Global South Metro Exchange
Featured In Issue: CLT.biz Insights 16.10.08
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Food, the ultimate consumable, is experiencing unprecedented changes throughout the supply chain. It’s an area that John C. Fennebresque Jr. sees opportunity in for an investment banking firm focused on “the sector’s changing consumer habits, disruptive agricultural technology, and the resulting impact to the broader market.”
Fennebresque, managing partner of Charlotte-headquartered investment banking and advisory services firm Fennebresque & Co., sees it as a sector “that will touch many aspects of the economy over the next several years.”
In choosing the “seed to sale” niche as the firm’s focus, Fennebresque & Co. serves clients across the full spectrum of the food value chain, companies whose services range from improving ways to grow food to putting it on the table.
“The far-reaching food value chain is rapidly evolving, and it has never been more critical for companies to understand their opportunities and vulnerabilities,” explains Fennebresque. “We want to assist companies that are involved in reshaping the food industry. Our clients are primarily middle-market companies, but range in size from startup to Fortune 500.”
The Food Value Chain
“Agri-bio technology is a rapidly evolving segment,” continues Fennebresque. “Development is being driven by advances in genome sequencing which, in turn, accelerate an understanding of food growth and safety, forcing producers, regulators, and consumers to better understand where technology and the food chain intersect.”
“New technology is changing processes like developing natural alternatives to address pests on major crops, finding crops that grow in arid climates, and developing biomarking and GPS systems for tracking produce and other foods.”
The change in the food chain continues all the way through to the consumer.
“As consumers become more health-conscious, they are looking for food that is produced with less chemical residue and with better nutritional value,” explains Mark Spizer, Fennebresque & Co. vice president. “Consumers in the U.S. are increasingly looking for natural food and natural alternatives to chemical pesticides.
“Millenials, or those under 30, often position food choices as an important component of their lifestyles,” comments Spizer. “They are increasingly health-conscious and there are those that think nothing of spending $8 for a green energy shake.”
“Boomers, who are used to dominating the food chain, want to find natural food that tastes good,” adds Spizer. “The overarching theme is that consumers want to make informed choices.”
Food and beverage companies themselves are also concerned about public criticism and negative publicity stemming from the use of unpronounceable components or unfamiliar ingredients, removing them from their processing or finding alternatives.
For example, Starbucks last year removed cochineal extract, a red dye made from crushed bugs, from its food and drinks after consumers started an online petition calling for its removal. Pepsico removed brominated vegetable oil from Gatorade earlier this year, and Kraft Foods is reformulating some of its macaroni and cheese products to remove the artificial dyes.
Chick-Fil-A is also removing artificial dyes and high-fructose corn syrup from dressings and sauces. Even the french fry is seeing improved health benefits—several large chains are using expellar pressed oils which retain higher levels of omega 3 and vitamin E and removes hexane from the traditional cooking oil refining process.
These industry moves show how ingredients can become a liability if they are not accepted by the public—and an asset if positioned correctly.
Food producers, as well as distributors, are involved. Consumers care about where their food comes from. They want to be sure it is safe to eat. Health care providers and government regulators are connected, both concerned about consumer diet, health trends and costs.
“What you eat is directly related to your health,” adds Spizer. “Consumer health impacts health care costs and the huge health care debate going on now.”
“In order to feed an exploding world population, agriculturalists have to look for new ways to increase product yield,” points out Fennebresque. “They must meet the challenge of growing products in less than optimal conditions—in arid climates and poor soil, for example, as the world reaches limitations on arable land.”
Understanding the “disruptive” changes that technology is bringing about in the food industry is not easy. Disruptive change includes genetic modifications in food, says Fennebresque, or introducing beneficial microorganisms into an ecosystem to promote plant and animal health. It also includes the continuing changes in the safe use of chemicals in agricultural products.
It increases the amount of new information for all stakeholders in the process.
Fennebresque sums up their niche: “Technology and evolving consumer trends are bringing together players in different food sectors to alter some traditional components of the food industry. The ecosystem is evolving to accommodate the new technology, and large investors are very interested in investing in this space.”
Fennebresque & Co. is playing a growing role in the new food value chain marketplace.
“Where there is change, there is opportunity, and we’re going to see where that opportunity takes us,” says Fennebresque.
Home Grown, and Still Growing
Fennebresque, a native Charlottean, was working in New York City for Credit Suisse First Boston when 9-11 hit. He watched the second plane crash into the World Trade Center from his office window. Most people went home, but his team was working on a major deal with Enron (before the company’s collapse), so they were asked to stay and work the rest of the day.
On his 60-block walk home to the Upper West Side, after a day when much changed in the world, he was reflective. He thought about working while most of the country wept or prayed.
“It just didn’t make sense for us to be there working when we should have been with family and friends,” says Fennebresque. “That’s when I decided to come back home.”
A few months later, he returned to Charlotte to work with Hugh McColl Jr. at McColl Partners. In 2007, he opened Fennebresque & Co., a firm that now includes 10 partners and associates with offices in Raleigh, Charleston and New Orleans.
Fennebresque & Co. works with firms that are looking for a strategic approach to their mergers and acquisitions and structured deals. Fennebresque says his firm is extremely nimble and able to choose the deals they work on.
The firm, which includes advisory partners, completed 15 deals over the past three years with regional and national clients. About 80 percent of them range from $50 to $150 million, says Fennebresque, but they are less focused on size and more on strategic positioning.
The firm has had notable success selling relatively smaller companies to larger companies. Fennebresque says assessing the strategic importance of the entity is key.
Brokering deals successfully is an art that Fennebresque & Co. does really well, says Bradley King, former CEO of Lonesource, Inc., a Cary-based office vendor.
Lonesource is an office supply company that supplies small and mid-size companies with break room transactional products such as coffee, tea, and supplies, and all other office products. Started in 2000, when it “barely scratched the surface of revenue,” says King, it grew to peak of $63 million and started doing acquisitions in 2008. In 2013, Lonesource was acquired by Staples in a deal set up by Fennebresque.
First introduced to Fennebresque & Co. by his company’s attorney in 2011, King says he spent about two years in advance of the sale working with the firm.
“John and his associates really spent time getting to know our business and management team, so that they could understand the complexities of our business. They explained our company in a memorandum that could be served up to possible suitors.
“John’s a pro. He has in-depth knowledge of sell-side transactions; he advised and prepped us,” says King. “Nothing ever came up that he didn’t know how to deal with it. He’s a very seasoned banker who did a fantastic job representing us.”
The acquisition took about nine months, “exactly what we expected since John had prepared us for it,” explains King, who called it the right transaction for his company.
“We were properly educated and properly informed,” adds King. “There was never a point in the transaction when I felt like I didn’t know what was going on. I would recommend Fennebresque & Co. to anyone consider selling their company.”
Disruptive Change Technology Deals
“In investment banking, there is no typical deal,” explains Fennebresque. “Every project you do is different. Growth-oriented companies usually want to do something with strategic positioning to distinguish them when they go to market.”
Fennebresque says the firm is now focused on winding down “generalist” deals, and proactively marketing in the food sector, or seeking to make the connections that involve the disruptive change to the food value chain.
“Technology and consumer preferences are developing rapidly,” acknowledges Fennebresque, “and the ecosystem is evolving to accommodate them. It’s a continuous process.”
A major deal brokered by Fennebresque & Co. this fall involved the acquisition of the Center for Agricultural and Environmental Biosolutions (CAEB), a company specializing in sustainable agriculture research, by FMC Agricultural Solutions, resulting in a global strategic alliance.
CAEB in Research Triangle Park is a division of North Carolina-based RTI International, jointly owned by Duke and the University of North Carolina, that employes “more Ph.D.s than any commercial business in the country,” says Fennebresque.
“North Carolina is to agricultural technology the way that Silicon Valley is to computer technology,” explains Fennebresque.
The deal will produce new crop protection products that will help farmers around the world fight resistance and work to maximize yields, and has been described as “connecting a world-class library of microorganisms, deep expertise in biological discovery, and an exclusive strategic alliance with one of the world’s foremost authorities on microbial research and fermentation.”
“It was a once-in-a-lifetime opportunity to work with Dr. Niels van der Lelie, a leading researcher in the field of microbiology,” says Fennebresque. “When we began the work we didn’t know how it would turn out, but we did know how valuable it was to work with the scientific team.”
“This deal was a turning point for our firm,” says Fennebresque. “It was the caliber of the deal that drew the strategic interest of major global companies.”
While Fennebresque will not divulge financial information on the high-profile deal, he places its strategic importance in the neighborhood of the recent acquisition of AgraQuest by the Bayer Group for about $500 million to develop products for biological pest and disease control. He also noted that FMC’s market capitalization grew by almost $2 billion following the announcement of the transaction.
“It was exciting because it is important,” he explains. “Our firm played a role in accelerating this trend. It was an opportunity of converging paths and we had the chance to have an impact in this food value sector.”
As a result of the deal, Fennebresque & Co. has become firmly focused on bringing together food industry veterans and advisors to seek new opportunities in the food value sector. Advisory partners include Tom Christensen, CEO of Ag TechInventures, an authority in precision farming research and development, and Brandy Salmon, who leads the food and agriculture practice for the Innovation Advisory Team at RTI International.
In addition, the firm includes financial advisory partners Kim S. Fennebresque, senior advisor to Cowen Group Inc., and Benjamin P. Jenkins, former vice chairman of Morgan Stanley & Co. and Wachovia Corporation.
“That’s the beauty of specialization,” says Spizer. “People are coming to us. We’re starting to gain some wisdom about the different elements in the food value chain and how the pieces fit together.
“John is a strategic thinker who is able to take a fresh look at the things happening in the food value chain.”
“We’ve had terrific early success. We’ve closed several deals this year and there are several more in the pipeline,” says Fennebresque. “We are still relatively early in our new positioning in the emerging elements of the food value chain, but we have terrific traction.”
There are no products for sale at Rinehart Wealth Management—no insurance, no mortgages, no bonds, nor any other financial or complicated investment products. Yes, stocks are traded and mutual funds are employed occasionally, but there are no commissions or back-end fees paid for those transactions. That’s the only way Mary Rinehart, founder and chief executive officer of Rinehart Wealth Management, will have it.
“I’m a big believer in fiduciary responsibility and that is what we are committed to,” states Rinehart who is a registered investment advisor. “When we invest your assets, you are the sole beneficiary.”
Over the past 29 years, Rinehart has built Rinehart Wealth Management into a highly successful, fee-only financial advisors company.
“When I started out in 1985, I was the only fee-only company in Charlotte,” remembers Rinehart. Still today, fee-only companies represent a tiny fraction of the financial industry that is mostly made up of companies who sell financial products on commission and charge performance-related fees. Rinehart Wealth Management is the largest fee-only financial advisors company in the region.
Rinehart has her reasons: “I decided early on that I never wanted anyone to question my integrity; I can never be accused of having a conflict of interest. I’m going to give you the best advice I can, and I won’t put anything in my back pocket.
“Clients pay us a percentage—usually one percent— of their assets under management. The percentage goes down as assets under management go up.”
Rinehart Wealth Management has evolved into a boutique wealth management firm for individuals and families who have between $1 to $10 million in liquid assets.
“We offer very comprehensive wealth management solutions for a lifetime,” says Rinehart. “We learn and evaluate the client’s financial goals and needs and strategize how to allocate their assets to meet those goals and needs.”
“Our work is individualized, customized,” continues Rinehart. “Every portfolio is different. Every client has different needs and capacity for risk-taking.”
“A $1 to $10 million portfolio is really our niche, where we do our best work,” says Rinehart. “We’re not looking for the $50 to $100 million dollar client because we don’t have the staff to take care of, say, ranches in Texas. We work with families who need to set money aside for college expenses and retirement.”
Rinehart has gained the loyalty of scores of clients, many of whom have been with the company since its beginnings. Rinehart Wealth Management currently manages $289 million in assets and earned over $2 million in revenue this past year.
Investing With Integrity
Rinehart Wealth Management’s success has as much to do with Rinehart’s wisdom in investing in her own company as her expertise in making investments for others.
“We have very sophisticated asset management—unusual for a firm our size—made possible by state-of-the-art asset management tools and the people who know how to fully use them,” says Rinehart. “We’ve invested significant money to obtain computer software programs and tools and to attract the brightest people in the field.”
Daniele Donahoe joined Rinehart in 2009, following an impressive career in the financial industry, and now serves as president and chief investment officer. Donahoe is a graduate of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and a Chartered Financial Analyst (CFA). Additionally, Donahoe co-managed a small cap equity mutual fund at Bank of America prior to joining Rinehart.
Rinehart Wealth Management’s staff consists of nine employees who work as financial advisors, investment managers or in client services. Each client has a financial advisor and an investment team working on his/her behalf. All analytical work and trading is done in-house.
When Donahoe joined the firm, she recommended introducing FactSet as its primary research tool. After using the software for over a decade to manage institutional money, Donahoe knew FactSet would allow for more sophisticated investment research for the company’s clients.
“I have not come across many advisors that utilize FactSet to manage individual portfolios. It is a differentiating technology,” says Donahoe. The company also implemented Tamarac which offers Registered Investment Advisers an integrated web-based platform developed to provide more robust regarding performance reporting, billing, trading and customer data management and security.
“Tamarac is an investment tool integrating client management and portfolio management,” says Donahoe. “We cater to the difference in individual situations and manage clients independently. To do so without these tools would be very laborious and time-consuming as in the days prior to computers.”
“As a matter of fact, mutual funds have so proliferated that it would be impossible to manage them without these tools,” says Donahoe. “This is even more relevant with exchange-traded funds or ETFs.”
Rinehart also points out that the advent of computers and computer software has also gone a long way to assure objectivity: “It used to be when you wanted to do some research on a company, you had to go to the company, talk with the managers, and look at their books—and you had to do it by yourself. You could hire an analyst to do the research but you didn’t know their allegiances; who was paying them.
“Being able to obtain raw information and data and cull that data was a huge breakthrough in decision-making,” says Rinehart. “There’s nothing magic about making decisions if you have good data and a good head on your shoulders.”
Rinehart explains that prior to the economic crash of 2008, everyone was counting on the rating agencies such as Standard & Poor’s, Moody’s, and Fitch Group to give them the right kind of information about bonds.
“Turns out they were being paid by the companies that they rated. When you can’t trust somebody to give you the right information, you better go get it yourself,” she says. In her opinion, not enough financial reform has taken place in the wake of the financial scandals in recent years.
Still, Rinehart says, she’s concerned about the reform that may take place. Congress will likely take up legislation in the coming year that will decide what body—the Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) or another—will have oversight of investment management companies.
“It’s critical that they keep fiduciary standards at the highest level,” insists Rinehart. “FINRA, for example, regulates brokers and insurance agents. They are not the appropriate agency to regulate fee-only companies. The intention behind the legislation is to raise the [fiduciary] bar but, depending on who they put in charge, they may actually lower it.”
An Affinity for It
Rinehart was born and raised in Charlotte, leaving to earn her degree from Sweetbriar College in Virginia. She began learning about financial planning and the investment industry at her father’s side. She was in her mid-40s; he was in his 80s. Rinehart cared for her parents in their final years. Her father, a retired textiles broker, was heavily invested in New York City bonds that defaulted in the 1970s.
At the time there was nobody in Charlotte to turn to unless you had $25 to $50 million, says Rinehart. People went to New York to find a real investment advisor; one that did their own analytical work.
After taking on her father’s multi-faceted investment portfolio and settling her parents’ estates after their passing, Rinehart believed that there were other people she could help to manage their financial lives. Rinehart took related courses at Queens University, embarked on studies to become a certified financial planner, and began to work with clients.
“In 1985, I got my first three clients. I still have two of them,” she says proudly. Rinehart’s business quickly evolved into investments. “I wasn’t brilliant, but I knew I could produce a better return for them. I love money management, love the market; I just have an affinity for it.”
She originally operated under the name of First Personal Financial Services, Inc., but subsequently conducts business as Rinehart Wealth Management.
Rinehart lives in Charlotte with her husband of 51 years. They have two adult children and two grandchildren. “My husband always thought my career was a great idea. It took him a while to figure out if I was going to make any money. Now I manage his money and he thinks it’s fabulous.”
Circumstances around wealth have changed over time, according to Rinehart who explains that wealth today usually comes from the sale of a business. “It’s not about family money anymore unless there is a family business involved. Doctors and lawyers aren’t the wealthy people out there now. They do well, but they are not the people going out and buying yachts.
“It’s hard to accumulate wealth today,” she adds. “Life is expensive. Plus, Americans love to live in the now and don’t plan for what the future has in store for them.” Rinehart cites the increase in life expectancy as an additional financial problem. “Savings that used to have to last for 10 years now have to last for upwards of 20 years.”
Rinehart’s success has not come without its share of challenges over the years.
“It was hard getting the word out,” says Rinehart about the company. “It’s taken me 28 years for people to know what I do. Plus, being a woman in the financial world of the ’90s caused many to question my ability. Some men still question. And, while Charlotte has been a good location for me, there were three large banks that dominated the financial world here.”
Fear, in this business, is another challenge, according to Rinehart. “Keeping clients vested through all financial cycles is key. Those who couldn’t take it during the economic downturn and got out of investment are the ones that suffered greatly.”
In 2003, Rinehart expanded her service offerings by partnering with 100 other registered investment advisors (RIAs) to establish the National Advisors Trust Company as a corporate trustee.
“I was the first to raise my hand because I had three huge banks in my backyard,” notes Rinehart. “The trust company does all the filings and accounting work; the RIAs trade through them.”
Rinehart has always had a strong commitment to community and charitable causes. Early on, she made the decision to give 10 percent of the profits of Rinehart Wealth Management to charity, and has accomplished that each year she’s been in business. A strong advocate of childhood education, women in crisis, treatment for addiction and the environment, Rinehart continues to have a significant impact in the Charlotte area.
Rinehart Wealth Management has recently become a HOPE team with Charlotte Family Housing. The HOPE teams have been shown to be instrumental in helping families to escape the cycles of poverty and move forward.
Rinehart Wealth Management has recently appointed two experienced Charlotte-based financial executives to its newly formed advisory board. G. Kennedy (Ken) Thompson and Charles Conner Jr. sit alongside Rinehart and Donahoe and a fifth member to be announced. The advisory board helps direct the firm on future growth and development goals, including strategic planning and process improvement.
“Both of these key advisors bring a wealth of industry knowledge that will guide our decision-making process toward successful future growth. From details on legislation to industry technological advancements, these individuals will be an immense asset to our firm,” says Donahoe.
With good reason, Rinehart is confident of continued growth. Rinehart Wealth Management brought on 17 new clients during the past year. “It’s such a great company. I ultimately plan to sell it to my employees. Everybody here is young, excited, energized and loves the business and helping people. They see the great potential in the company.” Donahoe’s recent investment represents the first employee ownership in the company.
Still, Rinehart has no target date for retirement. “I love what I do and I still think I can add something to the company,” says Rinehart, although she admits that working two to three days per week and playing more golf sounds appealing.
“Besides, I have clients that I’ve had for years and they say I can’t leave. After all, I did promise them lifetime wealth solutions,” she affirms with a smile.
Where babies come from and the source of our drinking water are two great mysteries of life. We learn quickly enough the answer to the first question. The second lingers unresolved into adulthood and then is largely forgotten.
Groups concerned about H2O think adults need a water wakeup call, some statistic that puts the faucet in our face. Richard C. “Rick” Gaskins Jr., executive director of the Charlotte-based Catawba Riverkeepers Foundation (CRF), has a good one: If present trends continue and we fail to solve our water problems, Mecklenburg County will run out of water by mid-century.
To solve that massive problem—and Gaskins is convinced that it is solvable—the water-drinking public first needs to return to its long unresolved water question: Where does our drinking water come from?
For a few of us, it is the well in the backyard. Lisa Corbitt of Mecklenburg County Groundwater and Wastewater Services estimates that 15 percent of the drinking water in Mecklenburg County comes from wells. Thousands dot the landscape, especially in Mint Hill, Davidson and Paw Creek. Statewide well use is a lot higher. Approximately 50 percent of North Carolina’s drinking water comes from wells according to Corbitt.
For the other 85 percent of Mecklenburg County, the major source of drinking water is the Catawba River. That’s the same Catawba River that topped American Rivers’ list of most endangered rivers in America in 2008 and is currently fifth on the list. Pegged as at risk from coal ash pollution are the drinking water, recreational enjoyment, wildlife habitat and the recreational economy. It is a river under tremendous stress.
“It is important for people to understand that Mecklenburg County is unusually dependent on the Catawba River,” says Gaskins. “Most large urban areas of the United States have multiple river sources of water. But if the Catawba River gets contaminated, where are you going to find that much water? Regardless of whether it’s for drinking or industrial use, the economy starts grinding to a halt if you don’t have plentiful clean water.”
Historically, dependence on the Catawba River water supply went into overdrive during the 20th century. That’s when entrepreneurs realized its vast economic potential. Beginning in 1904 with what is now Lake Wylie, power companies began erecting the first of 14 dams along the 320-mile Catawba River. That process continued until 1963 when the dam at Lake Norman was completed. All of the dams were eventually absorbed into Duke Energy.
The dams created 11 lakes along the Catawba, from Lake James in the mountains to Lake Wateree in South Carolina. An interrupted Catawba helped insure recreation, stimulate economic growth, and increase the fortunes of Duke Energy.
While no one owns the Catawba, Duke Energy manages and controls most of it. A 2006 study found that Duke consumed almost half—48 percent—of all the water taken from the Catawba every day and not returned. In some cases, an individual power plant uses 1.5 billion gallons a day. Yes, billion. Although most of that water is returned to the river, a significant portion evaporates.
“I don’t know of any other river in the country where power plants consume that much water,” says Gaskins.
The water Duke removes is used to cool its three coal-fired and two nuclear power plants before it is returned to the Catawba. In the summertime, the water Duke Energy takes in from the bottom of the Catawba is 68 degrees Fahrenheit; the water it returns can average 103 degrees Fahrenheit.
And what about drinking water?
The water removed from the Catawba River by the 67 city and municipal public water utilities in
Water treatment plants clean and distribute water from the Catawba. After we drain and flush it, waste water treatment plants attempt to decontaminate raw sewage and gray water and, at least in theory, return cleaned water to the Catawba.
Other water consumers are agriculture at 18 percent and industry at a meager two percent. Agriculture in the Catawba basin is not only corn and soy beans, but also sod farms and ornamental nurseries. Instant lawns require a lot of water during their growth and development stages. The reason industry consumption is so low is that only a few industries are permitted to draw water directly from the Catawba. Most
Threats to Clean Water
There are major downsides to having the Catawba River so power-centric. Ash pits are one. Some refer to them as ash ponds, ash lagoons or ash basins. In North Carolina, these pits are unlined, so they are essentially massive holes in the ground where coal combustion waste is dumped. All of these unlined ash pits in North Carolina have contaminated ground water.
After years of inaction, environmental groups this year found a way forward. They threatened a law suit under the Clean Water Act, not once but three times. And it has worked.
In January 2013, the Southern Environmental Law Center (SELC), representing the Sierra Club, the Waterkeeper Alliance and the Western North Carolina Alliance, notified the North Carolina Department of Environment and Natural Resources (NCDENR) of its intention to file suit against Duke Energy for coal ash pollution at its power plant on Lake Julian, near Asheville.
In March 2013, SELC again notified the state that it intended to file a similar suit against Duke for coal ash pollution closer to home, at the Riverbend Steam Station on Mountain Island Lake on the Catawba River. The Catawba Riverkeepers were part of that suit. In June, SELC told the state it intended to sue over pollution on the Cape Fear River near Wilmington.
Finally NCDENR felt the heat. In August 2013, they filed lawsuits seeking injunctions against all of Duke’s coal fired power plants. Every Duke Energy ash pit in North Carolina was included in the state’s action.
“The lawsuits against Duke regarding ash ponds are currently in the preliminary stages,” says Gaskins. “To the best of my knowledge, Duke has not cleaned up any of the ash ponds it owns and certainly not any of its unlined ash ponds on the Catawba River.”
South Carolina Electric and Gas has reacted differently. It has agreed to clean up its ash pond on the Wateree River as a result of the lawsuit filed by SELC on behalf of Catawba Riverkeeper. “SCE&G is ahead of schedule on the cleanup,” says Gaskins.
Power plants, paper companies and industrial polluters are huge, highly visible targets for environmental groups. Going after them makes headlines. In Riverkeeper lingo, they are point sources of pollution.
But it’s the non-point sources that are North Carolina’s greatest polluters. “That’s you and me,” says Gaskins. “We want paved parking lots, big houses with huge roofs, golf courses and lush lawns. That means runoff fertilizers, herbicides, insecticides, toxic chemicals, bacteria and nutrients in our streams and rivers. All have harmful effects on drinking water supplies, recreation, fisheries and wildlife.”
Quantity More Contentious Than Quality
For all its attention in the press, water quality is not the top issue facing our area or the Catawba Riverkeepers. It’s water quantity—how much, not how clean.
Gaskins’ quote about Mecklenburg County running out of water by mid-century is founded on two hypotheses: economic growth in our area and the resulting demand for more water.
“The more parking lots we install, the more oil-contaminated water runs off to creeks and streams, not to the ground underneath the pavement. An inch of rain on a parking lot is producing 26,000 gallons of storm water runoff,” says Gaskins. “That runoff goes into the creeks almost instantaneously as compared to a natural environment where there would be very little runoff and most of the water would soak into the ground, recharging the groundwater table.”
Forests, grass, soil and trees create a steady flow to the river. Parking lots and streets—the consequence of economic growth—create what Gaskins calls “flashy flows.”
“To stop flashy flows, developers could, if we had the political will to demand it, create retention ponds next to the asphalt. Or put tanks underground to hold back the first three inches of a rain shower. It’s doable,” says Gaskins.
Economic growth will also drive demand for more power and thus more water. Gaskins’ solution: water conservation by Duke Energy. But what incentive is there for Duke Energy to conserve? It draws the water from the Catawba River at no cost. Even minimal conservation would not be cost-justified in a harsh economic world.
“If you have to spend a penny to save a gallon of water, it is costing Duke Energy money,” says Gaskins.
One of the most contentious issues facing the area is demand that comes in the form of inter-basin transfers or IBT. In 2002, the prolonged drought and expanded economic wealth led the cities of Concord and Kannapolis to request additional water from the Catawba River and the Yadkin-Pee Dee basin.
The cities wanted to withdraw a maximum of 36 million gallons per day from the Catawba River. All their drinking water came from three lakes where the combined draw was approximately 14 million gallons per day. After years of litigation, a settlement was worked out between the towns and Catawba Riverkeeper.
“We have a template for settling these issues,” says Gaskins. “It’s water conservation.” The cities that want to tap into the Catawba River have to institute water conservation programs. One such measure was that the cities require low flow plumbing fixtures in their building codes.
The result was that neither
Like non-profits everywhere, Catawba Riverkeepers Foundation has more mission than money. In round numbers, they raise around $300,000 each year with an additional $100,000 of in-kind donations from advocacy groups with a similar mission.
With those funds it hosts a soon-to-be revamped website, a newsletter, and designated Clean Up Days on the river. The group trains Citizen Patrols to identify sediment and erosion violations at construction sites. There is also a Youth Kayaking Program to get young people on the river.
“Once citizens see the problem through aerial photos or by kayak trips or field trips, they get it,” says Gaskins. “If they see pollution, they’ll be convinced.”
Gaskins and his staff are advocates for the Catawba. They speak out for its welfare at public hearings, in court and with public officials.
Chief among their allies are the Southern Environmental Law Center and the North Carolina Conservation Network. Donations from individuals and organizations make up 94 percent of CRF’s cash income. Grants and investment earnings bring in the other six percent.
The foundation came into existence as a result of concern among groups in the region that no entity was focused on the Catawba River. Local governments joined in and with the help of the Foundation for the Carolinas, the Catawba Riverkeepers was formed in 1997. The first Riverkeeper was hired in 1998.
Catawba River Foundation also relies on a cadre of volunteers stationed throughout the region. Some take an active role in serving as the Riverkeeper’s eyes and nose. Known as Lakekeepers, Covekeepers, Water Watchers and Steam Watchers, they are on the lookout for pollution. These volunteers regularly report their observations to the sole Riverkeeper on the payroll, Sam Perkins.
It is Perkins, known for his beagle-like inquisitiveness, who explores, samples and tests the waters and environs along the entire
Perkins also trains and supervises volunteers and educates the public on water issues. Perkins’ background seems ideal for this work. He has bachelor’s degrees in journalism and environmental studies as well as a master’s of science in environmental studies, all from the University of North Carolina at Chapel Hill.
Gaskins comes to his role as the
Before coming to Catawba Riverkeepers Foundation, Gaskins was in private practice as an environmental attorney. His resume includes past chair of the Environmental and Natural Resources Law section of the North Carolina Bar Association and past vice chair of the American Bar Association’s Toxic Torts and Environmental Litigation committee. One writer has described him as “a walking encyclopedia on toxic torts and environmental litigation.” He is the organization’s fifth director.
Though faced with the ever contentious issues involved with protecting water quantity, water quality and water security, Gaskins and Perkins are optimistic about the future.
“Everybody gets water,” says Gaskins. “Ultimately, people want clean water to drink and to swim in. They want to eat the fish they catch. With water, it’s us. We are causing the problem.”
On November 18, 2013, Mecklenburg County Superior Court ruled that the Catawba Riverkeepers deserve a seat at the table when the state negotiates with Duke Energy on the ash pond issue. The Riverkeepers are not in favor of a slap on the wrist, a small fine and a sweetheart promise to do better.
Perkins wants results: “We will work to see that Duke energy’s toxic coal ash in cleaned up.”
Like the Lorax in the Dr. Seuss classic, the Catawba Riverkeepers speak for the river.
Photo by Fenix Foto
A scan of business announcements of new presidents, chief executives, and appointments to boards of directors in industries as diverse as distribution, higher education, supermarket retail and health care will often turn up something in common—Coleman Lew + Associates were involved in the placement.
Charlotte-based Coleman Lew + Associates is a high-end, international, retained executive search and leadership development firm. “Our core competency is identifying, evaluating and recruiting leaders for our clients,” explains Kenneth D. Carrick Jr., president of Coleman Lew.
The firm’s mantra is “Opportunity is an open chair,” and they’ve taken advantage of quite a few as Charlotte’s largest placement firm. They are adept in executive search and leadership development, networking globally to scout and recruit the best hires. Serving a widely diverse roster of public, private, non-profit and international clients for over three decades, they’ve more than shown the complement of that mantra, “Nobody can fill our chair.”
A Generalist Approach
“We help our clients solve a leadership need,” explains Carrick. “For whatever reason, whether it be retirement, promotion, attrition, reorganization, termination or starting something new, our clients have a leadership need and we can think creatively and help them in recruiting and evaluating those leaders. We do it in a consultative capacity. We’re a partner to our clients.”
Carrick, who graduated summa cum laude with a bachelor’s degree from Catawba College and an MBA from Wake Forest University, has been with the firm for 28 years and has conducted over 200 executive searches, developing a strong client base in retail, manufacturing, education, non-profits, banking and energy.
Other focus industries for the firm include health care, distribution, construction, government and financial services but as founder and chairman Charles E. (Chuck) Lew states, “There are no limits as to what industry we can assist. As long as we understand the business or entity, we’re comfortable working with them.”
Because they serve a multitude of industries, Coleman Lew is considered a generalist firm but it began in 1979 specializing in searches for the food retail and food distribution industries.
Lew, who earned a bachelor’s degree from The Ohio State University and pursued graduate studies at
When he decided to start his own firm, Lew looked at the Southeast and Southwest as potential locations. Tampa/St. Petersburg, Birmingham, Richmond, Nashville and New Orleans were all under consideration, but one visit to Charlotte made the decision.
“I came to Charlotte first,” says Lew. “I’d never been here before in my life but I drove here with my wife and her sister and it looked like a really nice place to live. We never even looked at another city.
“Charlotte also had the best statistics,” Lew continues. “Back in 1979, there were 5.2 million people within a 200-mile radius of Charlotte and cities like Greensboro, Winston-Salem, Columbia, Greenville or the Raleigh/Durham/Chapel Hill area preferred to do business in Charlotte over Atlanta or Philadelphia, so it was actually a large market.”
Coleman Lew’s transition to a generalist firm began 17 years ago, spawned from need, organic evolution and intentional design.
Lew explains, “We had clients all over the country in the food retail and food distribution industries but we had too many clients in certain sectors and the industry was consolidating. Since we don’t recruit from our clients, that shrunk our pool of candidates.”
Some diversification grew from existing business. “Our retail and food distribution business led us to other parts of distribution,” says Carrick, “and manufacturers who hired us for our expertise in distribution would then hire us for searches in manufacturing.”
The purchase of another search firm specializing in banking and nonprofit brought those industries on board and the move into higher education was strategic and purposeful.
Both Lew and Carrick agree there are distinct advantages to being a generalist firm. “For high level positions like the next CEO of a business, you not only want to look in that industry but you want to look at ‘out of the box’ candidates from an adjacent industry or even someone with an entirely different background,” Lew explains. “Some specialized firms act almost like clearing houses where they’re placing people that have the same set of experiences and there’s no value added.
“We’ve done some searches where there is no one logical place to source candidates and so our expertise is consulting with a company or a board and figuring out what they want and where that person might come from.”
“An example might be a search for a college president,” adds Carrick. “The traditional path to college president is through the academic ranks. That would be where a specialist firm would focus. But in searches that we’ve managed, we try to think as broadly as possible. For instance, one college hired a company CEO who had a Ph.D. and another hired a fundraiser from a major university.”
“This happens a fair amount of the time, especially at high level positions,” Lew adds.
Each Search is Unique
No matter the search, it all begins with the client. “We have to know the client, their culture, what they want in a leader,” Carrick says. “It’s much more than just getting a position description. The technical expertise of a person is only a small part of whether a person is successful in a new position. They have to be able to fit and work within the culture. You have to define all that up front. Our first step with any client is listening to them and understanding.”
After fully understanding the need, Coleman Lew uses a proactive approach to identify people to meet the client’s goal followed by a comprehensive evaluation phase before candidates are presented to a client.
“We conduct an historical interview where we walk somebody through their life,” explains Lew. “We find out where they’re from, how they grew up, why they decided to go to a particular college and if they’ve made position changes, why they occurred.”
“We deal with the most complex element in an organization—their people, so instead of just looking at a snapshot like a resume, we create a movie,” Carrick says. “When we present a candidate, we give the client an executive summary. We also provide a written evaluation of seven different areas of pertinent information that the client may not pick up from just reading the resume and we spend time verbally covering each candidate with a client. We can also offer personality profiles as additional information on candidates.
“Our disciplined, thorough process allows the client to make a more informed and better choice to meet their objective than they would have been able to do on their own.
“If we do our job correctly, by the time our clients get to their finalists, all of them will have the skills to do the job. It’s then a matter of who they think fits best in their organization.”
After completing the initial vetting, Coleman Lew presents a select group of candidates who meet as closely as possible the client’s objectives and then moves into an advisory role to help clients in their own evaluation process, checking backgrounds and references and assisting in crafting the offer.
Coleman Lew is proud of their success rate. Industry-wide, only about 60 to 65 percent of searches are ever completed. Coleman Lew greatly exceeds that with completed searches at 92 to 93 percent. Lew credits their success to “people and process.”
“What we sell is our service and our judgment,” adds Carrick. “We have always been a ‘high touch’ organization. Our focus has always, unwaveringly, been on quality and that’s reflected in our business.”
Coleman Lew’s focus on quality is reflected in their involvement in The Association of Executive Search Consultants (AESC). In 2010, Carrick was selected to be director of the Americas for the elite association that represents the top 250 search firms in the world.
“We adhere to the highest standards in the industry,” Carrick continues. “That is one of the reasons about 85 percent of our business is either repeat or referrals from an existing client. We have longstanding relationships with our clients.”
Coleman Lew’s longest current client relationship dates back over 30 years. Boyd L. George is the third generation and chairman and CEO of Alex Lee Inc., the largest privately-owned food services company in the Southeast. Alex Lee subsidiaries include Merchants Distributors Inc. and the retail supermarket chain, Lowes Food Stores.
George remembers his relationship with Coleman Lew began with a cold call from Lew in 1979. “Our first search with the company was for an industrial engineer,” George recalls. “We’ve been very pleased with their service over the years. That’s why we use them today and will continue to use them. It’s been a good association for us.”
Positioning for the Future
While Coleman Lew’s core business is executive search, they understand that hiring the right person for a position is only part of the challenge facing companies. This prompted them to expand into leadership development to foster the vitality and long term success of an organization.
Coleman Lew provides new leader integration, team development and executive coaching services to maximize employees’ potential, and executive assessment to identify and develop leaders within an organization.
Their planning services help companies refine goals, strengthen their brand and strategically position themselves for the future.
Coleman Lew also offers succession planning services assisting companies to successfully navigate leadership transitions. In this case, Coleman Lew not only offers this service but is actively using it themselves as they prepare for what Lew calls the “third generation” of the company.
“A big part of our business is helping clients move into the future,” says Lew. “It’s important for us too. We’re currently in the process of succession planning and we’ve brought in some very high-powered, very competent young people to take us into the future.”
Shana Plott, Laura C. Thomas and Danielle F. (Dany) Williams are Coleman Lew’s third generation. While the search business has traditionally been male-dominated, Coleman Lew is in the forefront of the trend toward women in industry leadership roles.
“We’ve seen a greater focus on recruiting women as board members and top executives,” says Plott, a graduate of the University of North Carolina at Chapel Hill whose background includes 20 years in the search industry and non-profit sector.
“More clients are specifically requesting a diverse slate of candidates,” adds Williams who joined the firm seven years ago as a researcher. Williams graduated Phi Beta Kappa, magna cum laude with a bachelor’s degree from the University of South Carolina Honors College. Her J.D. from the University of South Carolina Law School and experience as a litigation attorney has translated well to interviewing and assessing candidates.
“Digital media is another new trend for our clients,” says Thomas, a graduate of the University of North Carolina at Chapel Hill, who assisted in founding a charter school and worked as a top sales representative in the manufacturing industry before joining Coleman Lew.
“Not only is technology changing the world of search, it’s also changing what companies need to compete. Our clients have to reach their customers in a different way now. They need people that understand ‘big data’. It’s an example of how we can help our clients by articulating and designing what this talent looks like and how to find it,” adds Thomas.
Plott, Thomas and Williams all acknowledge that as their clients’ business has grown more global, executive search has become an international endeavor.
“Many would describe us as a boutique firm and that sounds as if we’re just local and limited,” says Williams. “But that isn’t the case. In a recent search we had a $4 billion European company looking for a person to run their facility that produced wire and cable for nuclear submarines.
“Through Skype I interviewed people in Belgium, Australia, India and many other places around the world. Few people had the expertise for the position. It was a challenge but also fun to be able to put that puzzle together.”
To assist in international searches, Coleman Lew has partnered with Penrhyn International. Penrhyn is a global consortium of premier retained executive search firms that can cooperate on international assignments.
Thomas is finishing up a search in which she assisted a Penrhyn associate firm in Amsterdam to fill a U.S. position for a company headquartered in Brussels. Soon she’ll request the assistance of their Penrhyn contact in China to find someone to oversee manufacturing and suppliers in China for a Carolinas-based apparel company.
Coleman Lew’s third generation feels well-prepared for whatever the future holds. “Chuck and Ken and others have built a phenomenal firm,” Plott says. “The onus is on us to ensure that their standards of excellence continue. The bar is set very high but we will make sure that our commitment to quality and client service continues.”
Angela Overcash and Robbi Jones couldn’t be more different. One is a chemist; the other an office, accounting and project manager. One loves science; the other business.
“I’ve never had a chemistry class in my life,” says Jones, president and project manager. “But I’ve learned a lot. It all makes sense to me on paper, just don’t put me in the lab.” Overcash also serves as a project manager, but on the science side, and is the liaison between the laboratory and the client.
Together they own and run Charlotte-based Prism Laboratories, Inc., a water and soil analysis company formed in 1992. “We were from different walks of life but each of us had something to bring to the table,” says Overcash.
Overcash is originally from Kannapolis. She graduated from Duke University with a degree in chemistry in 1986 and worked with CompuChem prior to coming to Charlotte. Jones is from Marietta, Ohio, and came to Charlotte at the age of 19. She attended Queens College in Charlotte.
Their paths crossed in 1987 when Overcash joined a water analysis laboratory where Jones was working. Within five years, Jones and Overcash, along with five others, owned the company. A name change to Prism Laboratories, Inc. completed the deal.
Over the years, two of the owners left the company and Jones and Overcash bought out the remaining three. By 2006, it was just the two of them in partnership.
Through the Looking Glass
Prism Laboratories provides analytical services for drinking water, storm water, waste water, soil, hazardous wastes and brown fields. Prism Laboratories staff also test the effectiveness of remedial action and trace problems back to their sources. The company is comprised of an integrated team of environmental and administrative professionals organized to serve the analytical needs of the consulting and industrial communities.
Most clients are permitted through the City of Charlotte and various other cities and counties, for example: builders, engineers, environmental consultants and homeowners. Clients include Duke Energy, Charlotte Mecklenburg Utilities Department, Colonial Pipeline, Zapata Engineering, Ashland Chemical Company and Georgia Pacific.
Prism Laboratories is currently certified throughout the Southeast and is NELAC-accredited through the state of Florida. The laboratory is ISO certified for DoD analysis.
“We frequently get calls from builders saying, ‘We’ve got a hole in the ground and we need to know if there’s anything (bad) in it,’” says Overcash. “It stalls their crews, so it is costly and they want the information fast.”
“People also call with health concerns or feeling sick, worried about the safety of their wells,” adds Jones. “Additionally, we do a lot of work in conjunction with home sales, where bacteria testing is usually required by the bank.”
Typically, Prism Laboratories staff will be looking for coliform bacteria, a group of toxic types of bacteria in water that can make people sick. The lab looks specifically for fecal coliforms. “You don’t want to be drinking water with that in it,” says Jones.
Prism Laboratories educates people how to cleanse their wells through chlorination and with the use of ultra-violet lights and water softeners. Not all substances are harmful to people. The presence of some leads to hard water that limits the lather and suds and effectiveness of soaps. Others may build up in pipes over time.
Overcash says she is often amazed: “The federal regulations on ground water regarding what is allowed are extremely low, measured in parts per billion or even trillion gallons of water. Still, we see ground water where toxins are so concentrated, you can see inches of layers in the water sample with your naked eye.”
An example would be the chemical tetrachloryl used in dry cleaning. Much of the toxic substances are found in landfills or from industries that had pits behind them prior to regulations. Many of them dumped waste into a creek or river which carried it into the groundwater. It is known that ground water flows through aquifers and, over long periods of time, around the world.
Every kind of industry produces wastes that could ultimately end up in the water supply. In the food industry, for example, there are lots of sugar and oils. Concentrated sugar is harmful for people but it also creates an imbalance that may cause algae to grow or prevent sunlight from entering a body of water. Prism Laboratories tests for oil and grease for every industry.
They also typically test for eight RCRA heavy metals: arsenic, selenium, cadmium, barium, chromium, lead, silver and mercury. These are all metals that, if ingested, will forever remain in the human body. PCBs also do not degrade. Some water contains salts that are so heavy that they solidify or solids such as shreds of paper.
In Charlotte, testing of soil is common where there are rusty, leaking home oil tanks.
Prism Laboratories recently completed a large project to clean up a pesticide named dieldrin from a large property site that was up for sale. A lot of pesticides and herbicides are now banned but still remain in the environment. For example, toluene, used in making glues, tape, paint, gasoline and cleaning solvents is a terrible carcinogen that is still seen at significant levels.
The company also screens for conflict metals, those mined only in the Congo using child and slave labor that are used in textiles. The U.S. has banned these metals but has to test to make sure that they are not coming into the country illegally in the form of curtains and upholstery material and the like. It is a similar situation with sulphur in sheetrock coming in from China.
“All industries have some kind of wastewater prior to going to the local wastewater treatment plant. We test water going into (influent) and coming out (effluent) of the wastewater treatment plant,” says Overcash. “Sometimes we are asked to trace the material back to the industry source.”
Prism Laboratories does not have to report their findings to any body of government. “That’s up to the consultants and their clients,” says Overcash They do, however, have to report findings when drinking water is supplied to the public such as in a mobile home park or a school outside of the city limits.
Prism Laboratories also works with brown fields, places such as towns or industrial companies that have gone bankrupt or where the owner has died and there is no direct source of funds to clean up the property. Federal funds exist for this purpose of restoring properties that are meaningful to the community such as public parks.
Prism Laboratories, a $3-plus million dollar company, has reached several benchmarks in the past 21 years. A significant one came in 2006 when the company purchased a second building.
“We outgrew our first building, so when the computer service business next door decided to sell, it was like manna from heaven,” remembers Jones. Having two buildings has allowed the company to separate functions: offices are on the main floor of the more newly acquired building; volatile labs are downstairs, and there is a separate clean room for low-level mercury and other low-level metals.
The analytical laboratory consists of four departments: Metals, Wet Chemistry, Semi-Volatiles and Volatiles. The 15,000-square-foot facility is equipped with the latest instrumentation and technology for environmental analyses. “All we need now is a covered walkway between the two buildings,” jokes Jones.
Then, in 2010, the company switched to a state-of-the-art data handling system known as an ELEMENT Laboratory Management and Information System (LIMS).
“For years, scientists and lab technicians had to key in test results, a very time-consuming task,” says Overcash. “Now, the data system can receive the data directly from the instrumentation. We just had to prove that nothing got transcribed in the process. As soon as a test runs, we can see the status of samples. It has really impacted operations and efficiency.”
Jones also cites the company’s recently redesigned website which allows clients to track samples: “Clients can see their historical data which is extremely useful for them. In the future, we’ll head for the cloud,” says Jones.
Success has been accompanied by some challenges, according to the partners. “The ups and downs of the business—not knowing when business is coming is the main thing,” says Jones.
“Real estate transactions drive a lot of what we do. We were seriously impacted for about a year and a half during the 2008-2011 recession,” says Jones. The company weathered the economic downturn with a line of credit, personal loans, tightening up the budget and taking a hard look at expenses. “There were a few people who left during that time whom we did not replace, but we didn’t actually have any layoffs,” says Jones.
Another challenge for Prism Laboratories is the demand for speed. “Rarely do you have a long lead time to do the samples,” says Overcash. “It used to be a 10-day turnaround; now clients want results in five. It’s a struggle because our competition is bigger and can be quicker but we have, nevertheless, done a good job. So we took a good long look at our production line for ways to tighten it up.”
“Science-minded people don’t like to be rushed, in particular, which is good,” says Overcash. “Sometimes we have to ask clients, ‘Do you want quality or speed?’ We don’t ever overlook something because the client is in a hurry, but we try to understand that they are often in a tough spot, sitting there with equipment and crews costing them by the minute.
“Quality control is extremely tight. Anything can happen to cause us to have to do it over. Being a small business, it’s a high pressure atmosphere. We don’t compete with smaller labs; we compete with large ones,” continues Overcash.
“Many small laboratories get absorbed by large enterprises. It’s a challenge to stay independent. On the other hand, we can offer a better quality of service because we’re small,” adds Jones, citing the ability to make decisions and change directions in-house.
Laboratories are often frustrated with Environmental Protection Agency (EPA) regulations that are unachievable. “The EPA figures out the level of a chemical or substance that will harm human beings and request tests that reflect those levels. The problem is that there is no technology and instrumentation available to test for that level,” says Jones.
Prism Laboratories’ 34 employees include laboratory technicians, field technicians, project and quality control managers. One of the most important jobs is sample receiving due to short testing times. All laboratory staff have either an associates or bachelors degree in a science.
“We have a mix of employees who were hired at entry level and trained up and those who came in with previous experience,” says Overcash.” On the business side, there is a controller, an IT director and sales staff.
“Employees who handle samples are OSHA trained and put through Prism Laboratories’ own safety training program as well. Samples are treated with worst case scenarios in mind. Lab coats, gloves and leather shoes are standard.”
“It’s a fast-paced culture,” says Jones. “We never know what’s coming through the door.”
On the Prism Laboratories agenda are efforts to increase the company’s work with the U.S. Department of Defense. “With these larger consultant groups, contracts are often awarded for three years, something that would enable us to plan ahead,” says Overcash. The work typically involves cleaning up old military bases.
In response to the constant push for greater sensitivity, Jones and Overcash will soon make a couple of major equipment purchases—an inductively coupled plasma (ICP) mass spectrometer (“a hot fire is what that is,” says Overcash) and an electric conductivity detector (ECD). The ICP mass spectrometer burns metals and puts them in their elemental state.
“It knows the mass of a chemical without us having to figure it out,” says Overcash. The ECD tests for pesticides and PCBs. “Equipment and instrumentation is getting more and more sensitive. It’s like computers and smart phones—there’s always a better one coming out,” says Jones.
Together, the partners plan to maintain a cutting-edge laboratory.
Robbie Delaney probably wasn’t the first person who ever got an idea for a business while he scanned an in-flight magazine at 30,000 feet. He might not have even been the only one on that particular flight from Texas to North Carolina toying with the idea of starting something new, but the difference is that Delaney got off the plane and did something about it.
Just 27 at the time, with a degree in construction management from East Carolina University and working as a project engineer on a construction job in Texas, Delaney was looking for a way to spend less time on out-of-state job sites and more time in Charlotte with his fiancée, Caroline.
The in-flight article touted the success of craft breweries and predicted that the next logical step in the industry’s evolution would be craft spirits. It gave Delaney an idea—he wanted in on that next wave of success.
Delaney, a beer drinker, got the idea to make rum from his friend, Scott Huff. “But there was a big difference in our intentions,” jokes Delaney. “I wanted to start a business. Scott wanted to learn how to make alcohol.”
The article listed some serious impediments to starting a distillery: huge bond requirements and start up costs that could exceed $200, 000. Originally Delaney thought he might have to find investors but after researching the industry, its regulations and how liquor was made, he changed his mind.
“I realized I didn’t need to buy a still; I could make one,” says Delaney. “There was information online and in books but I really learned how to build it the way I learned carpentry—you look at how things are put together.”
Delaney’s original still held 35 gallons; his new one holds 150. He and his friend Jon Drexler built the new still using mostly reclaimed parts.
“The tank is an old dairy tank,” explains Delaney. “It took about three months to build and cost a fraction of commercially manufactured stills.”
The old still is now a memory, its parts cannibalized for the new one. But Delaney can still remember the day he used the old still to make his first batch of rum.
“We had close to 20 people there and I had my fingers crossed because I’d never even given it a test run so I really didn’t know what the thing was going to do.
“It started to spit and I believe the first batch got up to 85 percent alcohol which was pretty good given I’d never run a still before. Not all of it was great alcohol, but we did get some that was respectable tasting. I said to myself, ‘We can actually do this. This is going to happen.’”
The Work Before the Work
That was February of 2012, but a lot of work preceded that moment. From his years in construction, Delaney was used to obtaining building permits, but nothing prepared him for the paperwork involved in opening a distillery.
“My federal permitting was 78 pages long, mostly handwritten,” says Delaney. “It was the hardest thing I’d ever done. But you can’t even apply for a federal permit until your equipment is at least 90 percent installed, so you have to start locally.”
Delaney found 500 square feet of warehouse space in Belmont’s Riverside Complex. “I moved into a facility but I had to modify it to fit the equipment,” he continues. “I had to get a zoning permit and a building permit to do the needed construction. Once I got a certificate of occupancy from the county, I could install my equipment, and once the equipment was installed, I could start the federal permitting process.”
Delaney turned in his application for federal permitting in November of 2011 and received approval in a record two months. When he received his state permit on February 12, 2012, Muddy River Distillery became the first rum distillery in North Carolina.
In keeping with the state’s colorful moonshining heritage, legal craft distilleries are starting to pop up in many parts of North Carolina. The state’s Alcoholic Beverage Control Commission (ABC) lists 13 distilleries statewide. Perhaps not surprisingly, many are grouped in the western mountain counties best known for their moonshining history.
Delaney welcomes the new competition, preferring to see other craft distillers as a way to help grow the industry. “The craft distillers are trying to band together to influence legislation in much the same way craft beer brewers have gotten together,” says Delaney.
He’s also found camaraderie among others in the growing industry. “When I was starting out, Carolina Distillery, makers of Carriage House Brandy, gave me a lot of help on the regulation and process side,” he continues. “They were a huge influence and welcomed me with open arms into North Carolina spirits.
“Right now there’s a guy who calls me who wants to start his own rum distillery. He’s got his facility and equipment and we talk. We’re friends.”
Delaney appears to have camaraderie and support from many. Neighbor Alternative Beverage helped Delaney source sweeteners. Drexler, who helped him build the still, drew up blueprints for their new facility. Good friends painted walls and Delaney’s mom, a designer, is decorating the front showroom and tasting bar and lounge area.
At 6,100 square feet, the new space, in the same business complex, allows Muddy River space for their free distillery tours and rum tastings as well as room to grow. And while Delaney kept his day job in the first months of business, the only construction he does now is on the new facility.
“We built the floor and the wall behind the still and moved all the plumbing and electrical to behind the wall,” explains Delaney. “This used to be an old dyeing mill and it was a terrible looking place. In fact, before we started fixing it up, the show ‘Homeland’ was looking at it as a location for a torture scene because it was that creepy.”
Delaney doesn’t think it’s creepy anymore and in fact, he slept in a tent in the warehouse a couple of times last week, putting in even longer hours than the usual 16-hour long run days because of increased demand for Muddy River’s latest product.
The company’s first product, Carolina Rum, was launched in early September of 2012. At $19.95 for a 750 milliliter bottle, Delaney describes it as a mid-range white rum. Traditionally, white rum is used for mixing, but Delaney believes that his Carolina Rum brand is sweet and smooth enough for sipping.
Delaney has reinvested revenues from Carolina Rum sales back in to the business, allowing the expansion into the new facility and the development of Muddy River’s latest offering, a dark sipping rum called Queen Charlotte’s Reserve.
Queen Charlotte Reserve is aged in American white oak barrels with a medium char or toast inside and sells for $27.95 per 750 milliliter bottle. To ensure product consistency, Delaney only uses new barrels from the same cooperage for each batch.
Making a Name
Muddy River Distillery is a husband and wife operation. Delaney married his fiancée a year last July and while Caroline Delaney is often the ‘last say’ in quality control, Robbie Delaney defers to her judgment as to what batches pass the final taste test. She is also the sales and marketing side of the company. Those responsibilities include navigating the state’s ABC system.
North Carolina is one of 17 control states. All sale, purchase, transportation, manufacture, consumption and possession of alcohol in the state are controlled by the agency which consists of 165 local boards operating 418 retail stores.
Each board decides what their stores will carry so Caroline, who studied accounting at North Carolina State University, gave up her accounting job and now travels across the state, meeting with and presenting to local boards.
“The biggest thing with ABC is forming a relationship,” explains Caroline. “We tell them that we’re just normal people, not a huge conglomerate. When you’ve met Robbie and me, you’ve met our whole company. Many of the boards understand that and they will make an effort to push our product.”
“We’re in over 300 liquor stores now,” adds Robbie, “mainly in the larger cities like Charlotte, Raleigh and Wilmington, but some of the smaller boards are our biggest promoters.”
Bars and restaurants are also the focus of Caroline’s marketing efforts. Muddy River rums are now served in restaurants around the state including locally at Harry’s Grill and Tavern in Ayrsley, the Dandelion Market downtown, and at Halcyon Restaurant in the Mint Museum.
Alexander Michael’s Restaurant and Tavern and the Corner Pub, only a brief walk from the Delaneys’ home in Fourth Ward, also carry the rums and are big supporters of Muddy River Distillery.
Down the street from the distillery, The String Bean on North Main in Belmont has been carrying Carolina Rum since it was first available.
“We take a lot of pride in selling local beers and wines so when a distillery opened up, we wanted to support them as well,” says Nate Helton, front of house manager and liquor and wine buyer for the String Bean. “We’re unique because we carry so many local items in our market and incorporate local fresh ingredients in our menu. We use Muddy River rums in some of our drinks and the customers really like it. They’re very interested in trying something local.”
The Delaneys have plans for expansion into other states. “We’ve already got the permit for South Carolina sales but marketing in South Carolina is very different because it’s not a control state,” says Robbie. “Most companies work through a broker but we figured we might be too small right now to get much attention from a brokerage. That’s why we created our own brokerage and licensed ourselves to promote our own product.”
The Delaneys are also considering adding a spiced rum to their product line. In the meantime, they’re continuing to get their name out by doing events. They’ve presented at Johnson & Wales University and participated in events in Winston-Salem for the American Culinary Federation of North Carolina and at North Carolina State University’s State Club.
They’re also preparing for the Big Sip Expo in Greensboro this month. The expo showcases the products of local, regional and national beverage makers. Last year, Muddy River Distillery beat out six other distilleries for first place in the spirits category and came in second overall.
Robbie lists the winning day as a highlight for the company but admits that the event, the first for Muddy River Distillery, was intimidating.
“I walked in, looked around and wanted to run away,” he says. “There were companies there that had brought display stills bigger than our real still. They were pulling these things in on trailers and we show up with the display my mom built for us.”
Along with building displays, the Delaneys are thinking about adding an employee. “We need more marketing people,” Robbie explains, “but I really think I can sell my product best, so we’ll probably get someone to distill and I’ll go out and sell with Caroline.”
Ideas of expansion into Virginia and venturing into online sales are discussed but Robbie is clear about what’s most important. “Our goal is to be North Carolina’s rum,” he declares. “When people in North Carolina think of rum, I want them to think of us.”
When the city of Augusta, Ga., began receiving calls from residents complaining of sewer overflows, they were faced with a perplexing problem. The calls seemed to be coming from one area of town, but with over 36,000 feet of sewer pipe in that one drainage basin, they had no idea where the actual blockage was located. As a result, the city utility department would have to clean the entire basin at a cost of over $1.10 per foot.
To the rescue came InfoSense, a Charlotte-based startup that manufactures an innovative acoustic (sound waves) pipe inspection system that can determine exactly which pipes need to be cleaned. Using the InfoSense technology, Augusta spent just three to four days inspecting the pipes in the troubled area and determined that only 1,600 to 2,000 feet of pipe actually needed to be cleaned. The resulting savings from just that single project more than paid for their acquisition of the inspection system.
InfoSense is the outgrowth of a unique development partnership between UNC Charlotte and the Charlotte-Mecklenburg Utility Department (CMUD). The new technology is revolutionizing sewer line maintenance and is an example of how creative collaboration between government, business, and academia can help solve difficult problems.
In 2005, senior administrators and engineers from CMUD held a brainstorming session with the UNC Charlotte Electrical and Computer Engineering Department to discuss how the University might assist in solving a variety of issues faced by the utility. One issue that floated to the top early in the discussions was how to combat sanitary sewer overflows.
CMUD maintains over 4,000 miles of sewer pipe countywide, with over 100,000 individual segments. (A segment is the portion of the system between any two manhole cover access points, with the average segment being about 220 feet long.) CMUD was experiencing roughly one overflow per day somewhere in the system, but with so many miles of pipe and so many segments, the probability that any one section would overflow on any given day was extremely low. As a result, it was almost impossible to predict when and where a problem might occur.
On average, CMUD had been cleaning up to 25 percent of their system annually, or about 1,000 miles. But 70 percent of those 1,000 miles didn’t actually need cleaning; they just had no practical way to inspect the lines. Robotic camera systems were the most common alternative, but the cost to inspect with camera technology was almost the same as just going ahead and cleaning the pipes. So what CMUD wanted was a cost-effective way to figure out which specific segments needed cleaning, so they could focus their efforts on the real problems.
Ivan Howitt was one of the UNC Charlotte engineering professors who participated in that first brainstorming session. After several follow-up meetings, he came up with the concept of using sound waves to determine whether a pipe was dirty or clean. In March 2006, Howitt submitted a proposal for a joint development effort, and the study received funding approval in 2007.
Working with CMUD senior engineer John Fishburne, Howitt and several graduate students began working to explore acoustic technology and to prove whether the concept would actually work. The field environment is difficult because every sewer line looks different, and the variation in the ambient noise levels can be quite significant – very quiet at one spot and incredibly noisy at another.
“One of the things that is somewhat novel about this development is it was actually developed in the field, and we did very little lab experimentation,” says Howitt. “We immediately went into the field because we felt the field environment was going to be so difficult. Actually developing the algorithm in the field is, I think, one of the key reasons why we got it to work. That was the advantage of having access to Charlotte’s system. They were a great resource.”
Once Howitt and his team had proven to themselves that the concept worked, he wrote a National Science Foundation (NSF) grant proposal, which resulted in a funding grant under the Small Business Innovative Research (SBIR) program in 2009. The SBIR grant allowed Howitt to refine his algorithm and to develop a working product.
The system consists of a transmitter placed in one manhole that sends an acoustic signal to a receiver placed down an adjacent manhole. Based on the strength of the signal heard by the receiver, Howitt’s algorithm determines how dirty that pipe segment is, and whether it needs to be cleaned.
CMUD began to see the technology’s real potential, so they agreed to fund a pilot project by purchasing a prototype unit. By the end of 2010, the prototype had been further refined and CMUD purchased four more units. The product would eventually be dubbed the SL-RAT (Sewer Line—Rapid Assessment Tool).
On to Commercialization
The research and development initiative had now morphed into a commercial product, and Howitt knew he needed a company and he needed a team with business experience to complement his technology expertise. So with the help of Paul Wetenhall at UNC Charlotte’s Ben Craig Center business incubator, Howitt began working to commercialize his product. Because the initial development work was done at the university, UNC Charlotte owned the patent, but Howitt was able to negotiate an exclusive license for the new company.
A mutual friend then introduced Howitt to Alex Churchill, who would wind up joining InfoSense in early 2011. Churchill brought financial and business experience gleaned from his years in business consulting and management positions at companies like Blue Rhino and Allied Waste. Churchill was looking for a new entrepreneurial opportunity that he could get involved with from the ground up, and InfoSense seemed to fit the bill perfectly.
“Ivan had enough information to show that camera inspections cost $1 per foot and this product was in the range of $0.10 per foot to operate, so his product looked to be about 1/10 the cost of the alternative,” recalls Churchill. “I also knew he had a customer and they liked what they bought enough to buy more, so I felt this could be a real company.”
Churchill came on board as chief operating officer and immediately began working to refine the marketing and business plan while Howitt continued to refine the product with CMUD. A few months later in July 2011, the third member of the management team, George Selembo, came on board.
Selembo had an extensive background in successful startup companies in businesses ranging from student housing to wastewater treatment equipment. He had retired to Charlotte in 2010 before he even turned 40. Selembo was enjoying life and working as an adjunct faculty member at UNC Charlotte when he had the opportunity to meet Howitt and hear about his product.
Selembo bought stock in InfoSense and offered to work for free for the first six months to see if the new management team had the personal chemistry needed to run a successful new enterprise. They did.
“I had a background in startup companies, but I also knew the challenges Ivan was going to face in bringing a new technology to the wastewater industry,” offers Selembo. “I had been on the treatment side and he was on the collection side, but there’s a similar challenge there for new technology.”
Selembo, who now serves as CEO, helped the new company compete for a variety of grants, which have allowed them to fund their marketing and development efforts without giving up ownership in the company to venture capital firms. InfoSense has won grants from the NC IDEA competition, the Charlotte Chamber’s PowerUp competition, and the Charlotte Venture Challenge.
“Unlike many of the other startup companies, we had a commercial product,” says Selembo. “We actually made something and had a real, viable product, so a lot of the risk was already taken out because we were ready to hit the street and go to market.”
InfoSense officially started marketing in 2012 when they began building a national network of sales reps. The company’s sales network now covers 41 states and has sold over 50 SL-RAT units to customers nationwide. These independent sales reps also sell other products to the sewer industry, so they already had the relationships InfoSense needed to build.
“In this industry, it’s about having connections with the local municipalities,” explains Selembo. “We don’t have the broad product line to support a full-time sales staff, so we outsource sales. But we spend a lot of time supporting and training them.”
Each SL-RAT costs in the neighborhood of $20,000 for the transmitter and receiver combo, plus a carrying case. Components for the system are sourced from suppliers across the country, but all final assembly is done at the InfoSense facility on Tremont Avenue.
Each sales rep firm is provided with a demonstration unit that their reps can use for presentations, because demonstrations have proven to be one of the most effective ways to overcome initial doubts about the new technology. InfoSense says their sales close rate is almost 100 percent, and potential customers include municipalities who choose to do the inspections in-house or contractors who do such work for multiple municipalities.
“We encourage the reps to leave the unit with a customer for a week,” says Churchill. “We suggest they train the customer and let them use it. You can train someone to do this in five minutes.”
The success in Charlotte-Mecklenburg has been the springboard for their success, and they have continually improved the product based upon input from CMUD and other customers. Some of these improvements include GPS-enabling, improved menus, and making the SL-RAT more robust.
“Charlotte has been using the product for two-and-a-half years and they’ve probably done 1.5 million feet of inspections with their five devices,” says Howitt, who is now on leave of absence from UNC Charlotte. “The algorithm has actually been relatively stable over that time, but the operators have trained me on how to make the device more rugged for the environment it’s used in.”
While the initial commercial application for Howitt’s acoustic technology has been in sewer lines, the company believes the technology could find its way into other types of pipelines, including those supplying oil and natural gas.
“The advantage of the sewer systems is there are not a lot of people developing new technology for sewer lines,” says Howitt. “This is the first new technology to revolutionize the collection system operations, and we also see many more opportunities.”
“Ivan has come up with the technology and the patent is very general,” says Selembo. “It applies for applications in all pipelines, and we expect there are going to be other product developments in a lot of other application areas that are going to do very, very well for us. We don’t know what they all are yet, but we have a great, solid flagship product that is supporting all of these activities.”
The support from the Charlotte community, and UNC Charlotte in particular, has been key to the company’s great start and its bright future.
“One of the compelling things about our company is this was all developed in Charlotte,” concludes Selembo. “It’s a public, private, academic partnership that developed this technology. UNC Charlotte finds ways to get things done in this community, and they are cheering you on all the way.”
Asked about when he started in the family business, M. Kale Hinnant quips, “Birth.” It’s a bit of an exaggeration, but Hinnant is the third generation in a business that spans eight decades. With only 6,000 practitioners nationwide, it’s a unique business started by his grandfather W.T. Hinnant for unique reasons.
In 1930, W.T. Hinnant was struck by a train while pushing his car off the tracks and lost a leg. At the time, no companies in North Carolina manufactured artificial limbs so Hinnant’s grandfather obtained a prosthetic leg from a company based out of Minneapolis.
“Back then,” Hinnant explains the history, “someone would travel to you, take your measurements, go back and make the prosthesis, and then ship it to you. You were left to adjust or repair it. There was no such thing as patient care; my grandfather had to make his own revisions to his prosthetic appliance. Some of his revisions were even later utilized by the Minneapolis Artificial Limb Company on their products.”
It immediately became obvious to Hinnant’s grandfather that he had the ability to help other amputees in the Carolinas, so he apprenticed with the Minneapolis prosthetics maker and, after learning the craft, opened W.T. Hinnant Artificial Limb Company in Charlotte in 1931.
The company keeps the name today but is more commonly known by the signage on their building in Charlotte’s South End—Hinnant Prosthetics.
Specializing in lower and upper limbs and hands and servicing North and South Carolina, the company has fit over 28,000 prosthetics since its founding and is one of the longest established and most recognized prosthetic and orthotic companies in the Southeast.
Started as a one-man operation, W.T. Hinnant’s sons, John and Milton, joined the firm after their graduation from the University of North Carolina at Chapel Hill. Kale Hinnant, Milton’s son and the current owner and manager, now employs three certified technicians who assist with the manufacture of prostheses, two office staff, and two certified prosthetists who instruct the technicians and fit the appliances.
Much has changed since the company’s founding. Educational requirements and certification for practitioners elevated what used to be a craft to a profession.
“In the early days, if you could cut something off a tree and make it work, you were a prosthetist,” Hinnant explains, “Our firm was the first in Charlotte to be certified by the American Board for Certification.
“We believe in education for our employees and we work to further their education and advancement. In order to stay current with the rapid technological advances of this field, our practitioners regularly attend seminars and continuing education classes provided by the American Academy of Orthotists & Prosthetists (AAOP) and various product manufacturers.”
Hinnant sets the example. He holds a B.S. in Accounting, a B.A. in Business, and is one of only six Fellows of the American Academy of Orthotics and Prosthetists (FAAOP) in North Carolina and was among the first 50 recognized for this educational achievement nationwide.
A seasoned veteran in the business, Hinnant emphasizes how keeping up with advances in technology is critical now more than ever.
“New applications of space-age materials, digital technology, and experience with combat injuries from more than a decade of war in Afghanistan and Iraq have spurred a high tech explosion in prosthetic science.
“War is the greatest driver of innovation in prosthetics,” Hinnant says. “Caring for amputee casualties promotes federal funding for developing better technology.”
Hinnant easily ticks off a list of recent technological breakthroughs.
High-tech prosthetics like the C-Leg and the Ossur Rheo Knee use a microprocessor to adjust prosthetic leg swing for a more natural gait, greater freedom of movement and reduced walking fatigue.
Advances in myoelectric-controlled upper extremity prosthetics, which use electronic sensors to translate minute muscle, nerve and EMG activity into prosthetic movement, continue to improve function.
The i-LIMB Hand features five fingers each powered by separate motors which someday may allow the individual use of each finger.
Hinnant Prosthetics utilizies the Omega Tracer CAD. This technology replaces the traditional time-consuming plaster casting process and creates a highly accurate, three-dimensional picture of an amputee’s residual limb producing the best possible socket design for the patient’s needs, physiology and lifestyle.
With better technology comes higher costs, so prosthetic prices vary widely. Lower extremity appliances’ price tags can range from $5,000 to $100,000-plus. Upper extremity prosthetics can cost $3,000 to upwards of $120,000-plus.
“You have to put patients in the right appliance,” says Hinnant. “When you meet with a patient you ask them whether they want to ambulate, what they do, what are their activities. You also ask about their aspirational plans; what they want to be able to do.
“The more technology, the more difficult a prosthetic is to maintain, so it’s not always just the cost of the prosthetic, but also the cost factor over time. But if the patient’s capable and would benefit from a certain appliance, then you just have to educate them so they’re aware.
“This is a very personal, customized product. About 10 to 15 percent of our patients have the higher-end technology, but high-end is a relative term dependent upon their needs and wants. I can put a $30,000 foot on a leg but is it going to benefit that particular patient? That’s the question.”
It’s All About Patient Care
“From the beginning of this company, it’s always been about patient care,” affirms Hinnant. “We don’t only fit patients physically, we fit them mentally. You’re dealing with the emotional issues of losing a limb. It’s the same grief as dealing with death. You have to allow the patient to grieve and get through it.”
One reason Hinnant understands his patients so well is that he’s known many of them for years. Amputees need lifelong care in terms of prosthetic adjustments, maintenance, repairs, and over the course of time, new or upgraded appliances.
Craig Winslow lost his leg to cancer 28 years ago. Hinnant Prosthetics provided him his first appliance and went through the training with him needed to adapt. Since then, they’ve cared for him over his five subsequent prosthetics.
Currently Winslow uses two prosthetics. As a Boy Scout Master and active dad of three boys, he has a waterproof leg for water skiing and family trips to the beach. He also has an everyday leg which, as a Jimmy Buffet fan, he decorated with a sunset beach scene. A past leg sports the logo of Winslow’s alma mater Florida State.
“I just live an ordinary life,” says Winslow. “My prosthetic doesn’t hold me back; it’s allowed me to get on with my life. When I wake up I put it on and I don’t take it off till bed that night. It’s so comfortable there are times I forget that I’m wearing it.
“That all comes down to Kale Hinnant,” Winslow continues. “He watches me walk and makes micro adjustments so that when I walk out of here, I can’t even tell I have it on. Even when I moved to Greenville, S.C., I still came back here for care.
“They spend time with me when I’m here. Kale not only helps me with my prosthesis, he’s become my friend,” says Winslow, holding up a wooden peg leg Hinnant had crafted for him to be a pirate for Halloween a couple of years back.
“A lot of my patients have become my friends,” Hinnant says. “This business continues for two reasons: we have good rapport with our patients and we travel all over North and South Carolina.”
Hinnant Prosthetics’ in-home service is an industry differentiator. Although many patients are treated in their Charlotte office or in their satellite office in Columbia, S.C., understandably some patients have difficulty traveling or can’t afford the expense.
“We will work with them in their home if it helps,” says Hinnant. “By working in their homes, we know the barriers they face and we can better determine the appliance that serves their needs. A lot of other practitioners can’t do that.”
But traveling to patients’ homes can have its challenges. Per Hinnant, “Google Maps can sometimes only get you so far—so you call them up and ask them if they have a ramp in front of the house or what color the car is in the driveway.
“One time I called a patient for directions and they told me to take a right at George’s Store. Well, I drove and drove but I couldn’t find any George’s Store so I called back. Turns out George’s Store had burnt down 10 years before, but that’s how they remember it.”
On-site fabrication is another differentiator for Hinnant Prosthetics. While the industry trend is to outsource manufacture to a central fabrication site, Hinnant Prosthetics continues to fit and make prosthetics in their Charlotte office just a short hallway away from patient care rooms.
“When patients come in, we can take care of them,” Hinnant explains. “We have the knowledge, the supplies, the equipment and the products right here. The prosthetists and the technicians can consult directly with each other and with the patient. It makes for a better patient outcome and that’s what we’re here for.”
Surviving in Changing Times
But Hinnant admits that he may have to change some of the ways he’s currently doing business. The industry is in a period of tremendous flux. A 2011 American Orthotic & Prosthetic Association State of the Industry report notes declines in net billings, profit margins and revenue per employee.
One reason is downward pressure on pricing. While Hinnant Prosthetics works with the U.S. Department of Veterans Affairs, Medicare, Medicaid, vocational rehabilitation and private insurance; Medicaid rather than private insurance now sets the standard on pricing. Medicare increases of only one to two percent can’t keep up with increases in the costs of materials and overall business expenses, which rise an average of five to 10 percent.
Recent changes in Medicare have also impacted the industry. In an attempt to identify improper payments and correct billing and coding errors, the Centers for Medicare & Medicaid Services (CMS) instituted Recovery Audit Contractor (RAC) audits.
Along with the audits, CMS issued a new prosthetic patient referral documentation guide for physicians known in the industry as “Dear Physician” letters. Both CMS actions create a huge compliance burden for the industry, especially for the small mom and pop firms.
Hinnant estimates that his compliance burden has increased from 10 to 40 percent. A recent industry article cites that 17 percent of small orthotic and prosthetic facilities have closed due to audits and that 75 percent have cut staffing.
Another factor affecting the business is a shrinking patient pool. Amputations from diabetic complications are 80 percent of Hinnant Prosthetic’s client base and account for the majority of prosthetic patients nationwide. Improvements in the care and treatment of diabetes and advances in surgical techniques have led to a marked decline in amputations. The Centers for Disease Control and Prevention reports
These challenges leave Hinnant Prosthetics at a crossroads.
“What we need to do is decide what the best approach is going forward,” says Hinnant. “My goal is to structure the company to be an ongoing entity so that it can survive despite outside influences. I’m trying my best to maintain the business because I think it’s important. It’s important to my family’s legacy and to the people that work here to keep it going. But even more than that, I have patients coming to me all the time asking, ‘If you’re not here, what am I going to do?’”
Hinnant has decided to meet these challenges head on. Always active in the industry, Hinnant belongs to five national industry organizations, is past president of the North Carolina Chapter of the American Academy of Orthotists & Prosthetists and is currently on the board of directors for the North Carolina Prosthetic & Orthotic Trade Association. He believes that organizing, educating and being proactive and politically involved is the key to thriving in the future.
Currently he’s meeting with consultants to best craft a new business model. He’s also added administrative defense coverage to his insurance and retained The van Halem Group to assist him with Medicare audits.
“I don’t intend to let these adversities beat me,” Hinnant says. “How can I not fight to keep going when everyday, I see the adversity my patients face and fight and overcome all the time?”