Deal of All Kinds Get Disrupted

In the business news at the end of January were stories about how the Walgreens deal to buy Rite Aid had the price drop because Walgreens, as per a government edict, can’t take over as many Rite Aid stores as planned (someone will have to find a buyer for those other stores).

Things happen all the time to derail deals, and not just buy-sell deals.

Jobs – a good friend was in the job market, had “the perfect” job lined up, an offer was out, and, boom, the parent company did a reorg and froze all hiring.

Customers – a friend’s company went through hell when some changes at their top customer put the emphasis on price and nothing else. They lost a big contract or two, for very little money, even though the customer’s people who use the product hate the competitor, say they have poor quality, and don’t deliver on time. I guess the number crunchers won this round.

Buy-sell – A few years ago I went through a stretch where three deals disintegrated after signing a letter of intent (LOI). It had been a long time since even one went south after there was a signed LOI (when the Great Recession hit six weeks before closing is all I can remember). Two of these deals had legitimate reasons for not happening, i.e. something happened that changed the company.

The other one (and one from about 1.5 years ago) went bad for the reason most good businesses don’t get a deal done with a good buyer, and the reason is trust, or the lack thereof. The deal from three years ago had a seller who wouldn’t sign a contract representing and warrantying what he had told the buyer about the business was true and correct. At this point any trust evaporated.

The more recent one was more complicated but it centered around the perception the seller wasn’t interested in the buyer’s success. When the seller wouldn’t take interest, or offer much help prior to closing it became evident once he had his money he’d be hard to track down.

Things happen, and if there’s trust those things are overcome. As in a case from about 10 years ago when the selling business had a sales decline (the seller took his eye off the ball) and he did what he had to do to keep the buyer on board. In this case, it was hiring him to learn the business while it was being “fixed” and prior to closing.

“Democracy is the theory that the common people know what they want, and deserve to get it – good and hard.” H.L. Mencken

 

Ethics and Good Business

A client called me last week to discuss the following and keep in mind my recent post about how some firms don’t pay enough (good) attention to their people. He told me:

A key manager with one of our competitors called, she said her employer takes her for granted, doesn’t treat her with respect, and she wants to come and work for me. (This is what happens when you create the right culture.)

She also mentioned she was sure some of her customers would come with her because she has the relationship and there is no non-compete or no non-solicitation clause with her employer.

My clients question to me was, if and after he hired her, is it was ethical to go after her customers?

My reply was “That’s business.” They didn’t have her sign a non-solicitation agreement so if you do it positively and above board it’s okay. And I reminded him that after his second acquisition one of the firm’s employees left and did the same thing.

My example was, if she goes to her customers and says, “I’ve found a better opportunity for you and me with XYZ company and I’d like to talk to you about why I feel it’s better for you” it’s okay. If she goes and badmouths her previous employer it’s wrong, it won’t impress her customers, and it could damage his culture.

What do you think? Would you handle this any differently?

BTW, he has all his people sign a non-solicitation agreement.

“Truth exists; only likes are invented.” Georges Braque

 

Taking Things for Granted

Last month I had eye surgery and a blurry eye makes you realize how we take sight, hearing, health, and other things for granted. Ask anybody who’s been hit by the nasty viruses going around this winter and I’m sure you’ll get an earful.

So, what do we (most people) take for granted in our businesses? Usually it’s the people and often it’s not intentional, it’s just that we get focused on our machines, our product, the margins and forget about who runs the machines, buys the product, etc. While I could create a long list of situations where the owner berated their people, here are a few more interesting examples.

Last year I visited a manufacturing business and noticed the employees eating their lunches in their cars. I wondered why, moved on to my meeting, and then, on a tour of the plant, realized why they were in their cars. The lunchroom needed a pressure washer and large amounts of disinfectant.

Many years ago, client Keith Jackson with Industrial Revolution, in response to my question about how his marketing was going, told me, “It’s amazing what happens when you actually pick up the phone and call your customers.” The previous owner took orders; Keith took interest in his customers.

A past client had trouble keeping good vendors. He lost two primary vendors (the second had replaced the first). Selling more of their product and accepting their assistance would have preserved the relationship.

The above said, many, many employers do take care of their employees and their customers. Things like great benefit plans, super coffee machines, beer Friday, and more create an atmosphere that encourages people to stay – and contribute.

Next week’s memo will cover what can happen when you don’t make employees feel appreciated.

“All looks yellow to the jaundiced eye.” Alexander Pope

 

Jobs, Skills, and Worker Shortages

As I looked through my folder of articles I’ve saved as topics for my newsletters and posts the number one topic, by a landslide, was the topic of jobs and employees.

Here are a few of the article topics:

  • There are 200,000 unfilled construction jobs as 30% of construction workers found new industries after the Great Recession.
  • Trump threats about tariffs and his going after Ford and Carrier and their Mexico plans.
  • The shortage of workers to fill many, many positions in a variety of industries. (As a sidebar item, our family cabin is in northern Wisconsin and in the county with the State’s highest unemployment rate. Yet last year restaurants couldn’t fully staff their operations because people didn’t want to work as they’d have to give up their State benefits.)

Here are some headlines:

  • Good help wanted, but hard to find
  • What would it take to return mill jobs to Trump county?
  • Factory workers demand winner deliver the goods
  • Skilled workers in short supply

The above is interesting (and true). In the day-to-day world of small business here’s what I’m hearing:

Owners are incredibly interested in how to attract, retain, and motivate good employees.

My annual client breakfast had requests for a speaker on employee issues (Jack Goldberg with Personnel Management Systems, Inc., the leading HR outsourcing firm in Seattle). My group of business owners repeatedly asks for presenters on attracting and retaining people. When  CEOs speak to us the questions always include some about people.

The disconnect as I see it, and I’m not the only one, is many of the people looking for work don’t have the skills for the available jobs. No matter what any politician says, someone trained to do maintenance or work in a low-tech factory doesn’t have what Microsoft, Apple, Google, and all the small tech companies need (and they don’t have the right skills to get a construction job or work in a high-tech factory). It’s why there are 500,000 unfilled tech jobs in this country (plus the 200,000 unfilled construction jobs and why good CNC machinists are at a premium). This makes keeping good people more important than ever (and why tech salaries have skyrocketed).

Some things aren’t going to change. It takes a person to build a building or program a computer. But now one person can program a machine that will work all night cranking out parts with no human supervision. Then that person moves to the next machine and does the same thing. What used to take many people over multiple shifts now takes one person on one shift.

Conclusion

In my opinion is education is the answer. As you get this I just returned from Antigua working on a Rotary service project. Our theme is, “Improving Education Through Technology.” Our goal is for the teachers to better reach their students by using computers, tablets, Wi-Fi networks, etc. instead of a blackboard. Not that blackboards don’t work, but it’s all about reaching your audience and the best way to reach kids is to teach via what they are using all the time outside of school, i.e. devices with screens.

Slow, Fast, or Manageable Growth?

In mid-2016 the Wall Street Journal published an article titled, “Demand Swells for Chickens That Grow More Slowly.” The gist of the article is companies (Whole Foods, Starbucks, and others) believe customers will pay more for products from birds that grow slower (than those full of hormones and other additives).
This is a great analogy to businesses and their growth. Do you want a business with slow, fast, or rocket ship growth? Naïve people instantly thing they would want rocket ship growth, not realizing the pitfalls. Smart people, smart business buyers, understand slow and steady is the best if the company can achieve fast growth with better leadership, marketing, and direction.
See a (suddenly) fast growing company and a buyer will wonder if that grow is sustainable. Did she push harder right before selling? Did he cut deals to increase sales? Is it a spike or a trend? Buyers are skeptical and rightfully so. And after perusing the Internet business listings they feel they’ve seen just about every outrageous claim about a lousy business (to make it appear to be a good, solid company).
So, what are the top pitfalls to a super-fast growing company. Here are three:
  1. Growth sucks cash. The faster you grow the more cash you need because you pay your people weekly, your rent monthly, and your customers may pay you in 45-60 days. I’m in retail you say and I get paid at the time of the sale. Well, what about all the inventory you now need to keep up with demand?
  2. People, good people, are scarce in today’s economy. A business owner recently told me he could sell a lot more product if he had the people to handle the load. Raising the minimum wage level doesn’t raise the skill level. Good people are hard to find and not delivering to your customer is a kiss of death.
  3. Without proper leadership, management, and attention to detail the company can spin out of control. For example, it’s a lot harder to manage the logistic of 22 crews in the field versus eight. A manufacturing company I worked with took on every piece of business they could find, only to see their margins deteriorate as their employees were overworked and stressed.
Manageable growth is what you want as it tends to be more profitable growth.
“When action is needed, optimism, even of the mildly delusional variety, may be a great thing.” Daniel Kahneman

Technology and Its Limits

My four-year-old iMac was being very sluggish so I took it in to Apple’s Genius Bar (a great concept, bring in any Apple device and get free help). The diagnosis was the operating system had some corruption and I needed to reinstall it, which turned out to be a piece of cake with no lost data, settings, etc.

I came away from the experience with three thoughts:

  1. Computers and their software are going to have issues. Doesn’t matter if it’s Apple, Samsung, Microsoft, Dell, or any other company’s products. They are things, like cars, boats, vacuum cleaners, furnaces, etc., and things wear out and have issues. (Which is why repair and service business can be good companies.)
  2. Apple knew there was OS corruption. It’s why they gave me free telephone support as I went through the process (like most firms, they charge for their Apple Care after the warranty period).
  3. Because technology resides in things, and things have issues, it’s no wonder I’m reading so many stories about how the, “Internet of Things” is stalling. Nest thermostats sales have plateaued, Internet connected toasters, refrigerators, etc. aren’t selling. It’s not worth the extra money to have a toaster connected to the Internet.

Not to mention, the more things connected to the Internet the greater the likelihood of unauthorized people (hackers) gaining access to your system. Especially when it’s been proven the companies making these devices aren’t always quick to offer security updates and when they do the users have a

hard time finding the updates and/or just don’t take the time to install the patch.

Useful technology is great. I love the fact cars have an auto setting for lights and wipers. They go on when needed and off when not needed, even though my son tells me this means robots are controlling my life. He’s right in a way as the more we’re dependent on technology the less control we have. And one thing I’ve learned in my life is most people want to at least feel like they’re in control.

It’s why people own (buy) a business. I am always told by audiences “control” is one of the top reasons why they’re considering business ownership. It’s why (former) business owners tend to make lousy employees, they’ve been in control for too long.

“Knowing what you cannot do is more important than knowing what you can do.” Lucille Ball

Huge Risks? What’s Your Comfort Zone

Last year in Inc. Magazine entrepreneur and columnist Norm Brodsky wrote a column on risk versus reward. As he put it (for one of his businesses), “We have an unexpected shot…. – but it comes with huge risks. How do we decide?”

Every month, week, and day we face business decisions and all have some amount of risk, from minuscule to huge.

Small risk: When we pick up the phone we could hear “no” or we have a great call (on the way to a new client or customer). Some focus too much on the possibility of a no.

One of our Partner On-Call franchisees had telephone phobia. He was a super person, very smart, outgoing, charming, and deadly afraid of the phone. He told me he’d stare at the phone for 15-20 minutes, finally pick it up, dial, and have a great conversation. He’d then repeat the process (starting with the long look at the device). All of this just in case someone said no (I kept telling him the other party can’t reach through the phone line and punch him).

Medium risk: Implementing a growth plan (strategy) may distract us from our normal day-to-day activities. However, if our strategy is right it will sail us past where we are now and create better activities.

High risk: One of the ultimate risks is when a business owner decides to sell or to buy another company. There are the normal risks of an acquisition including culture and process integration. However, the benefits can be huge, if it’s the right target and done correctly. The goal is to have 2+2=22. You don’t do it just for bragging rights.

Selling your business is also fraught with risk. Is the owner truly ready? Will it sell for enough money (for the seller’s-next great adventure in life)? Will he get paid? What will she do post-sale? I’ve learned the top risk (and top reward) is making sure you sell to the right buyer. Most owners prefer a buyer who will take care of their employees, customers, and legacy over a little more money (from the wrong buyer).

“You can get much farther with a kind word and a gun than you can with a kind word alone.” Al Capone