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1111 On Wall Street Article

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    1111   On Wall Street Article 1111 On Wall Street Article Document Transcript

    • Ideas and Insights for Wealth Managers Volume 21, No. 11 • November 2011www.onwallstreet.com thanniversary UBS Boosts Small Business OwnersThe Unfaithful Client p.11REITs: The BestGame in Town? p.34Life Stories withJohn Thiel p.64Kenny Lao, owner of Rickshaw DumplingBar, left, and his advisor, Peter J. Klein, right,of UBS Wealth Management Americas
    • Cover StoryUBS AndThe SmallBusinessOwnerChallengeUBS financial adviSorS take on10 emerging entrepreneUrSBy lorie konish / photography by matt furmanR ichelieu Dennis is in the eye of the hurricane. That’s what Holly Hendrix thinks when she looks at the recent growth of Dennis’ natural personal care products company, Sundial Creations. “Don’t Sundial creations micromanage it. Go with it,” Hendrix, a UBS founder and ceo richelieufinancial advisor told Dennis, her client of only a few months. dennis (left) and UBS Svp of“Ride the wave. Try not to lose any important pieces along the investments and Wealth advisorpath, and then at the end you’ll clean up the mess and you’ll be Holly Hendrixwherever you are, which is bigger.”
    • top: Sinu founderand chief technologyofficer larry velez(left) and UBSmanaging directorand private Wealthadvisor Jason m. katz.Bottom: rickshawdumpling Bar co-founder kenny lao(left) and UBS Svp ofinvestments peterJ. klein
    • Cover Story Hendrix and Dennis began their professional relationship following “All of a sudden we got it and it was kind of like running at full speed.”the July kick off of a six-month pilot program between UBS Wealth The new kiosk is scheduled to open on Broadway between 42nd andManagement Americas and the William J. Clinton Foundation. In this 43rd Streets this month. It will be a hybrid of Rickshaw Dumplingphilanthropic endeavor, UBS and the foundation have created 10 teams Bar’s two New York restaurants and four food trucks. “It’s literallyin the New York City area. Each team consists of an entrepreneur, an old shipping container that we bought from New Jersey, and we’rea financial advisor and a mentor (who is also a UBS client) who are shoving a truck into that,” Lao says.matched up by UBS and the Clinton Economic Opportunity Initia- Establishing a new relationship with UBS financial advisor Petertive (CEO), a group within the Clinton Foundation. The program is J. Klein, senior vice president of investments, and Klein’s clientaimed at providing the nascent businesses with more sophisticated Peter Furth, chief executive of FFF Associates Inc., a consultingresources and advice than they could obtain on their own. By helping company for the food, spice and agri-chemical industries, came atthe companies grow, the program aims to help them create more jobs. just the right time, Lao says. “To have some help from these guysAnd, the financial advisors give their advice for free. in thinking out the bigger issues and looking at the cash issues was The project is one facet of UBS Wealth Management America’s really, really cool,” Lao says. Lao co-founded Rickshaw DumplingRevitalizing America initiative designed to foster strategies to Bar in 2005 after having worked as a special projects director forstimulate the U.S. economy. “We wanted to have an opportunity high-end restaurants in New York that allowed him to sample theto do something a bit more hands on,” Lori Feinsilver, head of the city’s finest restaurants.CEO-UBS small business advisory program at UBS, says of the pilot The menu includes chicken and Thai basil dumplings with spicyprogram. The firm’s meetings with the Clinton Foundation resulted peanut sate dip and vegetarian edamame dumplings with lemon-san-in an instantaneous recognition of how UBS could “really put the sho dip (Editor’s note: They are delicious!) The recipes were createdgreat work our financial advisors were doing with their clients to with prominent New York chef Anita Lo.use for the broader good,” she says. Lao’s inspiration for the business came from the dumpling dinner The pilot program requires that the teams commit to working nights he enjoyed as a child. As the only child of a single mother, whotogether for six months and check in with each other at least once a has since married, dumpling night was the one night another familymonth. UBS hosts two workshops during that time on topics relevant would come over for dinner. “This is what it’s like to have dinner everyto all of the companies, including balance sheet management and night with a family,’” Lao says of the group dinners, which requiredmarketing. UBS has also provided the teams with a list of partnersin their home office that they can consult on various topics and areasof expertise. “The program has exceeded our expectations,” Feinsilver says.“I think the small businesses are learning a lot, but I wouldn’tunderestimate how much the clients and our [financial advisors]are learning.” The pilot program will finish in February, and plans are already inplace for a national roll out starting in April in Chicago and California,focusing on either Los Angeles or San Francisco. The next programwill include about the same number of teams, Feinsilver says, butmay narrow the current $2 million to $26 million-revenue range ofthe participating companies. The ten participating companies had$8.44 million in average annual revenue in 2010 and altogether had400 employees as of the end of last year. Including Sundial, the personal care products company, andits advisors, On Wall Street sat down with five of the participatingteams, including a construction company, a dumpling restaurant, ahigh-tech firm and an educational materials company to examinehow the partnerships are working out.RICkShaw DUmpLInG BaRWhen Rickshaw Dumpling Bar submitted an application to severalnew kiosks in Times Square, co-founder Kenny Lao did not neces- from left, UBS Svp of investmentssarily think his business would win. “We were like, ‘Let’s throw in peter J. klein, rickshaw dumpling Bar co-founderthis application and then figure it out,’” Lao says. kenny lao, and fff associates ceo peter furth
    • a lot of manpower to wrap and cook the dumplings. “It was so socialand so awesome, and I think a lot of memories aren’t just about thefood. It’s about the people you’re with and the environment and thetime in your life.” But the path to growth has not always been as smooth, Lao says.Rickshaw Dumpling Bar, which has funded itself through individualinvestors, opened a large store in the New York University neighbor-hood, following a “big fat” fundraise at the height of the market in2006, Lao says. That location turned out to be too big for the business,and they shuttered it. “It cost a lot of money and almost took the company down and itwas really scary,” Lao says. In order to get his mind off that failure,Lao started the food trucks. Now, as the company prepares for growth again, Lao has learnedsome lessons. As he eyes new markets, perhaps Boston or Washington,D.C., Lao says he would introduce the brand with trucks first. Andto save money, Lao says he would love to open a commissary downthe road so that the company can save money by also manufacturingtheir own dumplings. Klein and Furth are working with Lao to help him work towardsthose goals, including how to access capital the company will need.Furth, whose business has been in his family for three generations, from left, UBS Svp of investments Holly Hendrix,hopes to see Lao retain most of the ownership. “You want to have Sundial creations founder and ceothe rewards of saying, ‘This is my business,’” Furth says. “You don’t richelieu dennis, and retired retailwant your investors turning on you, or saying ‘I want out,’ and then industry executive and consultanthow are you going to buy them out?” carol greer Klein compares the work they are doing to coming in and skiing flourish, and also consider how his relationship with his businessalong Lao when he comes to a black diamond trail. The opportunity partners needs to evolve.to candidly learn about Lao’s business and watch him grow has been Those realizations, Dennis says, would not have happened withoutvery rewarding, Klein says. “We’re going to be a triumvirate for many his participation in the program, as he typically focuses all of hisyears to come. As [Lao] grows, there might be new challenges that time on all aspects of Sundial’s business, including filling orders forcome up,” Klein says. “But he can reach out to Peter and Peter and retailers such as Target, Walgreens and Whole Foods.say, ‘Here’s what’s going on. How can you help me?’ We’ll always be “We end up making decisions in a vacuum that are reactionarythere for him.” to where the business is versus where it needs to be,” Dennis says. “Just that in itself is a value that will help all of the people that are participating in this make fewer mistakes.”SUnDIaL CREaTIonS Sundial’s product line was inspired by the owner’s grandmother,When you walk into Sundial, located in a former ambulance depot who used to make and sell her own products in Sierra Leone. Whenin Amityville, N.Y., you’re immediately struck by the large yellow Dennis graduated from college in the United States and could notsheets posted on the wall opposite Richelieu Dennis’s desk. The notes return to his native Liberia because a civil war had broken out, hereflect Dennis’s initial efforts after four or five meetings and weekly began making similar products and selling them on city streets. Mostphone calls with Holly Hendrix, senior vice president of investments of Sundial’s natural skin and hair care products have some concentra-at UBS, and her client, Carol Greer, who will serve as a mentor to tion of the shea butter Dennis’s grandmother first sold.Dennis during the six-month program. Greer is a former department Though his relationships with Hendrix and Greer were establishedstore executive whose previous roles include having served president just recently, they already have a familial feel. “It’s not my business,and chief executive of the specialty footwear and apparel division at it’s not [Greer’s] business,” Hendrix says, “but I have to say, sometimesFoot Locker Inc., formerly Woolworth Co. when we’re talking to him, we’re talking to him like it is.” “All of what you see on my wall there is what’s in my head,” Den- That extends to the entrepreneur’s real business family, whichnis says. “Now we are putting it into a form, and in the long run I includes his mother, sister and best friend, who have all been involvedthink it will make everybody’s life a lot easier and it will take away with the company since it first started developing and selling thea lot of complexities.” His work with Hendrix and Greer has helped products from Queens in 1992.him set new goals to create a more stable culture for employees to Today, Sundial has about 35 employees. Dennis says he hopes
    • Cover Storyto grow the business to five times its current size. Since he teamed she hopes will be more robust than previous versions her companyup with Hendrix and Greer, Dennis has been hit with a series of offered. Like those other apps, this one will have photographic im-positive events. The company has won back-to-back accolades for its ages for children to identify, while also adding different levels and aproducts from Allure, Esquire and Natural Health magazines. The rewards system to encourage a child to progress.momentum Dennis is experiencing in his business was more than That app is also aimed at generating more revenue than previousHendrix says she expected. Together, they plan to make sure Den- versions, which the company has mostly offered for free. The newnis is prepared to fully capture current opportunities and establish app would first debut at $4.99 for the iPad and iPhone, while later,a five-year business plan. simplified versions could go for $.99 to $1.99. Eventually, Hendrix says, that could mean taking some kind of Different Roads to Learning has been able to draw on more ex-outside funding. “[Dennis] is at a place where he really needs to sit pertise with this app, Azuma says, from various technology expertsback and strategically think through how he is going to prepare the at UBS, who have also recommended vendors, and Butte, whosecompany for the growth he is about to have,” Greer says. “It takes company also has an app.an awful lot of thinking, and it also takes a lot of understanding of Sager is also planning to help put together a five-year businesshow his role is going to change.” plan for Different Roads to Learning, while also reaching out to UBS departments that may provide concrete referrals to help the company improve its sales. And, the lessons learned are not neces-DIffEREnT RoaDS To LEaRnInG sarily one-sided.The first few months of Different Roads to Learning founder and “As I’ve been looking at the marketing plan and the business planChief Executive Julie Azuma’s work with UBS private wealth advisor overall, it makes me think, ‘Gee, maybe I should take a look at mine,’”Sharon Sager and her client Amy Butte, founder and chief executive Sager says of her financial advisory business. “It’s absolutely been aof financial education company TILE Financial Inc., have led to some wake-up call in terms of managing my practice.”new lessons right away. That includes narrowing the scope of what Azuma plans to do andmore thoroughly considering their financial consequences. mZm ConSTRUCTIon & manaGEmEnT Azuma founded New York-based Different Roads to Learning 16 Marjorie Perry first realized that she wanted to be an entrepreneuryears ago, when here daughter first began showing developmental as a teenager when she traveled from her hometown, Newark, N.J. ,issues. “Nobody knew what it was, and when they found out she had to cities including Atlanta, Chicago and Memphis as a power tumblerthese delays, they asked me to find certain materials and they were for various gymnastics teams and a public speaker for her church.impossible to find,” Azuma says of the special kinds of blocks and In her role as president of Newark, N.J.-based construction andimages she was tasked with tracking down. “I hoped to create a place transportation company MZM Construction & Management, shewhere parents could find these materials.” says her strong sales skills always shine through. “I could sell you Today, Different Roads to Learning sells educational materials the Brooklyn Bridge and make you buy it again next week,” Perryspecifically targeted to autistic children. Its products include books, says with a laugh. “That’s the gift that I have.”manuals and flash cards, all designed to help autistic children learn Perry co-founded MZM in 1992 through a three-way partnership.through features like timers and rewards charts. The business, cur- In 1994, Perry bought those partners out. Today, the company, whichrently with four full-time employees, has expanded with about 12% focuses its work on Newark, N.J. and lower Manhattan, has a rostergrowth per year. Most of the company’s business—about 85%—comes of completed projects including the New Meadowlands Stadium andfrom schools, districts and agencies, mostly in the U.S. and some also New Jersey Performing Arts Center.in Canada. Now, Perry is working with UBS private wealth advisor and senior Azuma has already changed her thinking on how to prepare the portfolio manager Russell Rabito and his client and brother-in-lawcompany for the future growth she hopes to see. That comes after Walter Beal, general manager of Springline Corp., to strengthenButte, a former chief financial officer for the New York Stock Exchange other areas of her business.turned entrepreneur, walked her through a return on investments That will include meeting together to go through how MZM man-statement. Sager and Butte also provided her with lessons on when ages work and watches costs. Beal, whose talent is focusing on thosedebt is necessary, and how to gauge the possible return on new numbers, will also demonstrate the system he uses to track operationsprojects by weighing both costs and projected revenue. and administration for his business. Once MZM installs that system “My staff, the people I work with, are always telling me that I should and is trained on it in the next six months, Beal says, the companybe more focused and more patient about wanting to do everything at can better track its costs. “Once we have our eye on exactly whereone time,” Azuma says. “And when Amy and Sharon said, ‘Can you that bottom line is, then I can project that better on the next set ofjust focus on a couple of things? We could really do these targeted projects that I’m going to bring to the table,” Perry says.things,’ I realized I was the one out of sync.” Getting that financial organization in place can also eventually Now Azuma and her team are focusing on a new educational app lead to hiring more employees to its 15-person staff. Perry says that
    • MZM could definitely use three to four additional people to managethe field, office and internal operations. “The whole point is to get her margins up so she can actuallyafford those people,” Beal says. The program should also better enable MZM to take its financialrecords to a bank and prove how they can get a return from an invest-ment, according to Perry. But the ultimate goal is to get MZM to apoint where it is financing all of its own projects without relying ona line of credit or term loan. For that goal, she can turn to inspiration from Beal, who nowworks with friends at Springline, a company formed in May that iscurrently working on two hotel projects. “Walter is great to talk to because he is no nonsense. He canlook at me or give me a sound like, ‘Okay, Marj, rethink that,’”Perry says. “I go back to the drawing board quickly when I hangout with Walter.”SInU – ThE TECh fIRmWhen Larry Velez decided to create a company in 2004 around a from left, Sinubusiness plan he formed for an outsourced information technology founder and cto larry velez; Sinu principaldepartment for small businesses, he had already had a taste of work- david owen; paltalk founder and ceoing for two startup companies. Jason katz; and UBS managing director That included video streaming website company Pseudo Pro- Jason m. katzgrams Inc., which closed in 2000, and another online video network So we didn’t have to have uncomfortable conversations, like how cancompany Alltrue Networks Inc., which failed to find follow-on you give me a 20% discount?”money after a 2001 fund raising event. “Pseudo was so crazy they Now as Velez is looking to push the business further, he has UBSmade a video documentary about it,” Velez says of the film “We advisor Jason M. Katz, founder and senior member of Katz WealthLive in Public,” which won a Grand Jury Prize for Documentary Management, and his client Jason Katz, founder and chief executiveat the 2009 Sundance Film Festival. Velez wanted to leave less up of Internet chat service provider Paltalk, to help him.to chance with his new business. For that company, named Sinu, Katz and Katz, who are not related, both grew up in Great Neck,that meant relying on a revenue model rather than turning to the N.Y. They connected in their hometown, where they shared similarventure capital funding that those previous companies had fed on interests including basketball, and have extended that relationshipprior to the dot-com bust. as professionals. “We’re forever explaining the other Jason Katz,” “Raising venture money is like strapping a rocket to your back,” Paltalk’s Katz says. (Katz of UBS made On Wall Street’s Top 40 UnderVelez says. “You will go somewhere. You might land where you want 40 ranking in 2009.)to go, you might not. But you’re going somewhere.” Sinu’s growth plans include converting its hardware to a service Sinu started out by taking space in an incubator called SoBRO in in addition to its overall information technology services. Ideally,the South Bronx and taking a loan from a seed support organization Velez says, that would mean refreshing equipment like computersto help it start generating operating revenue. and servers provided to customers every few years like cell phones. Today, Manhattan-based Sinu provides outsourced technology “There’s clearly a very valuable proposition they bring to the table,”services to small professional organizations in industries includ- UBS’s Katz says of Sinu’s plans. “Through a dialogue I had withing architecture and design, consulting, financial services, media, Jason the client and Larry, we realized it was more of a scalabilitynonprofits and real estate. Sinu’s clients typically have between five issue.” To resolve that dilemma, UBS’s Katz plans to connect Sinuto 250 employees. with UBS’s finance experts. Ultimately through the program, Velez Sinu’s model works by charging its clients about $125 per employee hopes they can establish what the best way is for the company to buyper month. With that, the businesses get email, security, data backup the quantity of gear they need and buy it responsibly.and network gear. About 90% of the company’s revenue is recurring If successful, Paltalk’s Katz estimates that that plan could helpon a monthly basis. Sinu double or triple its business very quickly and create more jobs. “When things were really, really tight a couple of years ago, when Velez has already seen some clients who signed up with 20 employeesthe economy was collapsing, we shrank with our customers,” Velez grow to 200- to 300-person force within one or two years. “We helpsays. “As they let people go, their IT budget automatically shrank. remove the friction of that growth,” Velez says. OWS
    • About the CEO-UBS Small Business Advisory Program On June 30, 2011, President Bill Clinton and Bob McCann announced the launch of the CEO-UBS Small Business Advisory Program at the Clinton Global Initiative (CGI) National Conference in Chicago. The objective of this philanthropic partnership between the William J. Clinton Foundation and UBS WealthManagement Americas (UBS WMA) is simple: provide small business owners in underserved communities with the knowledge and skills necessary to support expansion and job growth. The partnership began with a six-month pilot in the New York Metropolitan Area. Over the course of the program, entrepreneurs who currently run high-growth businesses with significant potential for job creationare receiving pro bono, strategic financial and business advice from a UBS financial advisor and a dedicatedclient from his or her corresponding network. Together, these financial advisor and client teams, with ongoingsupport from UBS’s network of specialists and thought leaders, are providing each small business owner with the analytical expertise and business acumen necessary to achieve long-term success. The Small Business Advisory Program is the next step in UBS Wealth Management’s Revitalizing Americainitiative, which brings together the business, government and nonprofit sectors to develop actionable solutions to revitalize our economy. About UBS Wealth Management AmericasUBS Wealth Management Americas provides advice-based relationships through financial advisors who delivera fully integrated set of products, services and solutions specifically designed to address the needs of ultra high net worth and high net worth individuals and families. It includes the Wealth Management U.S. business, the domestic Canadian business and the international business booked in the United States. For more information please contact: UBS CEO Initiative Lori Feinsilver Julie Wang lori.feinsilver@ubs.com jwang@clintonfoundation.org ©2011 SourceMedia, Inc. and On Wall Street. All rights reserved. SourceMedia, One State Street Plaza, New York, N.Y. 10004 (800) 367-3989