Winners & Sinners

TIMES STAFF WRITER

The menu includes filet mignon and swordfish followed by chocolate mousse and white chocolate truffles. Black tie is optional. Tears and hugs are expected.

Tonight, the annual Orange County Entrepreneur of the Year Awards banquet will be held at the Hyatt Regency Irvine. The event, organized by the accounting firm Ernst & Young, is like an Academy Awards for businesspeople, complete with videotaped vignettes of the finalists and breathless presenters who say "And the winner is. . . ."

This kind of high drama, once unheard of in the roll-up-your-shirt-sleeves world of entrepreneurship, is now commonplace. Awards are handed out like candy by such outfits as Ernst & Young, the insurance firm Connecticut Mutual, the Small Business Administration, Inc. magazine and many others.

The sudden abundance of these awards is an indicator of--and impetus for--a sea change in the public's attitudes toward business, observers say. Successful entrepreneurs have become celebrities in their own right, renowned for their risk-taking and lauded for their breakthroughs.

Entrepreneur awards "are just proliferating like crazy," said Jon P. Goodman, executive director of EC2, a business incubator project at USC. "I could probably, if I actually thought about it, think of 20 that are national, plus 50 or 60 I know of in various cities."

Some have questioned how many entrepreneurs of the year there can be before these honors begin to lose their value.

What's more, some award winners have later crashed and burned. That has raised questions about how thoroughly the firms have been researched, and whether winning an award can turn into the kiss of death. Others say it simply reflects the riskiness of entrepreneurship.

Several past Orange County Entrepreneurs of the Year have had a reversal of fortune since winning the coveted honor.

Perhaps the biggest embarrassment for the Ernst & Young program was its 1988 award to Michael Parker of Parker Automotive in Irvine. In 1993, Parker pleaded guilty to hiding the company's troubled finances from bankers to get a loan. He is also serving 11 years in federal prison for another savings and loan fraud.

The company filed for bankruptcy, and its assets were sold. Ernst & Young was later cleared of wrongdoing in auditing Parker Automotive's books.

Other past award winners have encountered setbacks.

* Mossimo Giannulli, founder of his namesake apparel company, by 1993 had collected entrepreneur awards from Ernst & Young, Inc. magazine and Merrill Lynch. The once high-flying Mossimo Inc. has since been plagued with losses, its stock has plunged and Giannulli stepped down as chief executive in April.

* James M. Sweeney merged four home-infusion providers in 1994 to form Coram Healthcare Corp., and in 1995 he won the Master Entrepreneur of the Year Award. But the road got a bit rockier for Sweeney after that. He moved Coram from Newport Beach to Denver, laid off hundreds of workers and closed facilities in a broad restructuring. Last year he resigned, after the company settled a lawsuit arising from an ill-fated acquisition.

* New Life Treatment Centers' Stephen Arterburn won as the 1993 Socially Responsible Entrepreneur of the Year. The Laguna Beach company, an operator of Christian therapy centers, was later accused of negligence in two separate cases involving allegations of therapists having sex or an inappropriate relationship with clients. It was cleared in one case; the other settled out of court.

* Just this week, one of last year's award recipients, William C. Cacciatore, chief executive of Richey Electronics Inc. in Garden Grove, encountered a rough patch. The company's stock tumbled upon news that weakness in the electronics market would result in lower-than-expected earnings.

Ernst & Young is far from alone.

Last month, the SBA's Los Angeles District office was left with egg on its face when it withdrew 1998 Entrepreneur of the Year honors from a firm that recently filed for Chapter 11 bankruptcy protection.

Observers point to the awards bestowed on fallen ZZZ Best carpet-cleaning king Barry Minkow as a classic case of misguided plaudits. Minkow, once lauded as an entrepreneurial wunderkind, even received a commendation from then-mayor of Los Angeles Tom Bradley in 1985--before his conviction on fraud and money-laundering charges.

"Sometimes getting an award isn't such a great thing," mused Alan Carsrud, chairman of UCLA's Venture Development Program. "Visibility doesn't always serve you well."

But despite a few high-profile flops, most observers say the benefits well outweigh the risks. Giving awards, like entrepreneurship itself, is inherently risky, they say.

"Can you ever be unscathed? No, never," Goodman said. "The world changes, the environment changes, technology gets old, Japan stops buying, the plant in South America blows up, the company gets acquired. There's no crystal ball" that can predict success.

Indeed, David Birch, president of the Cambridge, Mass., consulting firm Cognetics Inc.--famous for coining the term "gazelle" to describe fast-growth firms--said the demise of a certain percentage of award-winning entrepreneurs is not only expected but "delightful."

"One of the strengths of America is we tolerate failure," he said. "The fact that they come back and can try again is part of the story."

He recalled an awards program he was involved with that recognized the 50 fastest-growing firms in Atlanta. Only 49 made it to the awards presentation because one had filed for bankruptcy. That's the nature of the beast, he said.

But what about the Michael Parkers and Barry Minkows, who didn't just fail but actually cheated?

Sponsors acknowledge that it's an imperfect system, and that an occasional bad apple can slip through.

Ernst & Young, whose awards are considered highly prestigious--Orange County is one of 47 markets across the country in which it organizes the contests--is known for relatively thorough research.

Businesspeople are typically nominated by service providers--law firms, accountants and bankers--or they enter themselves. Contestants submit detailed financial histories, and undergo interviews during which they are grilled about themselves, their products and their operations.

"I'm amazed how much data is put together by the Ernst & Young team," said AST Research co-founder Safi Qureshy, a judge for this year's Orange County contest.

Even so, he said, "we are not really able to investigate each and every thing." As good as a company might look one day, "it's really very difficult to predict their future performance," he said.

"There's a natural risk in having an awards program," acknowledged Ernst & Young's Mike Gottlieb, who runs the Orange County awards program. More often, he maintained, a winner turns out to be a success story, like Henry T. Nicholas III, co-founder of Broadcom Corp., an Irvine-based semiconductor maker whose initial public stock offering in April was one of the hottest IPOs in recent memory.

Where the awards invariably succeed is in providing positive publicity for both the recipient and sponsor.

Ernst & Young has a sizable entrepreneurial services group, and the awards program "is a lifeblood of that group," Gottlieb said. "We really get a lot of new business out of this."

Similarly, observers say, the SBA can use its awards as an advocacy tool for its loan programs and other activities it supports.

Award winners like Darrell Issa, the car alarm magnate who lost his bid for the GOP Senate nomination earlier this month, also cash in on the public relations front. During the primary campaign, his 1994 Entrepreneur of the Year award from Inc. magazine was prominently displayed on his resume.

Winners say an award doesn't make or break a company. But, "It is more than an empty accolade," said Joel Moskowitz, chief executive at Ceradyne Inc., a Costa Mesa technical ceramics company. He won the Ernst & Young award last year in manufacturing.

"It's really enhanced the stature of the organization," he said.

There are 36 finalists for this year's awards, out of which about eight winners will be named. They will be eligible for Ernst & Young's national awards, to be presented in Palm Springs in November.

Among the finalists is Greg Grosch, chief executive of White Cap Industries Inc., a Costa Mesa supplier of construction tools. Winning would "probably have a positive influence on the way the investment community perceives our company," he said.

He does see some risk in that "you're calling attention to yourself, putting yourself in the limelight. You don't want to be a flash in the pan."

But, he said, "I'm looking at it more as a validation of a dream that I had. Everyone needs to be stroked."

Finalists Steve Kottman and Dave Sanderson, co-founders of Orange-based music-case maker SKB Corp., said the award is meaningful because it's a pat on the back from those who understand what it's like to start a business.

"I've never had a real job," said Kottman, who started the company in his father's garage with college pal Sanderson. "This is the only thing I know."

Besides, he said, winning would be a long-awaited payback to "all the girls who wouldn't go out with us in college because they thought we were losers."

"It's revenge of the nerds," he said.

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