% less for home electricity than the national average, largely because of the natural gas revolution that has taken hold in our state. Ohio’s production of natural gas increased more than 18-fold between 2011 and 2016, the result of innovations in exploring gas-rich rock formations in the Marcellus and Utica Shale. In fact, if Ohio, West Virginia and Pennsylvania were a separate country, we would be the third-largest producer of natural gas worldwide. This has helped convert our region — and nation — from net importers to exporters of natural gas. Yet as the cold of winter continues in our state, the demand for more affordable energy will increase for families struggling to make ends meet. Despite the decrease in the price of natural gas, the average Ohio family still paid $3,604 — spending more than 8 cents of every dollar they earned per capita — on energy in 2015 alone. And, for the nearly 1.72 million people in the state living in poverty, it was more than 30 cents of every dollar. These costs often force households living on a fixed income or subsisting near the poverty mark to choose between warming their homes or cutting back on groceries — a choice no one should have to make. And it’s not just families paying monthly expenses that require access to low-cost energy. It impacts small businesses and manufacturers across the state, too. The availability of low-cost energy and modernized

Letter to the Editor County is offering a helping hand In response to the Jan. 22 article regarding restaurant operators managing waste, I want to let you know that the Cuyahoga County Solid Waste District offers free waste reduction and recycling consulting services to all businesses in Cuyahoga County. As the district’s business recycling specialist, I worked directly with Andy Hata, general manager for Urban Farmer restaurant, to perform a waste audit. I then provided recommendations for waste reduction, composting and recycling opportunities. I am glad to see that restaurants are taking seriously the amount of waste they produce and working to find alternatives to landfilling. The Cuyahoga County Solid Waste District is the public agency helping the people of Cuyahoga County to reduce, reuse and recycle, at home, at work and in their communities. I strongly encourage both businesses and residents to contact our office for assistance or visit CuyahogaRecycles.org. Doreen Schreiber, Cuyahoga County Solid Waste District

infrastructure has led to a resurgence in manufacturing, with Ohio landing 240 new manufacturing projects in 2016. From transportation equipment to food and beverages, businesses that produce goods now account for 18% of the state’s economy and employ more than one in eight of our neighbors, according to the Ohio Manufacturers’ Association. This manufacturing renaissance will continue to demand affordable energy to produce more goods while providing more Ohioans with family-sustaining jobs in the years to come. Meeting this demand from both manufacturers and families requires us to continue modernizing and expanding our infrastructure, such as pipelines and transmission lines. With an increased capacity to deliver energy, Ohioans can continue producing more energy, moving these resources more safely and efficiently by reducing bottlenecks. It would also be a continued boost creating a healthier environment. Natural gas is a cleaner-burning fuel, and moving it via pipelines is, statistically, the safest and most efficient way of do it — 4.5 times safer than other methods. In fact, our pipeline system delivers 99.999% of our energy resources safely. But this can be done only if our policymakers continue to show leadership by balancing our goals of environmental sustainability with energy production and transmission to keep costs affordable and create jobs — all goals Ohio has balanced well in recent years. Let’s make that our focus this winter and the rest of 2018. Ventura is executive director of Consumer Energy Alliance Midwest.

Web Talk Re: Wahoo out of the lineup Finally, the curse will be lifted and Cleveland teams will start winning championships!! — Myke This is a very welcome move. — Renee Richard The needs of the few outweigh the needs of the many. And anyone with a half of a brain knows that the Chief (one feather — actually a Brave) was never racist. It was created in the “spirit of pure joy and unbridled enthusiasm.” Truly a welcome move for the few. — Scott Vranic Maybe they can incorporate Wahoo’s feather into the “I” in Indians. I understand the symbol is objectionable for some, but for others, it’s part of their heritage. This could be a compromise. — Blythe

Re: Recovering from foreclosure crisis Slavic Village has struggled since the 1970s. Just like other ethnic communities across Cleveland and other cities, it’s remembered for what it was. ... White flight, urban squalor and loss of the industrial sector in the inner cities has sealed these communities’ fates. — Matt Tucci

Re: Possible move of Fairmount Santrol HQ Why would frack sand mining company Fairmount Santrol Inc., now in Chesterland but looking to move to Independence or Connecticut as it’s in the process of a planned merger, consider a state that is hostile to one of their major markets — oil and gas drilling? And that’s not to mention taxes in Connecticut. Look at the tax flight out of that state. — Larry Bricmont

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LOGO

CONTINUED FROM PAGE 1

While the insignia has been associated with Cleveland’s baseball team for more than seven decades, the attachment is significantly more emotional than it is a booming business for the big-league club. “Merchandise revenues are a very small piece of the total revenue picture,” Indians chief financial officer Ken Stefanov told Crain’s. The Tribe, as is custom in professional sports, won’t reveal how small that portion is, but various industry estimates put it in the 4% to 6% range for MLB franchises. In 2014, Forbes estimated that about two-thirds of each MLB club’s revenues stemmed from the combination of tickets, and national and local broadcasting deals. Licensing and non-base-

CRAIN’S CLEVELAND BUSINESS

ball revenues combined for 6% of the per-team totals, Forbes projected. The publication estimated the Indians’ 2017 revenues at $271 million. If merchandising accounted for 5% of that tally, the segment would have been worth $13.6 million last year. And that’s for all Tribe memorabilia, much of which features the block “C” logo that replaced Wahoo as the primary insignia in 2014 and was prominently displayed on the Indians’ 2016 and ’17 playoff gear. Granted, those are just estimates, and no business will scoff at a seven-figure windfall. It also seems possible, and maybe even likely, that the Tribe’s merchandise sales could get a lift in 2018 from Wahoo backers who insist on showing their support for the controversial logo. But come 2019, when the Indians can no longer put the logo on their uniforms, Wahoo profits — at least

How the pie is split According to a 2014 Forbes estimate, MLB team revenues are broken up as follows: Gate receipts: 23% National media rights: 22% Local media rights: 21% Premium seating: 11% Sponsorships: 11% Concessions and parking: 7% Licensing, non-baseball revenue: 6%

for the Tribe — should be negligible. Starting next year, the logo can no longer be sold online. Chief Wahoo items will be restricted to the team shops at Progressive Field and at retail outlets in Northeast Ohio. MLB teams get royalty payments — reportedly in the 12% range — from retail sales, but the totals are divided among baseball’s 30 teams.

What was much more crucial for the Indians, a club source said, was maintaining ownership of the logo, because doing so prevents another party from legally assuming control of Wahoo and using it as it sees fit. “There is a presumption of abandonment when there has been nonuse for three consecutive years,” said Mark E. Avsec, a partner and vice chair at Benesch, one of Cleveland’s largest law firms. “When that happens, absent certain circumstances, the trademark rights are forfeited.” A trademark owner, Avsec said, must “use it or lose it.” And with a Cleveland sports apparel market that is as competitive as almost any in the country, losing the rights to Wahoo might only serve to magnify its presence. For the Indians, the Wahoo-related business angle that is much more pertinent than merchandise sales in-

volves a group that the club has long said is its most critical — the team's season-ticket holders. That base of more than 13,000 full-season equivalents (the Indians' largest total since 2008) includes fans who have made their frustrations known. “Our service team has built great relationships with season-ticket holders, and they have been taking calls and listening to questions and concerns on this topic,” said Tribe vice president of sales and service Tim Salcer, who termed the queries as “very thoughtful.” The vast majority of those who have voiced their complaints “just want to be heard, with very limited action beyond that,” Salcer said. A source told Crain’s that a large share of the complaints that the Indians received via email have come from addresses that weren’t linked to an Indians account — which signals to the team that they haven’t purchased tickets on the club’s website. Regardless of the sources of the complaints, Dolan, in an interview last week with Terry Pluto of The Plain Dealer, made it clear that the club understands its fans’ connections to Chief Wahoo. “This is the hardest decision we’ve had to make during our entire ownership,” Dolan told Pluto. Curtis Danburg, the Tribe’s senior director of communications, told Crain’s that the club’s “hope is that once fans have an opportunity to process the change and we begin baseball activities, they’ll start to again embrace the fun, competitive team we have on the field.” The anger over the removal of a logo, especially one as divisive as Wahoo, might seem silly, but the combination of baseball’s love of history (which seems greater than any other sport) and the fact that it’s the offseason is adding to the debate. “When it comes back to the season, there is so much about being a fan that goes beyond the logo or the clothes they’re wearing on the field,” said Jesse Ghiorzi, the director of brand strategy for Charge, an Indianapolis-based sports marketing agency. “I have to think there’s a bit of talk and it’s easier to say things now.” Ghiorzi, a Miami University graduate who said his wife is an Indians fan, believes a basic approach — making it clear they’re listening, while understanding that some are going to be upset no matter what — will serve the Indians well. “The biggest thing about branding is how we approach it,” he said. “Branding is about way more than a logo. It’s who you are and what you stand for. There’s so much more that goes into being an Indians fan. A logo is one just one piece of it.” In a couple months, the Indians will open the 2018 season as the heavy favorites to win a third consecutive American League Central Division title. More Wahoo protests seem certain, and since the logo will still be worn, the debate, much to MLB’s chagrin, probably won’t die down. “Any time you have this type of change, it’s a lot easier to say I’m done with a team because of this, that or another thing,” Ghiorzi said. Much more often than not, however, the fans come back, he added. In 2019, Wahoo will not return — at least on the field. The caricature will still be found on hats and shirts in the stands, and you’ll probably see the contentious figure in the corner of a team shop or in the “for sale” section of a sporting goods store. “The history hasn’t changed. None of that stuff has changed,” Ghiorzi said. “This is one visual piece of the brand that is going away.”

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Focus MIDDLE MARKET

B Corps have bigger purpose - Page 12 | Startup gives gut report - Page 13

Illustration by erhui1979/iStock

Living large in the middle market Revenue growth and employee numbers continue to surge nationally, but story in Ohio is more mixed By JUDY STRINGER clbfreelancer@crain.com

Life is good for middle market companies. That would be the short story from the recent National Center for the Middle Market survey. Revenue growth continues to accelerate, confidence in the global, national and local economies are all at peak levels and even a slight pullback in fourth-quarter hiring is likely more of a reflection of the increasingly tight labor market than any projected slowdown, according to the center’s executive director, Thomas Stewart. “Think about it this way,” said Stewart, whose center operates out of Ohio State University’s Fisher College of Business. “It’s been a really, really strong year. The growth

numbers for middle market companies in all four quarters of the year were remarkable.” Here’s the longer story: The survey of 1,000 C-suite executives of companies with annual revenues between $10 million and $1 billion found the highest reported level (71%) of improved year-over-year company performance in the six years of the survey. Companies ended the year with a year-over-year revenue growth rate of 7.6% — second only to the rate reported in first quarter of 2017. In addition, middle market leaders reported a 5.2% increase in headcount for 2017, with more than half of the respondents adding people to their rosters. That makes 2017 the strongest year for middle market employment growth in the survey’s history, Stewart said. SEE MARKET, PAGE 14

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MIDDLE MARKET

B Corps say work comes with a ‘deeper purpose’ By DOUGLAS J. GUTH clbfreelancer@crain.com

Cleveland-based Epoch Pi is proud of its standing as a values- and purpose-driven investment bank, stating “We believe we can create a better world through business” in bold letters on the company website. However, firm co-founder and partner William Vogelgesang knows mere words don’t mean anything without action. Epoch Pi helps its for-profit clients locate capital partners with an interest in social and environmental prosperity that benefit a wide array of stakeholders. Known variably as “impact investing” or “conscious capitalism,” this burgeoning trend in corporate governance has also birthed a new organizational designation called the Certified B Corporation. B Corporations meet standards of social and environmental performance, accountability and transparency as measured by B Lab, a nonprofit organization headquartered in Wayne, Pa. Companies carrying the B Corp designation are practiced in creating value for their employees, the community, the environment and other non-shareholding stakeholders. Advocates for the program say it’s much more than a marketing ploy but rather a critical designation that comes with teeth. B Lab named the first generation of B Corporations in 2007, with more than 2,300 firms in 50 countries bearing the title today. Epoch Pi is one of five companies in Cleveland — and 16 statewide — to achieve the status, according to B Lab. Vogelgesang and co-founder Lynn Carpenter were inspired to pursue a B Corporation designation by Whole Foods Market co-CEO John Mackey, a leader in the so-called conscious capitalism movement. In an article he wrote, Mackey emphasized the “deeper purpose of service to others.” After becoming a B Corporation last year, Epoch Pi placed language in its operating agreement formalizing its commitment to conscious capitalism, a step that Vogelgesang said reflected the firm’s multiple missions. “It’s easy for a company to say ‘we do good;’ that’s called ‘greenwashing’ in the sustainability world,” he said. “People were skeptical of (our mission), but when we decided to pursue a B Corporation designation, we received a lot of accolades. People said we were for real.” To get certified, a business must score 80 out of 200 possible points in a 150-question online survey. Companies are rated on everything from their energy efficiency efforts to employee programs to overall corporate transparency. Certification costs $500 to $25,000 annually, depending on company size, and is available to organizations with at least six months of revenue. B Corporation designations are advantageous for companies that trade on their reputation, so a firm hidden within the supply chain is less likely to derive value from the certification, said Chris Laszlo, a Case Western Reserve University business professor and faculty director whose book, “Embedded Sustainability: The Next Great Competitive

“The central philosophy is that we’re all interconnected in some way. I can’t win at your expense for very long. What most speaks to me is the vast majority of people aren’t motivated by money.” — Epoch Pi co-founder William Vogelgesang, on B Corporations

Advantage,” touches on the benefits of B Corporations. “Businesses with more visibility will be drawn to the certification,” Laszlo said. “There’s a big benefit in reputational value, and the certification is going to attract employees, make customers more loyal, and improve the brand image.” The boost in status does not necessarily make for an effective marketing tool, as B Corporations that fail to operate on a higher consciousness will likely find themselves under fire. “If companies don’t walk the talk, they’re more likely to get pounced on by watchdog groups,” Laszlo said. “We live in a world of extraordinary transparency. If you claim you’re treating employees well or doing good for the environment and you don’t do those things, somebody will put you up on YouTube or Glassdoor. The risk of a backlash is high.” Put simply, being a “force for good” must be ingrained into the organizational culture. Laszlo points to outdoor clothier Patagonia, a renowned B Corporation with a flexible work environment that includes onsite childcare for employees. Living up to certification validates Patagonia’s employee-centric culture and attracts top candidates banking on the company’s reputation as a great place to work. Prosper for Purpose, a public relations agency and certified B Corporation based in Cleveland’s Tremont neighborhood, develops public relations and branding campaigns for organizations pursuing a “triple bottom line,” which means they are accountable not only for profit generation, but creating positive social and environmental impacts as well. Clients include an eco-friendly window and door manufacturer and the Cuyahoga County Board of Health — two different entities vetted on the same criteria that founder and CEO Lorraine Schuchart expects from her own company.

Prosper for Purpose founder and CEO Lorraine Schuchart oversees a public relations agency that offers three days of paid volunteer work and unlimited sick time to its employees. (Contributed photo)

Certified as a B Corporation in 2016, Prosper for Purpose practices the values it preaches via a paperless office, three days of paid volunteer work for employees, and unlimited sick time. Schuchart said becoming a B Corporation requires proving to the outside world that your company is a true boon to the community. “In the marketing world, anyone can say they’re anything, so it wasn’t enough for us to just say we cared about the community or the environment,” Schuchart said. “We liked the idea of a third party looking at our practices and saying we adhere to those values.” B Corporation certification is effectively a standard-setting process, one particularly important in the finance industry, where public trust is earned rather than given, Vogelgesang said. Epoch Pi is constantly searching the investment community for partners with the same values as its clients in compostable packaging, clean-water technology and other ethical business segments. “The central philosophy is that we’re all interconnected in some way,” Vogelgesang said. “I can’t win at your expense for very long. What most speaks to me (about B Corporations) is the vast majority of people aren’t motivated by money. Having a grander vision than making money for shareholders is the glue that holds these companies together.” Using a third-party certification process as a guide also revealed Epoch Pi’s need for fundamental HR and governance improvements, including installation of a diversity training program, Vogelgesang said. Avoiding conflict between stakeholders is the ideal for traditional companies and B Corporations alike. The difference for B Corps is a legal commitment to act ethically, one that stakeholders will follow closely post-certification. “People in stakeholder groups know you’re trying to benefit everyone, and you’ll get credit for that intention,” Vogelgesang said. “The test isn’t to be perfect. It’s more that you’re endeavoring to benefit all stakeholders while acknowledging one may be happier than another.”

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MIDDLE MARKET

Biohm aims to bring balance to the gut By JUDY STRINGER clbfreelancer@crain.com

Fueled by health-conscious consumers, probiotic products are a well-established wellness craze. So-called “good bacteria” are stuffed in supplements or infused into yogurt and other foods and beverages with the aim of providing a positive boost to bellies. But, today’s probiotics only address a fraction of the issue, according to Afif Ghannoum, CEO of Cleveland-based Biohm Health, because they ignore the role of fungi and “digestive plaque,” a sticky film that protects bad fungus and bacteria as they wreak havoc on gastrointestinal systems. “When you only maintain the good bacteria in the gut, fungi can flourish, causing imbalance,” said Ghannoum, whose Cleveland startup recently secured an investment from New Yorkbased private equity firm Vanterra Capital. “And, research has found that fungi play an important role in digestive health.” It is research with which Ghannoum, a biotechnology attorney by trade, has an intimate connection. His father, Mahmoud Ghannoum, is a professor and director of the Center for Medical Mycology at Case Western Reserve University and University Hospitals Cleveland Medical Center. The elder Ghannoum has spent his academic career studying medically important fungi and even coined the term “mycobiome,” now widely used to describe the fungal communities in the body. In 2016, he led a landmark Crohn’s disease study that found bacteria and fungi work together to create digestive plaque in the gut. “When I learned about his discovery, I recognized a terrific market opportunity. At the time, probiotics really only concentrated good bacteria,” Ghannoum said. Last March the father and son team launched Biohm, the first probiotic engineered to address fungi and digestive plaque. Ghannoum said Biohm, sold direct-to-consumer through its website, includes a “powerful enzyme” that breaks down di-

Afif Ghannoum founded Biohm Health with his father, Mahmoud, who is a professor and director of the Center for Medical Mycology at Case Western Reserve University. (Contributed photo)

gestive plaque and some 30 billion live cultures of good bacteria and fungus that help restore balance. But, supplements were not the end of Biohm’s early innovation. Customers — many having seen reports of the Crohn’s discovery on television or in magazines — wanted to know how they could find out what’s in their gut. One letter was from a mother whose two sons were wasting away in a losing battle with Crohn’s. “She was desperate to have their levels tested, but my father was not set up for that at Case at that time,” Ghannoum said. “Meanwhile, consumers were just coming into this world of acceptance of things like 23andMe kinds of tests, where it is not crazy to do these kinds of things at home.” The company developed a test kit, the Biohm Gut Report, which allows consumers to collect a stool sample at home that, once shipped, gets processed at Case’s School of Medicine. A full report detailing the types and levels of bacteria and fungi are sent back along with what Ghannoum called “actionable recommendations” based on the test results. “If you take an ancestory.com test and it tells you you’re 80% Irish, you might be like ‘Oh, OK.’ But if I tell you you have 47% bacteroides in your digestive tract, that doesn’t really mean anything to you,” he said. “It was very important to us to make the test

results actionable. So we give wellness and nutritional recommendations, and we actually have nutritionists on staff that do that.” While Ghannoum declined to provide revenue or sales figures for the business, he did say the 13-person company grew by at least 40% every single month from the summer through year-end 2017. While the size of the Vanterra investment wasn’t disclosed, the firm typically invests in lower-middle market companies with transaction values between $20 million and $300 million, according to its website. Along with supplements and test kits, the company recently launched an ingredient business that will market its probiotics formula to food and beverage makers — many of whom approached Biohm. “We are probably a month or two from announcing some extremely large partnerships with household name brands,” he said. Laura Mahecha, health care industry manager with New Jersey-based Kline & Co., said such deals would not be a surprise. In the U.S. alone, she said, probiotic products represent a $1 billion dollar industry, which grew

70 million

Americans with digestive disorders, according to a September 2017 report on the probiotics market by Kline & Co.

20% Share of the population that’s affected by such disorders.

20% Year-over-growth in the $1 billion probiotics market in 2016.

about 20% in 2016, according to her September 2017 report on the market, and shows little sign of slowing down. “Consumers are aware of the connection between your gut health and your overall health because the manufacturers have been driving that message home for years now,” said Mahecha, adding that more retail shelf space allotted to a wide range of health-promoting supplements in recent years also has been a boon to probiotic product makers that include conglomerates like Clorox, Pepsi and Royal DSM, a Dutch food producer.

Biohm’s broader consideration of healthy gut ingredients (i.e., beyond good bacteria), she said, syncs well with where the market is headed. “A lot of the research and science that is being done in this space has to do with the whole gut microbiome, everything that makes up your gut. I think that is the next big thing or the next type of claims that we will see on these products, like ‘improves your overall microbiome,’ ” Mahecha said. And, of course, there is a lot of non-commercial interest as well. Ghannoum said Biohm’s testing business now has generated more data than the National Institute of Health’s entire Human Microbiome Project did. Recently the company announced an ambitious project to sequence the digestive samples of 25,000 children diagnosed with autism, whose victims suffer from gastrointestinal issues at a higher rate than peers. The data will be available to autism researchers free of charge, according to Ghannoum. “The scale and depth of this data is much greater than researchers otherwise would have access,” he said. “There is a lot of use for that kind of insight.”

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

MARKET

CONTINUED FROM PAGE 11

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The latest Middle Market Indicator, or MMI, hit the street on Jan. 24. Among other top-line findings, confidence levels were at near-record highs to close the year, and a large majority of leaders said they prefer investing extra cash as opposed to saving it. “Executives in the middle are entering 2018 with a lot of confidence, a lot of investment plans and feeling good, feeling as if 2018 is going to be a good year,� Stew- Stewart art said. Guhan Venkatu, group vice president of regional outreach and analysis for the Federal Reserve Bank of Cleveland, said many middle market firms are likely to be affected by the same trends affecting the broader economic environment. Venkatu said while the recent Gross Domestic Product growth numbers came in a little shy of Q4 estimates, “growth in 2017 (on a Q4over-Q4 basis) was still stronger than we saw in the prior two — about 2.5% versus GDP growth of closer to 2% in ’15 and ’16. Growth in 2017 was closer to what we experienced in 2013 and 2014, which was GDP growth of about 2.7%, again on a Q4-over-Q4 basis.� The current economic expansion, of course, is not without its threats. Talent shortages and increasing health care costs are ongoing concerns, according to a Daniel Shoag, an associate professor of public policy at Harvard Kennedy School and a visiting economics professor at Case

Western Reserve University’s Weatherhead School of Management. Nationally unemployment is “lower than historical norms,� Shoag said, and the Trump administration has done little to bring more stability to health care. And, despite favorable business confidence findings from broad industry barometers like Business Roundtable and the Conference Board, the National Federation of Independent Business capital outlays index, which predicts small business spending, fell over the back half of 2017, Venkatu said. Still, he and Shoag suggest, the recent tax cut and “perception of a more friendly regulatory environment� are two factors contributing to a overall stronger economic climate. How good life is, however, still depends on what the middle market companies do and where they are doing it. Hyland Software president and CEO Bill Priemer credited the ongoing digital transformation at health care organizations with driving double-digit growth for the Westlake business, which makes an enterprise content management software product called OnBase. “Increasingly, organizations see digitization as a competitive advantage, and the content services we provide have become a key part of our customers’ long-term strategic goals,� Priemer said. According to the CEO, Hyland’s compound annual growth rate over the past decade is 18%, and he expects to grow at a similar rate in 2018. Joel Marx, chairman of Cleveland-based Medical Service Company, is less bullish. The challenging nature of reimbursement for health care products and services coupled with the increasing cost of health

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CRAIN’S CLEVELAND BUSINESS

F E B R U A RY 5 - 11, 2 018

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PA G E 15

MIDDLE MARKET care still looms heavily over medical equipment providers, despite the booming economy. Year-over-year revenue grew in 2017, Marx said, but continuing that growth will not come easy. “One of my concerns for 2018 is how to keep growing and hiring the best talent out there when we are competing in a very difficult employment market,â€? he said. “Good people are becoming more and more expensive ‌ and reimbursement rates aren’t necessarily going up.â€?

State snapshot

As for Ohio ...

19%: Share of Ohio’s business revenue that is produced by the middle market.

Stewart said that while all industry segments experienced growth in 2017, according to the middle market survey, business services, construction and financial services firms grew the most rapidly. Perhaps more important to regional employers, however, is the fact that Ohio companies did not have a strong performance compared with their peers in others states. The Ohio MMI respondents reported just under 1% increase to their revenue in 2017, well below the 7.6% national average. Likewise, Ohio middle market employment grew by only 1%, while middle market employment nationally grew by 5.6%. Stewart said Ohio’s flagging numbers may reflect the state’s high proportion of health care, manufacturing and retail companies — sectors that did not fare as well as others. Venkatu said energy suppliers, such as steel manufacturers, also are to blame, especially in Northeast Ohio. Overall employment rebounds in Ohio — and particularly in this region — were not as robust during the economic recovery before the energy sector took a hit. “If you look at unemployment, it actually bottomed out here in 2015,

Some notable numbers from Ohio’s middle market, according to the latest Middle Market Indicator.

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5,400: Businesses in the state’s middle market 28%: The middle market accounts for more than a quarter of Ohio’s workforce. $225 billion+: Total annual revenues produced by the state’s middle market firms

Source: National Center for the Middle Market

about six months after we saw big declines in oil and gasoline prices, and we’ve seen the unemployment rate trend up from the middle of 2015 locally to beginning of 2017, where it hovered around 6%,� he said. The national average is closer to 4%. That said, Ohio middle market leaders do look to gain some ground in 2018. Ohio MMI respondents projected a 5.8% revenue boost in the next 12 months, slightly ahead of the 5.4% increase projected nationally. They expect to growth their staff by 2.8%, less than a point below the anticipated national middle market employment growth of 3.7%. And, don’t forget, Stewart said, companies in Northeast Ohio, like those all over the country, will likely have more money in their pockets thanks to lower tax bills. “What executives do with that tax saving, whether they take a longer vacation, pay out bigger bonuses or reinvest it in the business — and if so, reinvest it in what? — is yet to be determined,� he said.

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35th Anniversary

35th Anniversary

CLEVELAND BUSINESS VOL. 36, NO. 47

NOVEMBER 23 - NOVEMBER 29, 2015

ALLYSON O’KEEFE, 37 Partner; Porter Wright

35th Anniversary

CLEVELAND BUSINESS

VOL. 36, NO. 47

NOVEMBER 23 - NOVEMBER 29, 2015 Allyson O’Keefe started her legal career at Porter Wright in 2004 after completing a summer internship there as a Case Western Reserve University law student. Since then, she has worked on many significant deals across Cleveland, including Flats East Bank, The Metropolitan at the 9, Uptown in University Circle and Steelyard Commons, and has been promoted to real estateALLYSON partner. O’KEEFE, 37 “Young professionals who live downtown are so excited about the city,� said O’Keefe, a Partner; Porter Columbus native who lived downtown forWright 10 years before moving to Rocky River. “The ones who aren’t from here are often more excited about it. When you move here from somewhere else, you don’t for granted.� VOL. 36, NO. take 47 it Allyson NOVEMBER 23 - NOVEMBER NOVE EMBER 29, 29, 2015 201 O’Keefe started her legal career at Porter Wright in 2004 after completing a sumWhen O’Keefe is not working or spending time with her husband and two children, she can mer internship there as a Case Western Reserve University law student. Since then, she has be found volunteering on the boards of nonprofit organizations and watching college football. worked on many significant deals across Cleveland, including Flats East Bank, The Metropolitan at the 9, Uptown in University Circle and Steelyard Commons, and has been proWHAT INSPIRES YOU ABOUT YOUR WORK? moted to real estateALLYSON partner. O’KEEFE, Just seeing what Cleveland has gone through in the time that I’ve 37 been here, there’s obvious“Young professionals who live downtown are so excited about the city,� said O’Keefe, a ly a lot of excitement around real estatePartner; development. I started in 2004 when we were crazy Porter Columbus native who lived downtown for Wright 10 years before moving to Rocky River. “The ones busy with development. That was sort of the boom from ’04 through ’08. I saw it go through who aren’t from here are often more excited about it. When you move here from somewhere the downturn, then I saw it rise again, even stronger than before locally. else, you don’t take it for granted.� Allyson O’Keefe started her legal career eer at Porter Wright in 2004 after completing comple etin ng a sumsumWhen O’Keefe is not working or spending time with her husband and two children, she can mer internship as a Case Western Reserve University law student. Since tthen, hen, she sh he has has WORKED ON there ARE MIXED-USE URBANnPROJECTS. IS MANY OF THE PROJECTS YOU be found volunteering on the boards of nonprofit organizations and watching college football. worked on many significant deals across ss Cleveland, including Flats East Bank, The The THAT AN AREA OF EXPERTISE? Metropolitan at the 9, Uptown in every University and Steelyard Commons, and rsity d has has ha s been be een proproro Yes, definitely. Real estate is extremely interesting because deal Circle is differWHAT INSPIRES YOU ABOUT YOUR WORK? moted to real estate ent. You can never get bored because there’s so partner. much variety there, from tax Just seeing what Cleveland has gone through in the time that I’ve been here, there’s obviousown are O’Keefe e, a “Young who live downtown so excited about the city,� said O’Keefe, credits to historic renovations, from professionals ground-up development to rehab, from ly a lot of excitement around real estate development. I started in 2004 when we were crazy Rive er. “The ““T The ones ones mixed-use to residential. Columbus native who lived downtown for 10 years before moving to Rocky River. busy with development. That was sort of the boom from ’04 through ’08. I saw it go through who aren’t from here are often more excited xcited about it. When you move here from m somewhere som somew ewhere ere the downturn, then I saw it rise again, even stronger than before locally. else, you LEADERSHIP don’t take it for granted.� YOUR STYLE? HOW WOULD YOU DESCRIBE

CLEVELAND BUSINESS USINESS

O’KeefeI expect is not working or spending can timeI work, with her husband and two children, child dre en, she sh he c he an I definitely believe in leadingWhen by example. the people withding whom MANY OF THE PROJECTS YOU WORKED ON ARE MIXED-USE URBAN PROJECTS. IS be found volunteering on the very boards off nonprofit and watching college collle eg ge football. foo fo ottball. my associates, to work hard, and they see me working hard. For me, it’sorganizations all THAT AN AREA OF EXPERTISE? about working hard and doing good work. Yes, definitely. Real estate is extremely interesting because every deal is differWHAT INSPIRES YOU ABOUT YOUR WORK? RK? ent. You can never get bored because there’s so much variety there, from tax hrough here e’s obviousobviousus Just WHAT seeingWAS whatITCleveland has gone the time that I’ve been here, th there’s LIKE TO WORK WITHthrough O’KEEFEinON WHAT OTHERS ARE SAYING: credits to historic renovations, from ground-up development to rehab, from ly a lot of excitement around real estate te development. I started in 2004 when we we were were e crazy crazy THE FLATS EAST BANK PROJECT? mixed-use to residential. busy with development. of the boom from ’04 through ’08. I saw itt go go through th hrough “Allyson is extremely bright and quick witted, butThat whatwas trulysort distinguishes her the downturn, then I saw itpeople rise again, even from most successful attorneys is her exceptional skills. Shestronger has an than before locally. HOW WOULD YOU DESCRIBE YOUR LEADERSHIP STYLE? uncanny ability to encourage the ‘adversaries’ in her negotiations to work in I definitely believe in leading by example. I expect the people with whom I work, OF THE PROJECTS YOU YOU WORKED Wsaid ORKED ON ON ARE ARE MIXED-USE MIXED-USE URBAN URBAN PROJECTS. PROJECTS. IS IS concert with her to achieve win/win MANY solutions to difficult problems,� my associates, to work hard, and they see me working very hard. For me, it’s all THAT AN AREA EXPERTISE? TISE?of the Scott Wolstein, CEO of Starwood Retail Partners andOF co-developer about working hard and doing good work. e is extremely interesting because every deal deal is differdifferrYes, definitely. Real estate Flats East Bank project. ent. You can never get bored there, red because there’s so much variety the ere, ffrom rom m tax tax — Lee Chilcote WHAT OTHERS ARE SAYING: WHAT WAS IT LIKE TO WORK WITH O’KEEFE ON credits to historic renovations, tions, from ground-up development to rehab, re ehab, from fro om THE FLATS EAST BANK PROJECT? mixed-use to residential. “Allyson is extremely bright and quick witted, but what truly distinguishes her

successful Inc. attorneys is reserved. her exceptional people skills. She has an Reprinted with permission from the Crain's Cleveland Business. Š 2015from Crainmost Communications All Rights YOU DESCRIBE RIBE YOUR YOUR LEADERSHIP LEADERSHIP STYLE? STYLE? HOW WOULD ability to encourage the ‘adversaries’ in her negotiations to work in Further duplication without permission is prohibited. Visituncanny www.crainscleveland.com. #CC15040

I definitely believe in leading ding by example. I expect the people with h whom whom m I work, rk concert with her to achieve win/win solutions to difficult problems,� said my associates, to work hard, and they see me working very hard hard. d. For For me, me e, it’s all a Scott Wolstein, CEO of Starwood Retail Partners and co-developer of the about working hard and doing good work. Flats East Bank project.

— Lee Chilcote YING: WHAT WHAT WAS WAS IT IT LIKE LIKE TO TO WORK WORK WITH WITH O’KEEFE O’KEEFE ON ON WHAT OTHERS ARE SAYING: THE FLATS EAST BANK PROJECT? PROJECT? “Allyson is extremely bright right and quick witted, but what truly distinguishes dis stin nguish hes her hes

skills s. She She has has an ha successfulInc. attorneys her exceptional people skills. Reprinted with permission from the Crain's Cleveland Business. Š 2015from Crainmost Communications All Rightsisreserved. ourage negotiatio ons to to work w wo orrk k in n ability to encourage the ‘adversaries’ in her negotiations Further duplication without permission is prohibited. Visituncanny www.crainscleveland.com. #CC15040

hieve win/win solutions to difficult probl bllem ms,� s,� said concert with her to achieve problems,� co-deve evel velo ve elo el ope pe er off the the e Scott Wolstein, CEO off Starwood Retail Partners and co-developer ct. Flats East Bank project. — Lee Le Ch Chilcote C

Reprinted with permission from the Crain's Cleveland Business. Š 2015 Crain rain Communications nss Inc. IInc nc. nccc. All n Al Rights Rig reserved. reserved d. Further duplication without permission is prohibited. Visit www.crainscleveland.com. ww.crainscleveland. and.c nd d.ccom. o om. m #CC15040

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PA G E 16

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CRAIN’S CLEVELAND BUSINESS

F E B R U A RY 5 - 11, 2 018 |

MIDDLE MARKET Adviser: Tony Kuhel

Risk allocation is crucial part of M&A negotiations In most M&A transactions involving a privately held target, the most heavily negotiated provisions in the definitive agreement are the representations and warranties made by the seller and the seller’s indemnification obligations. While the advent and increasing popularity of representation and warranty insurance has altered these negotiations when it is used, the fundamental purpose of representations and warranties and indemnification remains unchanged: the allocation of risk for unknown — and in some cases certain known — liabilities between the buyer and the seller. There are a few principles and concepts that all buyers and sellers, regardless of the nature of their transaction, should keep in mind during the course of negotiations.

Scope of indemnification Typically, the seller is required to indemnify the buyer for any claim (whether a direct claim by the buyer or an indirect claim against the buy-

Kuhel is a partner in the corporate transactions and securities practice group at Thompson Hine.

er by a third party) arising out of or relating to any breach of either the representations and warranties made by the seller or any covenant of the seller. The buyer may attempt to take a broader view of the seller’s indemnification obligations and ask the seller to indemnify the buyer for any liability relating to the operation or conduct of the seller’s business prior to the closing. The prudent seller, however, will resist this broader approach on the grounds it renders the representations and warranties essentially meaningless: Why negotiate representations and warranties when the

seller is responsible for anything that happened prior to closing? Sophisticated — and reasonable — parties are typically able to negotiate and agree on a robust set of representations and warranties tailored to the business in question and that fairly allocate between the parties the unknown risks inherent in owning and operating, and ultimately selling, a business. However, if through its due diligence investigation the buyer becomes aware of a pre-closing liability not reflected in the purchase price offered for the business, then the notion of relying on a representation of the seller that may address the issue could be inadequate. Under these circumstances, the buyer may require a specific indemnity for any loss associated with the pre-closing liability in question, and that indemnity would not be subject to the limitations on the seller’s indemnification obligations that apply to claims for unknown liabilities. Specific indemnification for matters such as pre-closing tax liabilities as

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well as any indebtedness or transaction expenses not paid at or before closing is also common.

Limitations on indemnification Without any negotiated limitations on its indemnification obligations, the seller would bear the entire risk of unknown liabilities of the business. In that case, the seller’s potential liability could conceivably exceed the purchase price it received for the transaction, while the buyer would bear virtually no risk for pre-closing operations yet would be entitled to the entire economic benefit of the target after the closing. To more fairly allocate the risk of the unknown, the parties typically negotiate temporal and monetary limitations on a seller’s indemnification obligations. Representations and warranties are made as of the closing date and typically survive the closing for a period of time, meaning the buyer can only bring an indemnification claim against the seller after the closing date for a fixed, limited period of time. For “general” representations that are more operational in nature, the survival period is typically between 12 and 24 months. For more “fundamental” representations, such as the organization of the seller, authority to complete the transaction, capitalization, title to assets and broker expenses, the survival period is an extended period of time or, in certain instances, indefinite. For other “statutory” representations (tax, environmental and employee benefit matters), the survival period is often tied to the statute of

limitations imposed by applicable laws governing these matters. There are three standard monetary limitations. First, the parties may agree to a minimum claim threshold on the premise that neither should be bothered with small claims. Second, the parties typically negotiate a “basket,” or a threshold amount after which the seller’s indemnification obligations kick in. Baskets usually come in one of two forms: a deductible basket, similar to an insurance policy, where the seller’s indemnification obligations only apply once the deductible is met, and then only to the extent liability exceeds the deductible; or a “first dollar” or “tipping” basket, where the seller’s indemnification obligations cover the entire amount of liability once the basket has been met. Finally, the seller usually negotiates a monetary cap on its indemnification obligations. The amount and nature of each of these limitations are heavily negotiated, although an M&A professional will be able to provide a sense for what is customary under the circumstances. These monetary limitations also usually do not apply to certain other representations, or to breaches of covenants of the seller, so the parties must also carefully negotiate which representations or covenants are subject to, and which are excepted from, these limitations. Risk allocation is a critical issue in private company M&A transactions. The buyer and seller are best served by negotiating indemnification provisions that clearly and fairly allocate economic and legal risk for both known and unknown liabilities between the parties.

The City of Solon welcomes these new businesses: Castle Heating & Air

CLEVELAND BUSINESS

Free Flow Plumbing JP Morgan Chase Bank Louise’s Hair Salon Molders Choice Priority Dispatch

And thanks these real estate professionals for bringing new business to Solon: Bob Brehmer – NAI Daus Todd Felder – Davis Development Group Bob Garber – CRESCO Real Estate Eliot Kijewski – CRESCO Real Estate Georgeann Lawrence – Cleveland Commercial Group

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F E B R U A RY 5 - 11, 2 018

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PA G E 17

MIDDLE MARKET Tax Tips: Carl Grassi

Firms face uncertain path to deduction The Tax Cuts and Jobs Act creates a new deduction for individual taxpayers who have pass-through business income. Pass-through business income consists of income derived from sole proprietorships and from entities such as partnerships, LLCs and S corporations that are not subject to entity-level tax. With the new deduction, up to 20% of pass-through business income will be deductible. This will be very welcome relief for many business owners who will see the top effective federal tax rate on their business income drop from 39.6% to 29.6%. However, the benefit of the new deduction will be out of reach for many service providers because of restrictions placed on “specified service trades and businesses.” All business owners are fully eligible for the deduction if their taxable incomes do not exceed $315,000 for married taxpayers filing jointly ($157,500 for single taxpayers). Limitations begin to set in above those levels. In the case of income from specified service trades and businesses, the deduction phases out above those thresholds and is fully phased out for those service providers with taxable incomes of at least $415,000 for married taxpayers filing jointly ($207,500 for single taxpayers). Unfortunately, the legislative language is far from clear on which service businesses are subject to the phase-out. For purposes of the new deduction, “specified service trades and businesses” are defined by reference to a list of service businesses

Grassi is chairman of McDonald Hopkins LLC.

found elsewhere in the tax code. That list, which describes businesses that do not qualify for the preferential tax treatment on “qualified small business stock,” includes “any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.” This list was modified in two respects for purposes of the new deduction. First, “employees” was replaced with “employees or owners,” extending the scope of disfavored businesses to those based on the reputation or skill of their owners. Second, “engineering” and “architecture” were removed from the list. Taxpayers looking for guidance on the new deduction need to consider whether they can rely upon the existing Internal Revenue Service interpretations of what constitutes a service business under the qualified small business stock rule. There is scant guidance on this, but the guidance that exists is very friendly to tax-

payers. For example, the IRS has ruled that a company that provides medical testing and a company that works with pharmaceutical industry clients to commercialize experimental drugs do not provide services in the health field.

(The new deduction) will be very welcome relief for many business owners who will see the top effective federal tax rate on their business income drop from 39.6% to 29.6%. In effect, what little guidance there is suggests that the IRS takes a narrow view of what constitutes a service business for purposes of the qualified small business stock exception — which is a good thing for business owners in a service industry who hope to take advantage of the new pass-through deduction. It means the IRS may be willing to narrowly define the kind of service businesses that will be excluded from most of the benefits of the new deduction. There’s another wrinkle. Congress’ explanation of the new deduction (in its Conference Report) mentions another list of service businesses found in the tax code — businesses that are favored under a provision allowing “qualified personal service corpora-

tions” to use the cash method of accounting otherwise denied to corporations. The Conference Report notes that Treasury regulations under the qualified personal service corporation provision contain some detail on what is meant by services in the fields of health, performing arts and consulting. Those regulations also take a somewhat narrow view of what constitutes a service business. But service businesses as defined under those regulations are eligible for favorable tax rules. The IRS very well might decide to set a broader definition of service businesses that are ineligible for the new pass-through deduction. It remains to be seen whether the IRS will take a broad or narrow approach to deciding what, for example, it means to provide services in the consulting field. From the standpoint of business owners hoping to see a 10% reduction in their business income tax rate, the narrower, the better. We expect that the Treasury and the IRS will need to provide more specific guidance on the passthrough business income deduction very quickly and that this will be a subject of some debate in the coming months and years. In the meantime, if your business includes providing services in any of the listed areas, work with your tax adviser to determine to what extent, if any, you can qualify for the new deduction or what can be done to better position your business to benefit from the pass-through tax savings.

SecureState acquired by Chicago firm National accounting firm RSM US LLP has announced its acquisition of Cleveland-based SecureState, a global management consulting firm focused on information security. The firms have signed a definitive agreement for RSM to acquire all assets of SecureState upon the deal’s expected close date of March 1. Financial terms of the deal were not disclosed. RSM, which is based in Chicago and focuses on audit, tax and consulting services, is the seventh-largest accounting firm in the Northeast Ohio market by number of local CPAs with about 86, according to Crain’s research. They have about 127 full-time employees in this market in total. The acquisition of SecureState, founded in 2001, bolsters RSM’s security and privacy practice and adds more than 50 people to the company. All staff and SecureState’s office, which is in Bedford Heights, are expected to be retained with the deal. SecureState founder and CEO Ken Stasiak will join RSM as a consulting principal upon the deal’s closing as the two firms combine. SecureState was named as one of Crain's Fast 50 companies — which recognizes the market's fastest-growing companies — in 2014. “We are thrilled to be joining RSM,” Stasiak added. “Our expertise and service offerings represent a perfect fit for RSM’s growing security and privacy practice.” RSM is the fifth-largest accounting firm in the U.S., according to Accounting Today’s 2017 rankings. The company reported revenue of $1.8 billion in 2016. — Jeremy Nobile

2018 Business Executives of the Year

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February 22, 2018• Executive Caterers at Landerhaven Cocktail hour begins at 5:30 p.m.

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106 South Main Street, Suite 1100, Akron, Ohio 44308

Columbus

Washington

Cleveland

Cincinnati

Akron

Houston

Pittsburgh

PA G E 18

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F E B R U A RY 5 - 11, 2 018 |

CRAIN’S CLEVELAND BUSINESS

THE LIST

Largest Engineering Firms

Ranked by number of local registered engineers THIS YEAR COMPANY (1)

LOCAL REGISTERED ENGINEERS

TOTAL LOCAL NUMBER OF ENGINEERS LOCAL (2) EMPLOYEES

2017 LOCAL CORPORATE ENGINEERING HEADQUARTERS BILLINGS ($ YEAR FOUNDED MILLIONS)

2017 PROJECTS

TOP LOCAL EXECUTIVE TITLE

1

GPD Group 520 S. Main St., Suite 2531, Akron (800) 955-4731/www.gpdgroup.com

174

283

670

Akron 1961

106.5

Opportunity Corridor Phase II, City of Cleveland Water Pollution Control CIP Program, City Of Cleveland GIS

Darrin Kotecki, president

2

AECOM 1300 East 9th St., Suite 500, Cleveland (216) 622-2300/www.aecom.com

88

160

285

Los Angeles 1990 (3)

52.4

NA

Michael J. Stepic, assoc. VP, Northern Ohio Environmental Business Unit, Akron site mgr.; Molly E. Page, P.E., VP

3

Middough Inc. 1901 E. 13th St., Suite 400, Cleveland (216) 367-6000/www.middough.com

74

140

204

Cleveland 1950

46.8

Solvay Moltenfoam, Husky Energy water reuse, USS Steel

Ronald R. Ledin, PE, chairman, CEO

4

Osborn Engineering 1100 Superior Ave., 300, Cleveland (216) 861-2020/www.osborn-eng.com

42

53

154

Cleveland 1892

21.3

NA

Gary F. Hribar, president, CEO

5

CT Consultants Inc. 8150 Sterling Court, Mentor (440) 951-9000/www.ctconsultants.com

41

57

115

Mentor 1922

33.8

Cleveland Water, facility improvement plan for secondary sites; city of Akron, Uhler Conveyance improvements; Youngstown, Wick Ave. improvements

Dave Wiles, president

6

Thorson ÂĽ Baker + Associates Inc. 3030 W. Streetsboro Road, Richfield (330) 659-6688/www.thorsonbaker.com

37

91

131

Richfield 1993

19.0

Summa West Tower Hospital expansion: $350M; Euclid Middle/High School: $97M; Worthington Yards: $25.7M; Enclave Student Housing: $10M

Gordon R. Baker, Michael G. Thorson, principals

7

HWH Architects Engineers Planners Inc. 600 Superior Avenue East, Cleveland (216) 875-4000/www.hwhaep.com

33

51

79

Cleveland 1908

10.5

NA

Peter P. Jancar, chairman

8

ms consultants inc. 600 Superior Ave. E., Suite 1300, Cleveland (216) 522-1926/www.msconsultants.com

29

39

343

Youngstown 1963

4.1

Mosquito Creek Wastewater Treatment Plant improvements, Riverfront Park and Amphitheater

Raymond J. Briya, executive vice president

9

DLZ 614 W. Superior Ave., Suite 1000, Cleveland (216) 771-1090/www.dlz.com

24

30

59

Columbus 1916

18.2

City of Cleveland general engineering services, ODOT District 12 construction inspection/administration

Vickie Wildeman, vice president

10

Karpinski Engineering 3135 Euclid Ave., Cleveland (216) 391-3700/www.karpinskieng.com

23

85

104

Cleveland 1983

12.5

Cleveland Clinic Lakewood Family Health Center, The Foundry, Champion Local Schools PK-8 school

James T. Cicero, president

11

Environmental Design Group 450 Grant St., Akron (330) 375-1390/www.envdesigngroup.com

21

26

56

Akron 1984

9.0

NEORSD green infrastructure operation and maintenance, city of Akron Kelly Green (combined sewer overflow Rack 3), ODOT construction inspection

Dwayne Groll, president Lu Ann Unrue, chief Strategy officer

12

Burgess & Niple 100 W. Erie St., Painesville (440) 354-9700/www.burgessniple.com

18

25

39

Columbus 1912

9.3

Lake County Administration Center expansion; ODOT Central Interchange reconstruction, Akron; combined sewer overflow control plan management, Akron

Mark A. Hutson, regional director

12

HDR 1100 Superior Ave. East, Suite 650, Cleveland (216) 912-4240/www.hdrinc.com

18

26

39

Omaha, Neb. 1917

NA

NA

Richard G. Atoulikian, vice president/ Northeast client service manager; Joanne Shaner, bridge section manager

12

The Mannik & Smith Group Inc. 23225 Mercantile Road, Beachwood (216) 378-1490/www.manniksmithgroup.com

18

28

37

Maumee 1955

4.4

Playhouse Square 34-story apartment tower, city of Painesville Raw Water Intake, Charter Steel special bar quality steel mill expansion

Mark A. Smoley, senior vice president, director, principal

15

Michael Baker International 1111 Superior Ave., Cleveland (216) 664-6493/www.mbakerintl.com

17

35

37

Pittsburgh 1940

10.0

Irishtown Bend redevelopment plan, Mastick Road Bridge rehabilitation, Cleveland Hopkins in-line baggage system

Paul Gluck, vice president, Ohio office executive

15

R. E. Warner & Associates Inc. 25777 Detroit Road, Suite 200, Westlake (440) 835-9400/www.rewarner.com

17

24

49

Westlake 1951

NA

NA

Theodore A. Beltavski, president

DLR Group|Westlake Reed Leskosky 1422 Euclid Ave., Suite 300, Cleveland (216) 522-1350/www.dlrgroup.com

15

22

94

Decentralized DLR: 1966; Cleveland Office: 1905

16.0

CWRU/Cleveland Clinic Health Education Campus, OSU Arts District master plan and implementation, Denison University Michael D. Eisner Performing Arts Center

Paul E. Westlake, Global Cultural + Performing Arts Leader, senior principal

17

KS Associates Inc. 260 Burns Road, Suite 100, Elyria (440) 365-4730/www.ksassociates.com

15

17

35

Elyria 1987

NA

Cleveland movable bridge inspections; Cleveland airport stormwater mgmt. improvements; Lake Metroparks, Painesville Twp. Park pier, improvements

Lynn S. Miggins, president

19

Chagrin Valley Engineering Ltd. 22999 Forbes Road, Suite B, Cleveland (440) 439-1999/www.cvelimited.com

14

23

39

Cleveland 1996

NA

NA

Donald F. Sheehy, president

19

Euthenics Inc. 8235 Mohawk Drive, Cleveland (440) 260-1555/www.euthenics-inc.com

14

16

23

Strongsville 1969

NA

Rehabilitation of Tower City bridges, E. 75th St. bridge replacement, U.S. 42 widening in Medina

Alan R. Piatak, president

21

McHenry & Associates Inc. 25001 Emery Road, Suite 200, Warrensville Hts. (216) 292-4696/www.mchenryassociates.com

13

20

25

Warrensville Heights 1960

NA

Jack ThistleDown Racino expansion; WVU infrastructure replacement phase I & II; Western Reserve Academy Seymour Hall

Michael Bandwen, president

PTA Engineering Inc. 275 Springside Drive, Suite 300, Akron (330) 666-3702/www.ptaengineering.com

13

21

30

Akron 1953

NA

Cleveland Clinic Akron General Emergency Department Addition, Summa Health System Barberton Hospital, Chippewa Local Schools New High School & Performing Arts Center

Patrick W. Klanac, Michael J. Casseday, principals

Scheeser Buckley Mayfield LLC 1540 Corporate Woods Parkway, Uniontown (330) 526-2700/www.sbmce.com

13

23

34

Uniontown 1959

NA

Broadview Heights Recreation Center, Summa Boiler Plant, St. Joe's Warren Hospital Chiller Plant

James E. Eckman, president

24

Nexus Engineering Group LLC 1422 Euclid Avenue, Suite 1400, Cleveland 216-404-7867/www.nexusegroup.com

12

75

105

Cleveland 2005

16.0

Lubrizol Painesville Drumming Facility and Warehouse; Ohio major petroleum refinery plant (confidential) power distribution project; South Texas chemical plant (confidential) construction

Jeffrey O. Herzog, president; Marianne C. Corrao, executive vice president; Neal Curran, COO

24

Wiss, Janney, Elstner Associates Inc. 9655 Sweet Valley Drive, Suite 3, Cleveland (216) 642-2300/www.wje.com

12

12

610

Northbrook, Ill. 1956

5.2

Facade ordinance surveys and repairs downtown Cleveland, Akron Middlebury sewer separation retaining wall, Pittsburgh Convention Center Waterproofing

Mark Churpek, unit manager

26

The Austin Co. 6095 Parkland Blvd., Cleveland (440) 544-2600/theaustin.com

11

21

83

Cleveland 1878

7.7

New food ingredients plant (confidential), New Pretzels Inc. production bakery, Greenfield automotive assembly plant (confidential)

Michael G. Pierce, president

26

CDM Smith Inc. 1360 East 9th Street, Suite 750, Cleveland (216) 579-0404/www.cdmsmith.com

11

11

15

Boston 1947

NA

NA

James P. Riley, Sr. VP, National Transportation director

17

21 21

RESEARCHED BY CRAIG MACKEY Information is supplied by the companies unless footnoted. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all feedback and will include omitted information or clarifications in coming issues. (1) Numbers as on Jan. 1, 2018 (2) Includes local registered engineers and local professional engineers who are not registered as of Jan. 1, 2018. (3) AECOM has acquired firms in the Cleveland area dating back to 1904.

CRAIN’S CLEVELAND BUSINESS

CLINIC

CONTINUED FROM PAGE 1

profitability, but the Clinic sharing the risk 50/50 — a notable arrangement in of itself — with Oscar should help blunt some of that risk. It’s also a seismic shift in the individual insurance landscape locally given that the Clinic is no longer part of the network for Medical Mutual of Ohio’s exchange offering. Nationally, the individual insurance market on the socalled Obamacare exchanges has been incredibly volatile with some major insurers — Anthem Blue Cross and Blue Shield, namely — pulling out altogether. Adding to the intrigue is Oscar’s profile is high in health care circles. A computer scientist by training, Oscar CEO and co-founder Mario Schlosser was inspired to launch Oscar after his wife’s pregnancy, during which he struggled to understand his choices, their costs and how to get the information he needed to make decisions. Schlosser launched the company with Josh Kushner — the younger brother of Jared Kushner and brother-in-law of Ivanka Trump.

“We have been very pleased to date with the way the Oscar platform enables us to understand who has enrolled, to be able to connect that information, to determine what kind of health care needs our Oscar members and patients may have.� — Cleveland Clinic Market & Network Services executive director Kevin Sears

In December, it was reported that nationally Oscar enrolled more than 250,000 individual products under the Affordable Care Act for 2018, putting its growth at 150% ahead of 2017’s totals despite the Trump administration slashing the enrollment period. At the time, Oscar credited strategic ventures with the likes of the Clinic and Humana as part of that surge in business. Looking toward open enrollment for 2019, Sears said Oscar and the Clinic are “evaluating very carefully� any opportunities for expansion. Thorsten Wirkes, vice president of strategic operations at Oscar, said they should “certainly� see more growth next year. J.B. Silvers, a health care finance professor at Case Western Reserve University and former insurance executive, agrees, noting that the two will likely try to get more market penetration. “As a startup plan going from ground zero with no former enrollment at all, that’s probably pretty good,� said Silvers, about the partnership’s early numbers. Silvers also said, “The scaling of it would be pretty easy to do. It wouldn’t be hard to expand it to a larger population. The big issue that they’re going to have to wrestle with is did they get a good, sort of adequate distribution of signups or did they get people that are lower health status, higher need?� The 50/50 shared upside/downside risk arrangement between Oscar and the Clinic is a unique partnership and a “fascinating experiment,� Silvers said.

The Clinic and Oscar have spent the past year working to integrate their data and backend systems. The new “Cleveland Clinic | Oscar� individual health plans offer a tech-driven product that strives to deliver an integrated, seamless health care experience. “We’ve been working tremendously closely with a broad range of stakeholders at the Clinic and really trying to make sure we integrate the key processes to make this an exceptional member experience,� Wirkes said. So far, members are already engaging with the platform the two offer. One in three members have chosen a Clinic primary care physician through Oscar’s online onboarding platform. And 70% of the members have created a health profile on Oscar’s web app, which helps the Clinic care teams proactively help members manage their health, according to information from Oscar. “We have been very pleased to

date with the way the Oscar platform enables us to understand who has enrolled, to be able to connect that information, to determine what kind of health care needs our Oscar members and patients may have and to be able to prepare early on to meet those needs,� Sears said. Sears said he remains confident that narrow networks like this one will be the predominant network available in the individual market. The success of the joint product affirms the Clinic’s strategy to focus on narrow network plans. “I think that trend will continue for the foreseeable future,� he said. “And I think what it tells us is, for the right network, for a network that is adequate both in terms of geographic presence and access, and that is composed of high-quality providers, people are willing to choose narrow network products.�

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Mario Schlosser launched Oscar Health after struggling to understand health care choices during his wife’s pregnancy. (Bloomberg)

Stronger together. *VUNYH[\SH[PVUZ [V [OL H[[VYUL`Z ZLSLJ[LK [V [OL 6OPV :\WLY 3H^`LYZ HUK 9PZPUN :[HYZ SPZ[Z :WLJPHS YLJVNUP[PVU NVLZ V\[ [V Michael N. Ungar who, for the sixth consecutive year, is ranked among the Top 10 in Ohio and Top 5 in Cleveland. Cleveland Candice Musiek Capoziello* Inajo Davis Chappell 9VILY[ , *O\KHRVŃœ Timothy J. Downing 1LŃœYL` : +\USHW William D. Edwards Bill J. Gagliano :[LWOHUPL 4 .SH]PUVZ Frances Floriano Goins James A. Goldsmith

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CRAIN’S CLEVELAND BUSINESS

AKRON

Parr at the helm of a theater resurgence By DAN SHINGLER dshingler@crain.com @DanShingler

Quick, someone get Howard Parr another theater to run. Because if he gets bored and leaves Akron, a lot of local arts and music fans are going to be pretty upset. Not that there’s much chance of that. Parr’s already revamped one major local venue, the Akron Civic Theatre, and is working toward the next step in its renovation. And he’s played a huge role in staving off the closing of another, the University of Akron’s E.J. Thomas Performing Arts Hall. All of those things played a part in him receiving a 2018 Governor's Award for the Arts from the Ohio Arts Council and Ohio Citizens for the Arts Foundation, but that award just brought attention to the innovative work Parr has been doing for years — about three decades in the arts, including the last 20 at the Civic. “It’s a really big deal and a big award,” said Nicole Mullet, executive director of ArtsNow, which works to promote and connect local artists in Summit County. Parr is the group’s treasurer. “It’s wonderful he’s receiving it, because Howard’s just a tremendous leader for downtown and for Akron generally, not to mention the arts and culture sector.” Parr takes the recognition in stride, because he sees his work as part of something larger: a resurgence of the arts in Akron. He welcomes new venues downtown and even helps them get started. His success, he said, is the result of years of work on his part and a growing acceptance on the part of the community. “It’s your typical eight- or 10-year overnight success story,” Parr quipped. Many arts watchers will tell you that since Parr was promoted to the Civic’s executive director in 2007, he has listened to what the community wanted, worked closely with local musicians

Akron Civic Theatre executive director Howard Parr has opened up the theater to new programming, as well as community events. Plus, he helped to turn around the E.J. Thomas Performing Arts Hall. (Contributed photo)

and performers and chased the best national touring acts for his audience. Parr helped lead the $22.6 million renovation of the Civic in 2002 and continues to improve the place, most recently with about $580,000 in electrical work he said was just completed. Next up, he said, likely will be an approximately $1.5 million renovation of the theater’s grand lobby and entrance — where the chandelier was restored last year — and likely a new capital campaign. But that won’t happen for a year or so, he said. Parr said the theater and the community that supports it are now at the point where it’s often more of a challenge to find and book acts than it is to sell tickets. “(The Civic’s success) is about the strength of the market, and Northeast Ohio is an incredibly strong venue for entertainment,” he said. “It’s not really a matter of whether the market can support the entertainment. The market is incredibly strong. It’s more a matter of there being a finite number of touring events.” A lot of big acts don’t necessarily have Akron on their touring maps, so Parr has to chase them. But that’s im-

Musicians perform at the Akron Civic Theatre during the city’s 2015 First Night celebration. (Shane Wynn for AkronStock)

portant, he said, because the larger shows pay the bills and bring some audience members to the Civic for the first time, which is crucial for marketing new shows, especially by lesser-known performers, Parr said. “It’s a pretty classic mix, where 80% of your activity generates 20% of your revenue, and 20% of your activity generates 80% of the revenue … about 80% of our programming is locally based and about 20% is national touring. And the revenues are about the opposite of that,” Parr said. So, he’s doing his own act of constant budget-balancing to keep the theater humming with activity, which he thinks is critical to maintaining its role in the community. “We want to serve as a catalyst for activity in downtown Akron, so we want to be open as many days as we can,” Parr said. It’s been working, too. Parr’s been rewarded with far more attendees, especially since the recession ended. “Over the course of the last five years, we’ve seen about a 50% increase in activity and gross ticket

sales. But it hasn’t been a straight-line increase. Like two years ago, we had a 5% decrease, then we came back the next year with the highest-grossing year in the theater’s history,” Parr said. For a little more than the past two years, Parr’s also done double duty. Back in 2015, the University of Akron was facing the closure of E.J. Thomas Hall, and Parr volunteered to help revamp the theater’s operations and, more importantly, its programming. Nathan Mortimer, UA’s vice president of finance and the man in charge of E.J. Thomas, said the theater is doing well. “Finally, we engaged the right people in the community — I reached out and got Howard Parr,” Mortimer said. A year after Parr became involved, he and Mortimer had reopened the theater’s box office after a yearlong hiatus. More importantly, E.J. and the Civic began booking acts cooperatively — deciding together which acts best fit which venue and going after them accordingly rather than competing with each other. E.J. Thomas also struck a landmark

deal with Playhouse Square in Cleveland, which has for two years brought its “Broadway in Akron” series to the venue with great success, Mortimer said. “What we’ve been able to do with them with the Broadway series at E.J. Thomas is really off the charts,” Mortimer said. Off the charts, as in helping to almost double the theater’s attendance. In the 2015-2016 season, about 9,000 people attended E.J. Thomas, Mortimer said. “This past year, ’16 -17, that number is almost 16,000 through the turnstiles,” he said. At the same time, E.J. Thomas has reduced the money it receives from the university from about $2 million a year to about $1 million, Mortimer said. Mortimer wants to keep driving that number down, but said the theater is in a whole different place than it was two years ago. Instead of worrying about closing the doors, Mortimer can do things like replace the stage curtains, a recent $40,000 upgrade. “We needed to demonstrate that E.J. Thomas was here and it was not only going to survive but thrive. Working with Playhouse Square helped and working with Howard helped in that regard,” Mortimer said. Meanwhile, Parr also is helping the city book acts at its downtown Lock 3 Park. Parr, of course, does not take sole credit for anything — and to be sure, Mortimer also has been working hard to ensure E.J. Thomas’ success, along with his staff of about a half dozen and a slew of volunteers. But many folks say Parr is the linchpin that holds much of downtown Akron’s performance industry together and has strived for its greater good. “The Civic and E.J., you would think are supposed to be competing. Instead, Howard sees a rising tide … Now both of those organizations are doing really well because of solid leadership from Howard,” said Kyle Kutuchief, Akron program director for the Knight Foundation.

New forum lets entrepreneurs help one another By KATHLEEN FOLKERTH clbfreelancer@crain.com

When Randi Hodge decided to put allergen-free skin care products she created on the market, she knew she needed advice and support from other new entrepreneurs. But networking in large groups, she said, was overwhelming. When she saw a post on Facebook announcing a new entrepreneur meet-up taking place in Akron, Hodge’s interest was piqued. “I went with a friend because I was a little nervous. But there was a very welcoming vibe,” she said of the first session, which took place at Hazel Tree Interiors on the edge of downtown Akron. “Everyone was in the same boat.” She got so much out of that November session that Hodge attended the following one in December. And she planned to be at the next Akron Entrepreneurs Meet-up from 6 to 8 p.m. Tuesday, Feb. 6, at the Bit Factory in the Bounce Innovation Hub (formerly known as the Akron Global Business Accelerator).

Roszczyk

Heather Roszczyk, the innovation and entrepreneurship advocate for the city of Akron, said Hodge’s story is similar to many startups who want to meet others facing similar

challenges. “The businesses I’m engaging with these days are very eager to — even if it’s not a direct partnership — have a relationship with the other retail businesses out there,” Roszczyk said. Similar events have taken place in Akron with an emphasis on tech businesses, but Roszczyk said she thought it was important to provide something for those who are looking to open lifestyle businesses, such as a clothing boutique or dry cleaners, and providing services from a storefront or online. The new monthly meet-up is one of the fruits to grow out of the On the Table effort that took place last fall. Organized by the Akron Community Foundation, On the Table featured

gatherings of diverse groups for a shared meal and conversation on one day, Oct. 3. Roszczyk, who at the time was the Akron entrepreneurship fellow with Fund for Our Economic Future, organized an On the Table breakfast event for entrepreneurs who had been featured on the monthly Akro-preneurs podcast funded by the fund and the Burton D. Morgan Foundation. “We had between 15 and 20 people that morning, and it was such a great conversation,” Roszczyk said. “We had a very diverse group around the table as far as age, gender, race and type of business.” Despite those differences, Roszczyk said, all were facing similar challenges as new businesses. “So many were wrestling with the same issues, like finding funding or finding a brick-and-mortar location to how to keep good employees,” she said. When the event ended, several participants suggested making it a monthly event, and Roszczyk embraced the idea. A month later, Karen Starr hosted the first official meet-up at her busi-

ness, Hazel Tree Interiors, for about 30 people. “We were thrilled with the turnout, especially since we put it together in a couple of weeks,” Roszczyk said. The following month, also hosted by Starr at her business, the meet-up attracted about two dozen people, which Roszczyk thought was pretty good for 10 days before Christmas. The meetings typically start with 30 minutes of informal networking, followed by a discussion that follows the Lean Coffee model in which participants generate the agenda based on topics of interest. Roszczyk said participants are divided into five groups and they brainstorm to come up with topics. The entire group reconvenes and moves from topic to topic every five minutes, unless they agree to remain on a topic longer. “We can get through a lot of discussion topics, and at the end of it I have multiple walls of sticky notes that tell me exactly what issues are on their minds,” Roszczyk said. Hodge, who launched her product line in November, said the meet-ups have helped connect her to resources

and gave her confidence. She said a discussion about looking to local universities for potential interns is one of the ideas that stuck with her. Since getting the meet-ups off the ground, Roszczyk has transitioned to her new job under Akron mayor Dan Horrigan, which she started in December. In that role, she connects entrepreneurs to resources and looks for gaps in the services they need. “This position in the mayor’s office was a natural progression,” she said. “A lot of my responsibilities were the same as they are now. I pull together resources for entrepreneurs, be they networking or programming or what have you.” Deb Hoover, president and CEO of the Burton D. Morgan Foundation and the new chair of Bounce, said the meet-ups are a “grassroots way entrepreneurs can help each other.” “It’s a great thing for peer support and peer-to-peer learning in the entrepreneurship space,” she said. More information and registration for the meet-ups are available on the Akron Entrepreneurs Facebook page.

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JACK

“It’s like a lounge with gambling.”

DIVVY

arena style adventure that fuses electronic table games, high-energy dealer entertainment, live DJs, pulsating lights and a giant video wall for a modernized approach to gaming.” The gaming installations were developed by Interblock USA, a subsidiary of Interblock d.d. of Slovenia, a developer of electronic table games. Gamblers can play five electronic games and two live games. The electronic games are baccarat, blackjack, craps, keno and roulette. A live dealer will play baccarat and blackjack with as many as 28 players at video stations. “It’s like a lounge with gambling,” said Frank Legato, editor of Global Gaming Business magazine, a Henderson, Nev., industry watcher. “They have a really good installation at Greektown. Casino operators have realized they have to start preparing for the next group of gamblers, millennials, as the older generation is dying.” Overall, spending on gaming in Northeast Ohio was up in 2017. The three facilities generated $556.4 million in revenue, a gain of $14.2 million, or 2.25%, over 2016. However, the pie is not evenly divided, and it’s the Hard Rock that’s outpacing the Jack operations. The Hard Rock garnered 43% of the total revenue generated by the three, or $239.5 million, up 6% over 2016’s $225.1 million. Jack Cleveland’s revenue was $201.5 million, a 36.2% slice of the pie. That’s down a little more than 1% from $203.6 million in 2016. Jack Thistledown had a 20.7% share, or $115.4 million, a gain of 1.7% over 2016’s $113.5 million. The Rocksino took over as market leader from Jack Cleveland in 2016, the Rocksino’s second full year of operation. Jack Cleveland’s revenue has declined steadily since its first full year of operation, 2014, when it had revenue of $220.4 million. In July 2017, the Rocksino had its biggest month ever, when both Diana

— Global Gaming Business magazine editor Frank Legato, on Jack’s Synergy Table Games

Scott Phillips Jr., CEO of Keller Williams Cleveland, said that when he was first approached by Divvy, he was reluctant to enter the discussion. “There are quite a few California investors seeking houses to update for turnkey rentals,” Phillips said. “I expected to find a run-of-the-mill surfer dude wanting to buy cheap houses. But this is a unique product. I think it will work.” The reason is the buyer-led aspect of Divvy. “They are touching the consumer,” Phillips said. “It makes homes that are listed for sale available for renters. It’s a huge opportunity that differentiates them from others.” Hefets noted that the Divvy approach lets prospective tenants consider homes based on the school district — a primary factor in choosing a home for many families — rather than what rental homes are available. Carl DeMusz, president and CEO of the Independence-based Northern Ohio Regional MLS, studied Divvy at Crain’s request. He wrote in an email, “I personally believe the Gen X and millennials could use some sort of business model that will get them on the first rung of the ladder to home ownership.” Although Divvy may offer home ownership entry to some, it’s not all. The Divvy website spells out its standards for tenant-buyers in detail. Its minimum credit score is 500, prospects must be employed with monthly income of at least $2,300 and at least $1,300 ready for a down payment. However, multiple jobs in the past year and a bankruptcy more than a year ago are OK. Applicants also have to be able to comfortably afford the proposed Divvy monthly rent and equity payment for the property they seek. Benoit said she has found her Divvy prospects are focused on where they want to locate and benefit from being seen by sellers as cash buyers.

CONTINUED FROM PAGE 1

Ross and Englebert Humperdinck hit the stage of its Hard Rock Live concert hall, unique among the Northeast Ohio gaming operations. The Rocksino also was buoyed in 2017, Masurekar said, by the opening of the RockStop Gas & Wash, a gas station and car wash. “That is doing extremely well,” he said. “People are coming in droves to keep their car there, play games and then come out. It’s really driving revenue there.” Legato said Hard Rock is one of the strongest competitors in the business. “They have so much going for them with the live music and (rock ‘n’ roll) memorabilia,” he said. “They really know how to exploit their Hard Rock brand.” While a car wash may attract people to a suburban destination with acres of parking like the Rocksino, both Masurekar and Legato believe the Synergy club concept makes sense for a casino like Jack Cleveland, because of its urban setting. Since Synergy is based on table games, it can offer players an experience that neither the Rocksino nor the Thistledown racino can duplicate, since state law limits their gambling operations to slot machines. Masurekar also believes the club-within-a-casino setup can provide a growing downtown population — with many young people who have disposable incomes — a unique place to hang out. A YouTube video posted by the Greektown casino shows a live dealer sitting at a small stage and playing electronically with as many as 108 players at gaming stations in the club who watch the action on a giant video screen. A live DJ and pumped-in music round out the experience. Legato said gaming clubs where

CONTINUED FROM PAGE 6

Jack Entertainment’s Synergy Table Games include electronic table games, dealer entertainment, live DJs, pulsating lights and a giant video wall. (Contributed photo)

large numbers of patrons can play against a single dealer are one of the hottest trends in the industry. It’s an Asian import that began with casinos in Macau, sometimes known as the Las Vegas of China, that is just beginning to catch on with U.S. casinos. In Macau, Legato said, some particularly hot games attracted too many players to fit around a traditional gaming table. Beyond the potential to attract younger players, the concept should help U.S. casinos, Legato said, since it allows the casino operator to expand the number of players while staying within state imposed limits on the number of gaming tables they can offer, which for Jack Cleveland is 126. It also offers faster play, since the betting is handled electronically, so betting is faster and dealers or roulette wheel operators don’t have to collect and count chips after each round of play. “Millennials like fast play and social interaction,” Legato said. Both Masurekar and Legato also believe that Jack Entertainment, with two years of operation under its belt, is becoming a solid operator in the industry.

In February 2016, Rock Gaming LLC, now Jack Entertainment, took over operation of the three Ohio casinos, Greektown and Turfway Park in Florence, Ky., from Caesar’s Entertainment Corp., which had owned 20% of the operations. Not only was the ownership group new to casino operations, though it employed experienced casino managers, it had to build up its new “Jack” brand, as well as the urban casino concept. “Jack is still building their market up, still building their brand,” Legato said. “The urban concept is a good one, though it’s not very old. Before this, casinos were worlds unto themselves. You had a hotel and a host of restaurants on the property. The idea was you kept everybody in there.” Urban casinos attract a different, less-suburban and less-affluent audience, and they rely on other hospitality operators nearby. Masurekar also gives the Jack management high marks — tentatively. “It takes a couple years to transition and understand what the patrons want,” he said. “By the end of 2018, we’ll be able to say if Jack is a good operator or not.”

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Crain’s Executive Recruiter CHIEF FINANCIAL OFFICER The Alcohol, Drug Addiction and Mental Health Services (ADAMHS) Board of Cuyahoga County is seeking a Chief Financial Officer to direct the financial and administrative operational functions of the ADAMHS Board. Find out more about the ADAMHS Board by visiting: www.adamhscc.org and click on Job Opportunities to review the complete job description and specific instructions on how to apply for this position. Deadline for applying is Friday, February 16, 2018, at 5:00 p.m.

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ARCHITECTURE

weatherhead.case.edu

ENGINEERING & CONSULTING

James Marshaus, RA

Stephen Taylor

Mark P. Cencer, P.E.

Project Manager

Project Manager

Hasenstab Architects

Hasenstab Architects

Director of Coastal Engineering Services

Hasenstab Architects is pleased to announce the recent hire of James Marshaus, RA. Marshaus joins the firm as a Project Manager specializing in healthcare design. He brings more than 36 years of architectural experience to the Hasenstab team, having managed a multitude of projects for the leading healthcare systems throughout the region. Marshaus, who will be working out of Hasenstab’s Cleveland office, is a welcome addition to the Hasenstab team.

Hasenstab Architects is pleased to announce the recent hire of Stephen Taylor. With 45 years of experience, Taylor brings a thorough understanding of the design and construction process. He has been involved in the development, design and project management of numerous large-scale facility upgrades for healthcare, education, research, and religious clients throughout Northeast Ohio. Taylor, who will be working out of Hasenstab’s Cleveland office, is a welcome addition to the Hasenstab team.

FINANCIAL SERVICES

Christian Athey

Tim Warner

Vice President, Commercial Banker

Named Partner

KS Associates, Inc.

S&T Bank

Mark Cencer, P.E., has been promoted to Director of Coastal Engineering Services. He leads the KS Coastal Engineering Group in providing planning, design, and construction engineering services for waterfront infrastructure, for projects along the Great Lakes and inland bodies of water. His experience includes restoration to the Burke Lakefront Airport shoreline after Superstorm Sandy, the new Lake Metroparks Painesville Township Park pier, and waterfront improvements for Cleveland Metroparks.

Christian Athey joins S&T Bank as vice president, commercial banker. Athey is an accomplished banker with more than 13 years of experience serving the northeast Ohio region. He will be responsible for growing client portfolios and pursuing new business partnerships. “With his strong performance background and acquired accolades, we’re confident he will be a strong addition to our team,” said Stephen Hendricks, S&T Bank market president.

LAW

John D. Ramsey

Partner

Managing Partner

Skirbunt Cahn Skirbunt Ramsey, LLC

Skirbunt Cahn Skirbunt Ramsey, LLC.

Skirbunt Cahn Skirbunt Ramsey, LLC is proud to announce the promotion of Kyleigh A. Weinfurtner to the position of Partner with the firm. Kyleigh’s practice is focused in the area of domestic relations matters. Kyleigh is a member of the firm’s litigation team and is skilled at finding creative resolutions to complex matters. Kyleigh was also recognized as a 2018 Best Lawyer. She is a graduate of Lafayette College and received her law degree from Case Western Reserve University.

Skirbunt Cahn Skirbunt Ramsey, LLC. is proud to announce that John D. Ramsey has been promoted to Co-Managing Partner for the firm. John is a dedicated advocate for his clients and committed to aggressively protecting their rights in family and commercial law matters. John has been recognized as a 2018 Best Lawyer and 2018 Super Lawyer Rising Star.

Oge Anoliefo Analyst

STAFFING & SERVICES Ryan Musarra Vice President of Client Solutions

Torch Group, Inc.

JLL Oge Anoliefo joins JLL as an Analyst on the growing Cleveland Agency Leasing team. Oge will collaborate with building owners and the Agency Leasing team to continue to support the growing agency practice at JLL. He comes to JLL after a successful sales background. Oge is a former collegiate athlete with the University of Houston and a graduate of Wittenberg University.

Huffman Hunt Klym & Warner LLC HHKW is pleased to welcome Tim Warner as a Partner. Tim has been recognized as an “Ohio Super Lawyer” for ten years and in “The Best Lawyers in America” for many years. Tim’s practice focuses on representation of executives/ professionals in executive compensation and contracting, service as a Mediator, service as an “Outside General Counsel” to businesses (contracts, employment, real estate, leases and general matters) and selective business and plaintiffs’ personal injury litigation.

LAW

Kyleigh A. Weinfurtner

REAL ESTATE

LAW

Ryan Musarra comes to Torch Group with nearly 20 years of sales and business development experience, having worked for organizations including UBS Financial Services, Inc., Morgan Stanley, and Jade Sterling Steel. In his role as Vice President of Client Solutions for Torch Group, Ryan will concentrate on developing and implementing new business and sales plans, strategies, and processes, while building an ongoing pipeline of qualified prospects and executive search assignments.

KNOW SOMEONE ON THE MOVE? For more information or questions regarding advertising in this section, please call Lynn Calcaterra at (216) 771-5276 or email: lcalcaterra@crain.com

REAL ESTATE Stephen Morris Associate

JLL Stephen Morris has been promoted to Associate at JLL. Stephen joined JLL in 2015 as an Analyst for Cleveland’s Agency Leasing team. Stephen collaborates with entrepreneurial and institutional building owners to help them achieve their financial goals through the leasing, acquisition, and disposition of their assets. Stephen earned his Bachelor’s and Master’s degrees from Wake Forest University.

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Ed Buchholz

Director, Start in CLE In some ways, Ed Buchholz views Start in CLE as the culmination of his life’s work. After spending 19 years embedded in software startup companies, Buchholz decided to spend more time focusing on his favorite hobby: helping other entrepreneurs. So last summer he and his wife, Anna, invited a group of them to their home in North Ridgeville for dinner. The goal? To help them get to know each other. Since then, Start in CLE has organized a steady series of dinners and other events designed to build community among entrepreneurs in Northeast Ohio. A community like the one he experienced in 2014, when his last company, ExpenseBot, joined the TechStars accelerator in Boulder, Colo. Buchholz (pronounced BOO-holtz) could’ve used that support structure last spring, when ExpenseBot went out of business (it was growing, but not fast enough to raise more capital). So now he’s working to recreate it here — and keeping track of every single introduction he makes in the process. “I put a little tally mark in my phone. I’ll take it. It’s a win for me.” — Chuck Soder

Five things Favorite Christmas gift A Commodore 64 computer he got when he was 6 or 7. “That’s sort of how I learned to program.”

Deep Avett Brothers lyric “All that comes here comes here to pass.” His take: “We’re all just humans, we all have an ephemeral life. For me, it’s all about, ‘How can I help other people have a better life?’ ”

Video game he’s playing PlayerUnknown’s Battlegrounds. “It’s this game where a hundred people jump out of an airplane on a giant map, and you all just fight to the death. It’s a very uplifting, happy game for the family.”

Favorite “Game of Thrones” episode Red Wedding. It was shocking despite the fact that he’d read the books.

Best site for startup resources ycombinator.com/resources

Lunch spot Gray Dog Diner 13411 Detroit Road, Lakewood

The meal Chicken salad melt with a Diet Coke; Gray Dog Burger with water

The vibe A cleaner, hipper version of the stereotypical diner: It’s a tiny restaurant serving greasy food (OK, and a few salads and wraps) that never stays open past 5 p.m. and closes at 2 p.m. on weekends. Buchholz says “the fries and the aioli are game changers.” Tagline: Sit. Stay. Enjoy.

The bill $22.88, plus tip

These days you hear about how entrepreneurs should be OK with the idea that their company might fail. Now you’ve lived through it. What was that like emotionally? Were you able to embody that new mindset? I was about 30 pounds heavier and three inches of hairline shorter (when ExpenseBot went out of business) than when I started it, because the stress is not minute, especially when things aren’t looking great. So I had a long talk with my wife and said, I’m going to take six months and focus on not having crippling depression about this company failing and focus on what I really have grown to love, the mentoring side, and what turned into Start in CLE. I think I just hit month seven from that point. I feel like I’m in a better place. What’s one big lesson you’ve learned over the years? Reputation is the only thing that matters. Once that is marred, even perceived to be marred, it’s really hard to come back from that. ... I’ve had several companies that I’ve mentored who’ve had a situation where perhaps they could fudge things a little bit. It’s a small world. When you do that and you get caught, you are going to have issues raising other money. You have a little more free time these days. Any time for hobbies or fun stuff? I shouldn’t talk about it because it’s one of those things that’ll probably never get done, but a year ago I started working on a book about prototyping for a startup. ... That is the biggest place I see people falling down. ... Who knows if I’ll ever finish it. Maybe it just turns into a bunch of blog posts. Who knows? I could see somebody saying, “If you’re an entrepreneur, you should just spend your time with your head down working on your business.” Why should they take time out to get together with other entrepreneurs? Being surrounded by all these people and having the ability to work with them has a psychological effect. You can call that momentum. If you have 10 other companies surrounding you for seven days a week, which you do at TechStars, there’s just an energy that’s shared between everyone. Like, “Let’s just do the best we can.” ... Everybody

feels that pull to get advice. To get commiseration when things aren’t going well. To get support from others. You left college to work for ExpenseWire (then called SamePage Solutions). How did that happen? I literally saw a job opening in The Daily Record, the Wooster newspaper, for a customer service person. The oldest-school way possible. ... I came from a working class family. I was working at school fixing computers to pay for school. To me, it was like, “I’m already working most of the time anyway, so maybe I should just work.” I’ve had several opportunities to go back and finish, but I’m not sure I necessarily need it. I actually put a lot of value in education, but for me, I don’t know that’s going to help me. You found a regular job that happened to be at a young, growing company. It seems like doing that can lead to huge opportunities. You’re totally on to something there. One of the things I love is helping young and first-time entrepreneurs. I talk to a lot of Case kids who are starting companies, and that’s amazing. I’m so jealous. To be 19 or 20 and starting your own company, you’re going to learn a lot. But a lot of times the advice that I give is, “You might want to consider finding a company that just raised their seed round or maybe Series A cash and just getting in there for a year or two — or five or 10 — and learning everything you can.” The three companies you’ve been involved with were somehow related to expense management. How did that happen? Maybe you’re a believer in the stick-withwhat-you-know philosophy? Or I’m just stuck in a rut and can’t get out (laughs). ... My dad, I think, was probably fourth-generation owner of a plumbing and heating company. I think they expected me to take that over — but not so much (laughs). So one of my earliest memories is playing Legos on the floor of his office while he was sending invoices to customers and dealing with all of the accounting and cash flow management of that. ... I sort of learned by osmosis, sitting there and understanding how painful that process is. That’s been a driver for me. How do I make those people’s lives better?

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