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Business Observer Thursday, May 21, 2009 12 years ago

Stimulus you can believe in

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Successful Gulf Coast entrepreneur and commercial real estate investor Harvey Vengroff has long said the region's economy lacks diversification. He sees the recession as a chance for real change.
by: Mark Gordon Managing Editor

Successful Gulf Coast entrepreneur and commercial real estate investor Harvey Vengroff has long said the region's economy lacks diversification. He sees the recession as a chance for real change.


A coffee addict, an entrepreneur who served time in federal prison on drug charges and an expert in determining the body temperature of cattle could represent the first wave of the economic rebound on the Gulf Coast.

The trio is part of local entrepreneur and commercial real estate investor Harvey Vengroff's personal quest to shift the region's economy away from housing, development and tourism to people who make, sell and do stuff.

Vengroff, founder of a Sarasota-based commercial debt collections firm with 1,100 employees and 120,000 client accounts, is using nearly 200,000 square feet of empty office and warehouse space he owns in Sarasota to jumpstart his mission.

The idea, similar to a business incubator concept, is to provide advice, small amounts of initial funding and discounted rent — free for six months, in many cases — to a host of local startup and fledgling businesses. If the companies succeed, Vengroff will share a percentage of the profits in the growing enterprises.

If the companies fail, Vengroff says he will only be down the rent he wouldn't be getting anyway, courtesy of the economy.

Some of the companies falling under Vengroff's initiative include:

• Atlas Pacific: Named partially for the Ayn Rand book Atlas Shrugged, the company manufactures so-called 'tobacco boxes,' which are used as an aid for people who roll their own cigarettes. Atlas founder Chris Hill, who spent eight months in a federal prison in Pensacola in 2002 after pleading guilty to conspiracy to sell drug paraphernalia charges, is receiving six months of free rent from Vengroff.

In addition to the rent in a 5,000-square-foot building a few miles north of downtown Sarasota, Vengroff has given Hill $35,000 in startup capital in return for a stake of the company down the line. Hill is also running a startup vodka importing and distribution business in the space;

• TekVet Technologies: The company, which was placed in 18,000 square feet of space near Hill's enterprise, plans to manufacture $3 million worth of livestock body temperature monitoring devices over the next few years. In addition to six months rent at just over $1 a square foot, Vengroff has staked the company with $43,000 in startup money in exchange for future royalties;

• 5 O' Clock Coffee: A coffee distributor and service company for businesses in the Tampa and Sarasota-Manatee markets run by Jim Zucallo, who previously ran a $2.5 million commercial coffee business in Cleveland. Vengroff is providing Zucallo with reduced rent for three years, with eventual repayment in four years.

Zucallo had been running 5 O' Clock out of a smaller facility in Bradenton, but as the recession lingered through the end of 2008 the company began to struggle. Not only did sales slow down, but unpaid accounts receivables piled up, says Zucallo, causing him to have his own cash-flow issues.

'Makes sense'
All told, those three companies, plus a few others Vengroff has brought in, have hired or plan to hire 125 employees. “We have a little bit of everything here,” says Vengroff. “There are no two entrepreneurs the same here.”

Vengroff, who founded the commercial debt collections firm Vengroff, Williams & Associates in 1963, is somewhat of an expert in providing entrepreneurial advice, capital infusions and low-cost rent to local startups and entrepreneurs. Previous companies he assisted, through a firm he co-founded called Startup Florida, include Movo Mobile, a cell-phone marketing company that Naples-based online social networking company Neighborhood America bought in 2006 and Anexio, a Sarasota-based technology marketing firm.

But, adds Vengroff, “We've never done as much as we're doing right now.” And Vengroff thinks so much of the current plan that if he fills up the rest of his empty space, he might look for more commercial space he could buy and rent this way.

While helping other businesses succeed and diversifying the region's economy are two of Vengroff's ultimate goals, the current effort comes with one additional perk: Taxes. He plans to write off the free rent and other costs as expenses for the debt collections firm.

Vengroff considers that side of his plan a small salvo at the Obama Administration's move to increase an array of taxes.

“I would rather give an entrepreneur some money and lose it in a business than give it to some stupid political plan,” says Vengroff. “I think it makes more sense that way.”

A gray area
Meanwhile, it's essentially a tale of second chances for the recipients of Vengroff's stimulus plan.

Take Hill, the entrepreneur who spent most of 2002 in a Pensacola prison cell.

Hill had built up his first cigarette-centric company, Sarasota-based Chills Tobacco, over several years in the mid-to-late 1990s. The company, which manufactured legal pipes and bongs, grew to a $5 million, 35-employee enterprise with partnerships and offices in places as far flung as Toronto, Stuttgart, Germany and Des Monies, Iowa. The company even made the Inc. 500 list of fast-growing companies in 1999.

The business and some of its competitors operated on the legal premise that it could sell the pipes and other materials as long as the merchandise wasn't being used for drugs. “There were barriers to entry and competitors out there,” says Hill, who focused on customer-service priorities, such as same-day shipping. “It was just like any other business.”

But to a federal prosecutor in Des Monies, it was an illegal drug paraphernalia operation. Even though Hill still maintains his business followed the legal requirements, back in 2002 he and his attorneys didn't want to risk a long prison sentence by fighting the charges in court.

So Hill pleaded guilty to some of the charges and began his 266-day prison sentence.

“I would not have sold the pipes for a minute if I thought the gray area was as dark as it was,” says Hill. “It's one of the worst exit strategies you could have in a business.”

Hill has longed to get back into running his own business, but a lack of funds and opportunities has thwarted those efforts. He has had the idea for a tobacco box business for several years, but Vengroff's lifeline was his first big break.

Hill says the product is both a smokers' survival kit and way for smokers' to quit. The box works by combining roll-your-own tobacco and rolling papers into a cigarette that can be lit and extinguished multiple times.

It's a survival piece because smokers can take one or two drags for a quick break and not lose out on a full smoke. And it's a potential quitting technique, Hill says, because it can aid smokers in the weaning off process.

Down the road from Hill, Jim Zucallo is operating another business, 5 O' Clock Coffee, which also relies on an addiction. Only this one, perhaps more of an affinity, is for java. Says Zucallo: “I don't know anything else but coffee.”

Except that Zucallo also knows the key business concept of making sure your business can separate itself from the competition, especially in something as crowded as coffee. “You have to set yourself up to be 'un-competeable,'” he adds.

Zucallo says that while he's proud of his coffee, and he's especially proud of his company's attentive customer-service policies, his 'un-competeable,' card lies is in 5 O' Clock machines. He will decorate any client's coffee machines with dozens of potential designs and decals, from college sports teams to product designations, such as an orange and white Harley Davidson coffee machine.

A third business in the Vengroff stimulus-incubator program, TekVet, involves the protection and health care of livestock. Company president David Robbins is optimistic that the business is on the cusp of an industry breakthrough.

It would be much needed, too, as currently the best and usually only way to see if a cow is sick is to round up the herd, look for potential sick ones and use a rectal thermometer to separate fact from fiction. But TekVet has created a wireless ear tag with a built-in computerized digital thermometer that could eliminate that onerous task.

The gadgets can then be programmed to send data to livestock managers and farmers via software the company created. In turn, the sick livestock can be treated quicker.

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