It’s a think tank, it’s an incubator, it’s a place where the guys hang out, bounce ideas off each other, and cook up innovation. We’re not talking about 20-somethings with a coffee cup in one hand and a beer in the other in a grungy basement. This 4,000-square-foot penthouse suite at 90 Nassau Street overlooks Princeton University’s FitzRandolph Gates and Nassau Hall, and its occupants lunch at tony restaurants like Agricola. They are successful middle-aged entrepreneurs who have made a good amount of money.
At the helm of this consortium is Chris Kuenne. Having sold his fast-growing digital marketing firm, Rosetta, to Publicis, Kuenne is providing counsel and support for his successor on a regular basis. Meanwhile he has started teaching high tech entrepreneurship at Princeton University (he is a 1985 graduate) and is setting up a new private equity company, Rosemark Capital Group, which has nine people and could go to 25. He also plans some significant philanthropy, a new foundation called Olivia’s Rainbow, in honor of his daughter, who died in an accident at the age of six.
People say Kuenne is a “Pied Piper,” and are naturally attracted to him, but a better comparison is to Tom Sawyer, who — when ordered to paint the fence — famously convinced his buddies to help. With Kuenne as general partners are two long-time friends. Paul Gilbert has his company, MedAvante in the same American Metro building as Rosetta (U.S. 1, June 7, 2006). Seamus McMahon is a transplanted Irishman who had worked with Kuenne in New York.
Kenneth Traub is the new kid on the Rosemark block, though a familiar face to U.S. 1 readers. He cofounded Voxware and brought American Banknote Holographics to Robbinsville, selling it to JDS Uniphase in 2008. Now he has a private investment and advisory firm, Ethos Management; he met Kuenne when they served on a panel for the New Jersey Technology Council in January.
Stephanie Sandberg, the new senior vice president for research and communication, left New York City two years ago with her spouse, a friend of Kuenne’s at Princeton.
All plan to leverage their past successes, to use their money and their expertise to help companies grow.
Two firms with deep roots to Kuenne’s past are paying rent here. Kuenne is working with a childhood friend, James Burke, the son of the former CEO of Johnson & Johnson, in a company called Disruptive LA, on an innovative way to market independent films. Kuenne invests in, and sits on the board of Sword, Rowe & Company, an investment banking firm headed by Daniel Rowe that continues the business legacy of William Sword Jr., who died during Hurricane Sandy.
Another friend, Buzz Woodworth, brokered the space, which was previously occupied by Proquest Capital and is owned by Bryce Thompson of Thompson Realty.
Propinquity could play a part in success. Rosetta insights are driving Disruptive LA (see sidebar, page 44), and Kuenne might be able to advise Sword Rowe on how to continue to build and scale a professional services firm.
It may be hard to keep up with what everybody is doing, but they all seem to be having a good time doing it. Come Friday afternoon, everybody can take in the autumn air with a happy hour on the roof. “It’s really the coolest office in all of Princeton,” says Kuenne. “I have always wanted to work in downtown Princeton, to walk to work, do everything on foot, to be in the center of my favorite town.”
‘The founder and partners of Rosemark Capital Group are after one thing: helping intellectual property-centered service firms scale their impact and value through technology and our proven growth formula,” says Stephanie Sandberg, senior vice president for research and communication. “This focus reflects not just their own career experiences, but their shared conviction that it is these types of companies that have what it takes for explosive growth impact — and they have a passion to help the entrepreneurs of these firms achieve their growth dreams.”
Long active in the media business — as president and publisher of the New Republic and executive publisher of Columbia Journalism Review, among other roles — Sandberg was most recently chief marketing officer of a consulting company. She moved from New York with her spouse, a Princeton graduate, two years ago. “This role leverages my backgrounds in media and consulting wonderfully,” Sandberg says.
The name for Rosemark Capital Group comes from Rosetta’s original name, Rosetta Marketing Strategies Group. As a private equity firm, Rosemark is high on the ladder of funding sources. Brand-new companies get their first dollars from friends and family, then from angels, and then from venture capitalists. If the company does not go public, it gets money for its next growth spurt from the deep pockets of private equity.
Kuenne believes Rosemark can be the “loyal funder” that helps other companies grow. Fortified by private equity, he successfully grew his own firm from $10 million to $250 million in five years. He looked at the traditional, labor-intensive method for understanding consumer choice. Then he patented and perfected a way to divine what drives consumers to select the brands, how they use them, and in which outlets they purchase them. This proprietary process, personality based segmentation, uses algorithms to gain market share.
Because Rosetta was providing a service, it had good cash flow and was not capital intensive, so at first it did not need investors. After it had achieved significant size, Rosetta attracted a loyal private equity group, Lindsay Goldberg, which provided significant capital for growth. So funded, Rosetta bought interactive marketing agencies and embedded personality based segmentation in the solutions. It kept on buying companies until it was such an attractive target that it was snapped up for $575 million by Publicis, the world’s third largest communication group.
Rosemark’s secret sauce: it will restrict its investments to companies with intellectual property (IP) that is enabled by technology. The target company could be providing a service or solving a problem, but it must own the IP for a breakthrough in a business process that can be scaled through technology.
The target companies will be worth from $10 million to $30 million, and they must have prospects of growing 15 to 20 percent or more per year. It’s not impossible, because Rosetta did it. “We want $15 million to become $150 million in three to five years, like Rosetta’s trajectory,” says Kuenne.
There will be one big difference between how Rosetta got money and how Rosemark Capital Group will offer money. Rosemark will contribute “smart capital,” i.e. both money and expertise. In other words, if you take my money you also have to take my advice. When Kuenne and his cohorts invest seven and eight-figure amounts in a company, they want to be hands-on participants in helping it grow.
“When we bring our money and other people’s monies, we also want to bring our expertise, our skills, and relationships,” says Kuenne. “We believe that our skills are key ingredients.”
Most CEOs of technical companies have technical smarts, not business expertise. The kind of entrepreneur who can figure something out and build it does not usually have the skills to turn $15 million into $150 million.
Kuenne did, and he was able to get $250 million from Lindsay Goldberg with nobody looking over his shoulder. The money, says Kuenne, “gave us confidence that we were on the right track and the credibility in the marketplace to be an aggressive acquirer.”
What skills might a company lack? Everything from a road map on how to scale a product to human resources and recruiting. Or how to manage financial metrics, manage investors, or manage across different geographies.
Each partner will have a different focus. Because of his experience with Medavante, which does clinical trials, Paul Gilbert will handle the healthcare vertical. Kuenne will have the sales and marketing verticals but will also draw on his experience as a general manager, operator, and inventor. Ken Traub will rove across verticals, technology and business services. Seamus McMahon, who with Kuenne built the first retail marketing practice for First Manhattan Consulting Group, will concentrate on financial services.
Kuenne has begun introducing Rosemark to other private equity firms and pension plans and family offices, in preparation for the first set of deals. Rosemark will fund companies on a deal by deal basis, “to match the right capital partner with each deal.” Kuenne has an arrangement with New York-based Brown Brothers, his merger & acquisition partner at Rosetta. John Molner is his outside M&A partner. “We have been working together for 12 years,” says Kuenne, “and are shifting the gun turret to acquire a broader range of targets that are not in the marketing services business.”
The big challenge: How to find the companies with the target “sweet spot.” Rosemark has two researchers on the job now and plans to hire two more.
“We’re entrepreneurs, and we want to serve other like-minded entrepreneurs who are seeking to combine intellectual property with technology to drive significant value,” says Kuenne. “It helps that our ethos includes an obsession for problem solving, the highest ethics, and the drive for impact. We want to make a difference to those companies, their employees, and the communities in which they work.”
Kuenne grew up in Princeton, where his father was a noted professor of economics. After the Lawrenceville School and Princeton University, he earned an MBA from Harvard Business School. Encouraged by James Burke, the CEO of Johnson & Johnson and the father of his childhood friend, he worked at J&J for 10 years, then did a stint at Nelson Communications. He spun out his part of Nelson Communications into Rosetta Marketing Strategies in 1998, setting up at the Carnegie Center.
Those are the facts, but the story behind the story is that he and his wife, Leslie, suffered the “ultimate parental calamity,” the death of their second child, six-year-old Olivia, in a freak accident involving a toppled stone bench. “You are never supposed to bury your own child,” says Kuenne. “It was a complete violation of how things are supposed to happen.” Confronting this led to intense discussions about the meaning of life, and it became the catalyst for starting Rosetta.
Kuenne had been working with the concept of “personality-based segmentation,” mathematical ways to connect behavioral and attitudinal data. Fortunately, the dotcom bubble had come and gone, so his firm had time to reinvent itself, ride the next wave, and prove the concept.
For example, he discovered that Excedrin appeals to “aggressive medication believers” who want to nuke their headaches with meds and they believe they will work. That’s because Excedrin has two relievers in it, plus caffeine, and the caffeine makes the other drugs work faster. Rosetta told the client to focus everything — ads, packaging, PR, whatever — on the aggressive medication believers who made up 18 percent of the market. “We tell them to spend no dollars on the rest of the market.”
In 2005 Rosetta “moved downstream” and captured more of the business by buying a same-sized company, Simstar, a digital ad agency with $10 million in revenue. In 2007 Lindsay Goldberg funded Rosetta’s buildout. Rosetta dropped the “marketing strategies” from its name, grew exponentially, and now has six vertical markets — healthcare, finance, consumer and retail, B2B web-based, technology, and travel. Before its sale to Publicis, it had a rumored $250 million in revenue, 12 offices, and 1,200 employees, and it was the largest privately held digital ad agency in the world.
Kuenne has ambitious philanthropic goals. Currently he sits on the boards of the New School in Manhattan, Princeton Day School, and of the James and Diane Burke Foundation. The new foundation, Olivia’s Rainbow, will be a memorial to the Kuennes’ daughter. At a time when schools are cutting funding for the arts, Olivia’s Rainbow will do research on the emotional and social roles that art and art education play in early elementary school. It will build curriculum around those roles, sponsor teachers, and help fund art materials. “Art played such a profound role in Olivia’s short life that it is a wonderful way to memorialize her,” says Kuenne.
Key to Kuenne’s success is his ability to read people. He hires raw intellect and raw drive. Headhunters call this the “best athlete recruiting strategy,” when you don’t look for a quarterback, but you look for the best athletes to form a team.
His advice to entrepreneurs: “Go find something you love doing and come up with a better way to do it. If you have a passion you can pursue that passion and continue to turn it over in your mind, asking yourself, is there a better way to do that? People like the trappings of being an entrepreneur, ‘to work for myself’ but you have to have a unique combination of creativity, drive, and passion, and a skill set commercially relevant to what you want to do.”
Rosemark Capital Group, 90 Nassau Street, Princeton 08542; 609-577-5701; Chris Kuenne, founder and CEO. www.rosemarkcapitalgroup.com.
Kenneth Traub has lots of experience growing, rescuing, and selling businesses. In fact a good description might be “hard won business experience.” He met Kuenne when they served on a panel for the New Jersey Technology Council earlier this year, and he has moved his private investment firm, Ethos Management, into the Rosemark space at 90 Nassau.
Traub had appeared on the Princeton scene as co-founder of Voxware, a much touted early entrant into the Voice over Internet Protocol (VoIP) field, which was itself in an infancy stage. The son of a Long Island furniture dealer, he had majored in psychology at Emory, Class of 1983, and worked for a fast-growing real estate management company in Atlanta. After going to Harvard Business School, his next job — in New York with Trans-Resources Inc. was doing mergers and acquisitions. A family friend introduced him to the inventor of Voxware’s intellectual property, a compression algorithm that enhanced the connection experience when people were still dialing up the Internet with modems.
Voxware grew and went public. At the height of its value, Traub says, he advocated to sell it. His advice was not taken. When bandwidth increased, VoIP customers went elsewhere. Voxware struggled to find its footing, and Traub left. (Voxware is now located at American Metro Center, where it offers voice-controlled warehouse management products.)
“The rise and fall of Voxware was a great learning experience, one of the most exciting experiences of my life,” says Traub, who is married to an attorney, Rina, and has two daughters. “In hindsight I wish I had prevailed on the rest of the board and management to sell the company. We could have gotten good value then, in 1998.”
He hoped for a less stressful job at American Bank Note Holographics, which designs, mass-produces, and markets secure holograms. But on the first day he discovered the books were cooked. “They hired me as executive vice president and CFO. On my first day of work, January 12, 1999, together with Deloitte & Touche, I discovered there had been a fraud,” said Traub (U.S. 1, January 12, 2005).
Companies dealing in security products are particularly vulnerable to scandal. “The reason why you have a hologram on your credit card is to protect against fraud,” says Traub. “Our suppliers cut off credit, customers were canceling contracts, and employees were quitting.” The firm would be investigated by both the Securities and Exchange Commission and the Justice Department, and the CEO would go to jail.
“It was an Enron-like scandal. We were proactively dealing with many of the issues of Sarbanes-Oxley ahead of our time,” says Traub. Asked to take over the company, he and the bankers forced the resignation of the executive staff and the board. His turnaround efforts were so successful that they have been the subject of case studies at Columbia and Harvard business schools.
The key to survival, he says now, was keeping things in perspective and managing one task at a time: “There were so many issues to deal with that we needed to sequentially manage each challenge as it came along. It was an extraordinary experience. Voxware really did toughen me up for it. You learn to get through tough times.”
“The single goal to save the company in that huge scandal was to rebuild trust, to demonstrate that our number one commitment was restoring integrity,” says Traub. He did the turnaround from 1999 to 2001, and after September 11 his company’s growth was fueled, in part, by the growth in the security market.
As CEO, he increased shareholder value 10 times. He moved the plant to Robbinsville. When the company was sold for $160 million to JDS Uniphase in 2008, it had $50 million in revenue and 120 employees. His personal profit was more than $10 million, and he began — through his own firm, Ethos Management — to invest in undervalued public companies. “Replicating the experiences I had, I can help the current board solve problems and unlock a lot of value,” says Traub.
Currently he is board chair at MRV Communications, a telecommunications firm in Los Angeles. He sits on the boards of two semi-conductor firms, Vitesse Semiconductor Corp. and the DSP Group Inc. He also is a board member at Athersys Inc., a Cleveland biotech; Xyratex Ltd., a data storage firm in the United Kingdom; and Tix, a media company in Los Angeles.
“Ken has a lot of experience in evaluating technology companies and identifying the stumbling blocks or leverage points that can unleash growth,” says Kuenne. “He has both invested in and led technology companies. I am looking to him to help our team to source, vet, and help to structure deals that create value for the entrepreneur and the investor.”
But profit is not the primary goal, Traub says. “Making money will be a consequence of doing things right. What’s most important is to take pride in what you do.”
James C.E. Burke comes from the freewheeling world of Hollywood and Broadway. Chris Kuenne comes from the cautiously scientific world of pharmaceutical marketing. Burke hopes that scientific methods, as devised by Kuenne, can lift independent films from the morass of inefficient marketing.
“If we can bring science to a highly non-scientific endeavor — an indie film — then we can prove that Rosetta’s personality-based segmentation will work for nearly any field,” says Kuenne. “And we are seeing exactly what we are seeing in every other category. We are in the early stages of proving that Rosetta’s intellectual property, combined with James’s movie selection process, can disrupt the whole distribution business for indie films.”
Kuenne and Burke have been buddies ever since their preschool years at Miss Mason’s School. They hung out together, often at the Burke home. Kuenne was like a second son to Burke’s late father, James E. Burke, who was building a reputation as a marketing genius at Johnson & Johnson. Father and son liked to monitor television ads together, picking out which ads on “I Love Lucy” worked and which didn’t.
In his 40-year career at J&J, Burke’s father spent 10 years as CEO, aggressively emphasizing J&J’s famous credo, a four-paragraph pronouncement on corporate responsibility. When the Tylenol scandal broke in 1982, it was just several days before parents’ weekend at Middlebury College, and Burke assumed his dad would be too busy to visit. Wrong. His father came and took him and six friends to dinner. He astonished them by going around the table, asking each, “what would you do if you were in my shoes,” listening carefully to each answer.
The CEO earned the world’s praise for his handling of the crisis, receiving the Medal of Freedom from President Bill Clinton and Fortune magazine’s kudo as one of the 10 best CEOs of all time. “It was an opportunity to take the values he held so close — to be honest, to be upfront, to care about the consumer — and embody those values in the crisis,” says Burke.
After college Kuenne found a niche at J&J in corporate marketing, but his friend pursued his love for the theater. At Princeton Day School he had been in all the plays, and at Middlebury he double majored in philosophy and theater. So in 1984, Burke went to New York to try his hand at acting, producing, and directing quality plays. He had success in all those areas and started a theater company, Actors Classical Troupe.
In 1989 he moved to Los Angeles, where he produced and acted in a play, acquired an agent, and directed a short film. It won film festival awards and earned a slot at the prestigious American Film Institute. That jumpstarted his film career — directing and producing — but he still retained an interest in theater.
For example, in 2003 Burke co-produced “Long Day’s Journey Into Night” with Vanessa Redgrave, Brian Dennehy, and Phillip Seymour Hoffman; it won three Tony Awards, including best play. That year he was executive producer of a film, “Levity,” starring Billy Bob Thornton, Morgan Freeman, Holly Hunter, and Kirsten Dunst, released by Sony Pictures Classics. Another of his award-winning films, “Thirteen Conversations about One Thing,” starred Matthew McConaughey, John Turturro, Amy Irving, and Alan Arkin.
Kuenne says Burke — married to a Swedish-born woman and the father of two daughters, 5 and 3 — has an intuitive sense for picking films. His most recent, for which he was executive producer, was “Afternoon Delight,” with Kathryn Hahn, Juno Temple, Josh Radnor, and Jane Lynch, directed by Jill Soloway. It won the best director’s award last summer at the Sundance Festival.
Burke made his full length feature film directing debut in 2005 with “Aurora Borealis,” starring Joshua Jackson, Donald Sutherland, Juliette Lewis, and Louise Fletcher. The movie, which tells the story of a young man dealing with his father’s premature death, cost $3 million but unfortunately lasted in theaters for, as Burke puts it, “a nano second.” Disappointing box office results are pretty typical for indie films that get good reviews and win awards. Although blockbusters backed by major studios get good runs no matter what their quality, all too many high quality independent films die from poorly targeted marketing.
“I went to the premiere of his film, watching the way they were researching the audience and thought, this is crazy. This is not the way to market,” says Kuenne.
“I have experienced it one too many times,” says Burke. Despite its losses, “Aurora Borealis” investors stuck with him, because most of his films have made money and because they trust his picture-picking instincts.
Kuenne and Burke believe they can solve the indie marketing problem by using Rosetta’s methods to analyze consumers’ needs, attitudes, and behaviors. They are identifying the personalities of film enthusiasts. One of the five types, the “Advocate,” loves watching, talking about, and recommending movies, especially original films. When Advocates leave the theater, they text, blog, or Facebook their favorites. Another type, the “Explorer,” is independent-minded, gives little weight to other’s opinions, and likes to discover new films. Ideally, the marketing campaign can direct its dollars to these identified personalities, then sit back and let word of mouth take its course.
Burke has been Rosetta’s client for a year. He aims to relaunch sales of “Aurora Borealis” with Rosetta’s personality-based segmentation and use it as a proof of concept for that method. As with all his projects, outside money is the lion’s share of the funding but he also has “skin in the game.” He is investing in Disruptive LA in the same way — he believes in its power to change the industry, and he wants to communicate to investors his own deep belief in that potential.
As Burke begins to revolutionize the movie marketing business, he is doing it by following the lead of his father, known for his penchant for listening to the consumer. With new technology, he can listen more accurately. Rather than blasting out ads, he can target the right people.