UBS Boosts Small Business Owners

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Ideas and Insights for Wealth Managers Volume 21, No. 11 • November 2011

The Unfaithful Client p.11

REITs: The Best Game in Town? p.34

Life Stories with John Thiel p.64

Kenny Lao, owner of Rickshaw Dumpling Bar, left, and his advisor, Peter J. Klein, right, of UBS Wealth Management Americas

Cover Story

UBS And The Small Business Owner ChallengeUBS financial adviSorS take on 10 emerging entrepreneUrS By lorie konish / photography by matt furman

ichelieu Dennis is in the eye of the hurricane. That’s what Holly Hendrix thinks when she looks at the recent growth of Dennis’ natural personal care products company, Sundial Creations. “Don’t micromanage it. Go with it,” Hendrix, a UBS

financial advisor told Dennis, her client of only a few months. “Ride the wave. Try not to lose any important pieces along the path, and then at the end you’ll clean up the mess and you’ll be wherever you are, which is bigger.”

R Sundial creations founder and ceo richelieu dennis (left) and UBS Svp of investments and Wealth advisor Holly Hendrix

top: Sinu founder and chief technology officer larry velez (left) and UBS managing director and private Wealth advisor Jason m. katz. Bottom: rickshaw dumpling Bar co-founder kenny lao (left) and UBS Svp of investments peter J. klein

Cover Story

Hendrix and Dennis began their professional relationship following the July kick off of a six-month pilot program between UBS Wealth Management Americas and the William J. Clinton Foundation. In this philanthropic endeavor, UBS and the foundation have created 10 teams in the New York City area. Each team consists of an entrepreneur, a financial advisor and a mentor (who is also a UBS client) who are matched up by UBS and the Clinton Economic Opportunity Initia-tive (CEO), a group within the Clinton Foundation. The program is aimed at providing the nascent businesses with more sophisticated resources and advice than they could obtain on their own. By helping the companies grow, the program aims to help them create more jobs. And, the financial advisors give their advice for free.

The project is one facet of UBS Wealth Management America’s Revitalizing America initiative designed to foster strategies to stimulate the U.S. economy. “We wanted to have an opportunity to do something a bit more hands on,” Lori Feinsilver, head of the CEO-UBS small business advisory program at UBS, says of the pilot program. The firm’s meetings with the Clinton Foundation resulted in an instantaneous recognition of how UBS could “really put the great work our financial advisors were doing with their clients to use for the broader good,” she says.

The pilot program requires that the teams commit to working together for six months and check in with each other at least once a month. UBS hosts two workshops during that time on topics relevant to all of the companies, including balance sheet management and marketing. UBS has also provided the teams with a list of partners in their home office that they can consult on various topics and areas of expertise.

“The program has exceeded our expectations,” Feinsilver says. “I think the small businesses are learning a lot, but I wouldn’t underestimate how much the clients and our [financial advisors] are learning.”

The pilot program will finish in February, and plans are already in place for a national roll out starting in April in Chicago and California, focusing on either Los Angeles or San Francisco. The next program will include about the same number of teams, Feinsilver says, but may narrow the current $2 million to $26 million-revenue range of the participating companies. The ten participating companies had $8.44 million in average annual revenue in 2010 and altogether had 400 employees as of the end of last year.

Including Sundial, the personal care products company, and its advisors, On Wall Street sat down with five of the participating teams, including a construction company, a dumpling restaurant, a high-tech firm and an educational materials company to examine how the partnerships are working out.

RICkShaw DUmpLInG BaRWhen Rickshaw Dumpling Bar submitted an application to several new kiosks in Times Square, co-founder Kenny Lao did not neces-sarily think his business would win. “We were like, ‘Let’s throw in this application and then figure it out,’” Lao says.

“All of a sudden we got it and it was kind of like running at full speed.” The new kiosk is scheduled to open on Broadway between 42nd and 43rd Streets this month. It will be a hybrid of Rickshaw Dumpling Bar’s two New York restaurants and four food trucks. “It’s literally an old shipping container that we bought from New Jersey, and we’re shoving a truck into that,” Lao says.

Establishing a new relationship with UBS financial advisor Peter J. Klein, senior vice president of investments, and Klein’s client Peter Furth, chief executive of FFF Associates Inc., a consulting company for the food, spice and agri-chemical industries, came at just the right time, Lao says. “To have some help from these guys in thinking out the bigger issues and looking at the cash issues was really, really cool,” Lao says. Lao co-founded Rickshaw Dumpling Bar in 2005 after having worked as a special projects director for high-end restaurants in New York that allowed him to sample the city’s finest restaurants.

The menu includes chicken and Thai basil dumplings with spicy peanut sate dip and vegetarian edamame dumplings with lemon-san-sho dip (Editor’s note: They are delicious!) The recipes were created with prominent New York chef Anita Lo.

Lao’s inspiration for the business came from the dumpling dinner nights he enjoyed as a child. As the only child of a single mother, who has since married, dumpling night was the one night another family would come over for dinner. “This is what it’s like to have dinner every night with a family,’” Lao says of the group dinners, which required

from left, UBS Svp of investments peter J. klein,

rickshaw dumpling Bar co-founder

kenny lao, and fff associates ceo

peter furth

from left, UBS Svp of investments Holly Hendrix, Sundial creations founder and ceo richelieu dennis, and retired retail industry executive and consultant carol greer

a lot of manpower to wrap and cook the dumplings. “It was so social and so awesome, and I think a lot of memories aren’t just about the food. It’s about the people you’re with and the environment and the time in your life.”

But the path to growth has not always been as smooth, Lao says. Rickshaw Dumpling Bar, which has funded itself through individual investors, opened a large store in the New York University neighbor-hood, following a “big fat” fundraise at the height of the market in 2006, Lao says. That location turned out to be too big for the business, and they shuttered it.

“It cost a lot of money and almost took the company down and it was really scary,” Lao says. In order to get his mind off that failure, Lao started the food trucks.

Now, as the company prepares for growth again, Lao has learned some lessons. As he eyes new markets, perhaps Boston or Washington, D.C., Lao says he would introduce the brand with trucks first. And to save money, Lao says he would love to open a commissary down the road so that the company can save money by also manufacturing their own dumplings.

Klein and Furth are working with Lao to help him work towards those goals, including how to access capital the company will need. Furth, whose business has been in his family for three generations, hopes to see Lao retain most of the ownership. “You want to have the rewards of saying, ‘This is my business,’” Furth says. “You don’t want your investors turning on you, or saying ‘I want out,’ and then how are you going to buy them out?”

Klein compares the work they are doing to coming in and skiing along Lao when he comes to a black diamond trail. The opportunity to candidly learn about Lao’s business and watch him grow has been very rewarding, Klein says. “We’re going to be a triumvirate for many years to come. As [Lao] grows, there might be new challenges that come up,” Klein says. “But he can reach out to Peter and Peter and say, ‘Here’s what’s going on. How can you help me?’ We’ll always be there for him.”

SUnDIaL CREaTIonSWhen you walk into Sundial, located in a former ambulance depot in Amityville, N.Y., you’re immediately struck by the large yellow sheets posted on the wall opposite Richelieu Dennis’s desk. The notes reflect Dennis’s initial efforts after four or five meetings and weekly phone calls with Holly Hendrix, senior vice president of investments at UBS, and her client, Carol Greer, who will serve as a mentor to Dennis during the six-month program. Greer is a former department store executive whose previous roles include having served president and chief executive of the specialty footwear and apparel division at Foot Locker Inc., formerly Woolworth Co.

“All of what you see on my wall there is what’s in my head,” Den-nis says. “Now we are putting it into a form, and in the long run I think it will make everybody’s life a lot easier and it will take away a lot of complexities.” His work with Hendrix and Greer has helped him set new goals to create a more stable culture for employees to

flourish, and also consider how his relationship with his business partners needs to evolve.

Those realizations, Dennis says, would not have happened without his participation in the program, as he typically focuses all of his time on all aspects of Sundial’s business, including filling orders for retailers such as Target, Walgreens and Whole Foods.

“We end up making decisions in a vacuum that are reactionary to where the business is versus where it needs to be,” Dennis says. “Just that in itself is a value that will help all of the people that are participating in this make fewer mistakes.”

Sundial’s product line was inspired by the owner’s grandmother, who used to make and sell her own products in Sierra Leone. When Dennis graduated from college in the United States and could not return to his native Liberia because a civil war had broken out, he began making similar products and selling them on city streets. Most of Sundial’s natural skin and hair care products have some concentra-tion of the shea butter Dennis’s grandmother first sold.

Though his relationships with Hendrix and Greer were established just recently, they already have a familial feel. “It’s not my business, it’s not [Greer’s] business,” Hendrix says, “but I have to say, sometimes when we’re talking to him, we’re talking to him like it is.”

That extends to the entrepreneur’s real business family, which includes his mother, sister and best friend, who have all been involved with the company since it first started developing and selling the products from Queens in 1992.

Today, Sundial has about 35 employees. Dennis says he hopes

to grow the business to five times its current size. Since he teamed up with Hendrix and Greer, Dennis has been hit with a series of positive events. The company has won back-to-back accolades for its products from Allure, Esquire and Natural Health magazines. The momentum Dennis is experiencing in his business was more than Hendrix says she expected. Together, they plan to make sure Den-nis is prepared to fully capture current opportunities and establish a five-year business plan.

Eventually, Hendrix says, that could mean taking some kind of outside funding. “[Dennis] is at a place where he really needs to sit back and strategically think through how he is going to prepare the company for the growth he is about to have,” Greer says. “It takes an awful lot of thinking, and it also takes a lot of understanding of how his role is going to change.”

DIffEREnT RoaDS To LEaRnInGThe first few months of Different Roads to Learning founder and Chief Executive Julie Azuma’s work with UBS private wealth advisor Sharon Sager and her client Amy Butte, founder and chief executive of financial education company TILE Financial Inc., have led to some new lessons right away.

That includes narrowing the scope of what Azuma plans to do and more thoroughly considering their financial consequences.

Azuma founded New York-based Different Roads to Learning 16 years ago, when here daughter first began showing developmental issues. “Nobody knew what it was, and when they found out she had these delays, they asked me to find certain materials and they were impossible to find,” Azuma says of the special kinds of blocks and images she was tasked with tracking down. “I hoped to create a place where parents could find these materials.”

Today, Different Roads to Learning sells educational materials specifically targeted to autistic children. Its products include books, manuals and flash cards, all designed to help autistic children learn through features like timers and rewards charts. The business, cur-rently with four full-time employees, has expanded with about 12% growth per year. Most of the company’s business—about 85%—comes from schools, districts and agencies, mostly in the U.S. and some also in Canada.

Azuma has already changed her thinking on how to prepare the company for the future growth she hopes to see. That comes after Butte, a former chief financial officer for the New York Stock Exchange turned entrepreneur, walked her through a return on investments statement. Sager and Butte also provided her with lessons on when debt is necessary, and how to gauge the possible return on new projects by weighing both costs and projected revenue.

“My staff, the people I work with, are always telling me that I should be more focused and more patient about wanting to do everything at one time,” Azuma says. “And when Amy and Sharon said, ‘Can you just focus on a couple of things? We could really do these targeted things,’ I realized I was the one out of sync.”

Now Azuma and her team are focusing on a new educational app

she hopes will be more robust than previous versions her company offered. Like those other apps, this one will have photographic im-ages for children to identify, while also adding different levels and a rewards system to encourage a child to progress.

That app is also aimed at generating more revenue than previous versions, which the company has mostly offered for free. The new app would first debut at $4.99 for the iPad and iPhone, while later, simplified versions could go for $.99 to $1.99.

Different Roads to Learning has been able to draw on more ex-pertise with this app, Azuma says, from various technology experts at UBS, who have also recommended vendors, and Butte, whose company also has an app.

Sager is also planning to help put together a five-year business plan for Different Roads to Learning, while also reaching out to UBS departments that may provide concrete referrals to help the company improve its sales. And, the lessons learned are not neces-sarily one-sided.

“As I’ve been looking at the marketing plan and the business plan overall, it makes me think, ‘Gee, maybe I should take a look at mine,’” Sager says of her financial advisory business. “It’s absolutely been a wake-up call in terms of managing my practice.”

mZm ConSTRUCTIon & manaGEmEnTMarjorie Perry first realized that she wanted to be an entrepreneur as a teenager when she traveled from her hometown, Newark, N.J. , to cities including Atlanta, Chicago and Memphis as a power tumbler for various gymnastics teams and a public speaker for her church.

In her role as president of Newark, N.J.-based construction and transportation company MZM Construction & Management, she says her strong sales skills always shine through. “I could sell you the Brooklyn Bridge and make you buy it again next week,” Perry says with a laugh. “That’s the gift that I have.”

Perry co-founded MZM in 1992 through a three-way partnership. In 1994, Perry bought those partners out. Today, the company, which focuses its work on Newark, N.J. and lower Manhattan, has a roster of completed projects including the New Meadowlands Stadium and New Jersey Performing Arts Center.

Now, Perry is working with UBS private wealth advisor and senior portfolio manager Russell Rabito and his client and brother-in-law Walter Beal, general manager of Springline Corp., to strengthen other areas of her business.

That will include meeting together to go through how MZM man-ages work and watches costs. Beal, whose talent is focusing on those numbers, will also demonstrate the system he uses to track operations and administration for his business. Once MZM installs that system and is trained on it in the next six months, Beal says, the company can better track its costs. “Once we have our eye on exactly where that bottom line is, then I can project that better on the next set of projects that I’m going to bring to the table,” Perry says.

Getting that financial organization in place can also eventually lead to hiring more employees to its 15-person staff. Perry says that

Cover Story

from left, Sinu founder and

cto larry velez; Sinu principal

david owen; paltalk founder and ceo

Jason katz; and UBS managing director

Jason m. katz

MZM could definitely use three to four additional people to manage the field, office and internal operations.

“The whole point is to get her margins up so she can actually afford those people,” Beal says.

The program should also better enable MZM to take its financial records to a bank and prove how they can get a return from an invest-ment, according to Perry. But the ultimate goal is to get MZM to a point where it is financing all of its own projects without relying on a line of credit or term loan.

For that goal, she can turn to inspiration from Beal, who now works with friends at Springline, a company formed in May that is currently working on two hotel projects.

“Walter is great to talk to because he is no nonsense. He can look at me or give me a sound like, ‘Okay, Marj, rethink that,’” Perry says. “I go back to the drawing board quickly when I hang out with Walter.”

SInU – ThE TECh fIRmWhen Larry Velez decided to create a company in 2004 around a business plan he formed for an outsourced information technology department for small businesses, he had already had a taste of work-ing for two startup companies.

That included video streaming website company Pseudo Pro-grams Inc., which closed in 2000, and another online video network company Alltrue Networks Inc., which failed to find follow-on money after a 2001 fund raising event. “Pseudo was so crazy they made a video documentary about it,” Velez says of the film “We Live in Public,” which won a Grand Jury Prize for Documentary at the 2009 Sundance Film Festival. Velez wanted to leave less up to chance with his new business. For that company, named Sinu, that meant relying on a revenue model rather than turning to the venture capital funding that those previous companies had fed on prior to the dot-com bust.

“Raising venture money is like strapping a rocket to your back,” Velez says. “You will go somewhere. You might land where you want to go, you might not. But you’re going somewhere.”

Sinu started out by taking space in an incubator called SoBRO in the South Bronx and taking a loan from a seed support organization to help it start generating operating revenue.

Today, Manhattan-based Sinu provides outsourced technology services to small professional organizations in industries includ-ing architecture and design, consulting, financial services, media, nonprofits and real estate. Sinu’s clients typically have between five to 250 employees.

Sinu’s model works by charging its clients about $125 per employee per month. With that, the businesses get email, security, data backup and network gear. About 90% of the company’s revenue is recurring on a monthly basis.

“When things were really, really tight a couple of years ago, when the economy was collapsing, we shrank with our customers,” Velez says. “As they let people go, their IT budget automatically shrank.

So we didn’t have to have uncomfortable conversations, like how can you give me a 20% discount?”

Now as Velez is looking to push the business further, he has UBS advisor Jason M. Katz, founder and senior member of Katz Wealth Management, and his client Jason Katz, founder and chief executive of Internet chat service provider Paltalk, to help him.

Katz and Katz, who are not related, both grew up in Great Neck, N.Y. They connected in their hometown, where they shared similar interests including basketball, and have extended that relationship as professionals. “We’re forever explaining the other Jason Katz,” Paltalk’s Katz says. (Katz of UBS made On Wall Street ’s Top 40 Under 40 ranking in 2009.)

Sinu’s growth plans include converting its hardware to a service in addition to its overall information technology services. Ideally, Velez says, that would mean refreshing equipment like computers and servers provided to customers every few years like cell phones. “There’s clearly a very valuable proposition they bring to the table,” UBS’s Katz says of Sinu’s plans. “Through a dialogue I had with Jason the client and Larry, we realized it was more of a scalability issue.” To resolve that dilemma, UBS’s Katz plans to connect Sinu with UBS’s finance experts. Ultimately through the program, Velez hopes they can establish what the best way is for the company to buy the quantity of gear they need and buy it responsibly.

If successful, Paltalk’s Katz estimates that that plan could help Sinu double or triple its business very quickly and create more jobs. Velez has already seen some clients who signed up with 20 employees grow to 200- to 300-person force within one or two years. “We help remove the friction of that growth,” Velez says. OWS

About the CEO-UBS Small Business Advisory Program

On June 30, 2011, President Bill Clinton and Bob McCann announced the launch of the CEO-UBS Small Business Advisory Program at the Clinton Global Initiative (CGI) National Conference in Chicago. The objective of this philanthropic partnership between the William J. Clinton Foundation and UBS Wealth

Management Americas (UBS WMA) is simple: provide small business owners in underserved communities with the knowledge and skills necessary to support expansion and job growth.

The partnership began with a six-month pilot in the New York Metropolitan Area. Over the course of the program, entrepreneurs who currently run high-growth businesses with significant potential for job creation are receiving pro bono, strategic financial and business advice from a UBS financial advisor and a dedicated client from his or her corresponding network. Together, these financial advisor and client teams, with ongoing support from UBS’s network of specialists and thought leaders, are providing each small business owner with

the analytical expertise and business acumen necessary to achieve long-term success.

The Small Business Advisory Program is the next step in UBS Wealth Management’s Revitalizing America initiative, which brings together the business, government and nonprofit sectors to develop actionable solutions

to revitalize our economy.

About UBS Wealth Management Americas

UBS Wealth Management Americas provides advice-based relationships through financial advisors who deliver a fully integrated set of products, services and solutions specifically designed to address the needs of ultra high

net worth and high net worth individuals and families. It includes the Wealth Management U.S. business, the domestic Canadian business and the international business booked in the United States.

©2011 SourceMedia, Inc. and On Wall Street. All rights reserved. SourceMedia, One State Street Plaza, New York, N.Y. 10004 (800) 367-3989

For more information please contact:

UBS CEO Initiative Lori Feinsilver Julie Wang lori.feinsilver@ubs.com jwang@clintonfoundation.org