Some people are just jerks

A business owner I’m coaching relayed the following to me. A customer came in, had some extensive services done, said she loved it, and gave a very generous tip. Then she flipped.

  • She called and said the services should have taken longer (really saying she got shortchanged). So the owner offered a partial refund, which was graciously accepted.
  • A few days later the customer called and said, no, I want more. After a discussion the owner agreed to a full refund (with the thought of, “I’m rid of you, now don’t come back”), which was also accepted.
  • Then the customer called to say she also wanted the tip refunded. I’m sure there was some screaming from my client after she hung up on the call.

The customer was playing her. She’s dishonest and unabashed in her behavior.

But for a small amount of money my client got rid of a lot of angst.

Or, what about the person who goes to my YouTube channel and puts a thumbs down on all my video podcasts. This started a couple years ago and I notice it happens in bunches. Do they know me? Who knows? Do they have too much time on their hands? Darn right. Could they add value to something on the planet if they took the time to do so? I would hope so.

Not sociopathic or psychopathic but surely not uplifting behavior. It’s why we all, always, have to watch out (and why I meet with people at least two times before even proposing how we can work together). And if prospective clients do things leading me to believe they perceive me as a vendor not a partner (like trying to negotiate fees without also negotiating the value), then we won’t work together.

Getting the Deal Done recap

On November 17, 2015 we held our eighth Getting the Deal Done Breakfast Conference at the Bellevue Club (with co-sponsors PRK Law, Meridian Capital, Columbia Bank, Bashey Hutchinson & Walter, CPAs, and “Partner” On-Call/Martinka Consulting).

Over 140 people heard our featured speaker, Joe Whinney, founder of Theo Chocolate. Joe relayed his fascinating story about how he went from being a senior class president who left school one month short of graduating (to “stick it to the man” only to discover “the man” didn’t care), traveling the world, developing a passion for chocolate that allows farmers to be sustainable, and founding the worlds first bean-to-bar sustainable chocolate company.

Rather than the usual talk about best practices (nothing wrong with those talks) this talk was definitely from the heart, not the head. It showed what happens when a passion turns into a business. Obviously Theo is profitable, as they continue to be able to fund growth. All while making sure their suppliers, over 50% of which are in the Congo, earn enough to have a life above subsistence. Plus, they put out a fantastic product!

This event’s panel discussion was titled, “Your Company Isn’t Worth What You Think It Is, and How to Correct That.” With help from the audience we looked at two sample companies, which on the surface appear to be about the same with similar revenue, margins, and profits. However, it’s what makes those profits what they are now and how they will look in the future that creates a separation of value.

The panel compared and contrasted some of the key issues between the two companies and added general insights on items to look for, any of which can elevate or reduce a company’s value. In other words, you can’t just pull a number from air and say, “I’ll pay X times EBITDA (or free cash flow, aka profit) for a business. The seller could leave money on the table or the buyer could be in real trouble by using simple rules-of-thumb).

The issues covered by our panel included:

  • What exactly is EBITDA after (normal) adjustments?
  • Quality of earnings and how it’s affected by singular events, reserves, AR patterns, maintenance vs. growth capital expenditures, and more.
  • Customer concentration, loyalty, the margins top customers pay, who pays and when.
  • Data security in a world of hacking and breaches, with employees coming and going.
  • IP protection, licenses (for all software), etc.
  • Other non-financial factors including how the lease can derail an exit plan, managing the culture, key employee compensation and the dependency of the owner to the business.

The audience input was great, with a few people spotting things on the financial summaries that raised concerns. Pretty good for only having a few minutes to scan some small print.

I hope to see you at the next one.

Business Sellers: Don’t Be A Bad Salesperson

Business owners would be aghast if their salespeople did the following:

  • Ramble on and on about the product without asking questions to see what problems they can solve for the customer.
  • Discuss price before value.
  • Ignore the team standing behind the product.

Yet when it comes time to sell their business, many owners turn off the salesperson-skills-switch and go into “lousy presenter” mode. Just this week an owner told me she is “tired of working too many 16 hour days.” Now that will impress a buyer, won’t it? Better take $100,000 off the profits to cover the cost of a new employee.

To play off the above three points, business sellers should:

  • Discuss, in concrete terms, the upside of the industry and business (not just use the words “great potential). Forget about discussing how you could cut expenses if you wanted to.
  • Not ignore their team, unless of course there is no team, and if that’s the case, you have a job not a business. No buyer wants a business dependent on the owner.
  • Ask the buyer questions to find out where the buyer thinks she can add value to the business.

Take a hint from the word “selling” in the term “selling your business.” You have to be a good salesperson (not slick, just good; by asking questions and discussing opportunity).

Holiday Reflections – Focus on Integrity

Thanksgiving is past. Christmas is fast approaching (too fast for most of us). New Year’s is just around the corner. This time of year is oft used for reflection and no matter what your business, that reflection should include how you look at and treat your customers.

Companies that look at customers as (mainly) a revenue source are missing something. It has to be a win-win relationship. Or, as per point number two of Rotary International’s Four-Way Test, “Is it fair to all concerned?”

In my day-to-day world of business buy-sell I see too many examples of people hoping to win the transaction versus being fair to all concerned. Sellers who inflated the value of the inventory, those who nickel and dime for every dollar, buyer’s who don’t understand there are no perfect businesses and want to pick apart every little flaw, in spite of the company’s profits.

Heck, a local intermediary group had a meeting focused on how business sellers (and their brokers) can keep the buyer from sapping their cash at closing and post-close. If you look at it from the perspective of the other side “stealing” from you, your actions will be quite different than if you want it to be win-win.

As we plan for the calendar change, one of the most important parts of our planning should be how we can provide a (positive) difference and the value our customers receive from us. If we provide massive amounts of value the money will follow. Focusing on price, fees, commissions, etc. is not sustainable. As a sales manager told me many years, don’t even think about the commission, think about the benefit to the customer.

“Anyone who thinks that they are too small to make a difference has never tried to fall asleep with a mosquito in the room.” Christine Todd Whitman

Volatile Stock Market & Business Buy-Sell

For the last nine to 12 months I’ve been writing and saying business owners have their heads in the sand. One of my common lines is business owners think, “Recession, what recession? These good times won’t end.”

Now I don’t think the economy is in big trouble but the stock market’s violent correction is sure to spook some people (especially those who bought high and panicked, selling low).

But it should be a wake-up call to business owners who’ve been meaning to sell but just can’t let go, because the good times will continue to roll. Here’s some news, the economy goes in cycles. Always has, always will. It’s one of the only things I remember from all my economics classes (just kidding, it’s one of the few things).

If I was thinking of selling a business in the next two years, I’d be preparing it now (guess what? I have a book on the subject), moving before too many others decide to sell, and before the economy corrects itself, as it usually does after an election. It’s not that the economy will lower your profits but it may (will) spook buyers and banks. Plus, if interest rates go up values may go down.

Leap of Faith? Easier in a Strong Economy?

I recently put out a notice to my network about a friend and client looking for an operations manager for his manufacturing business. The response was overwhelming. I had about 15 responses and seven to eight referrals.
Compare that to about four years ago when the same type of announcement generated one inquiry and referral. I can deduce when the economy is strong more people are willing to make the leap to a different and (hopefully) better position.
The same is true for business buyers and sellers. When the economy sucks (think 2009-2011) too many buyers are overly defensive (and maybe they should be). They are often being forced into doing something different with their (nice, previously stable) life.
Everybody in my profession knows the more catastrophic the event the more urgency the seller has to exit. A heart attack or cancer quickens the pace versus “we want to travel more.” The worse the economy the greater the chances it will take a catastrophic event to trigger a sale. Heck, nobody wants to sell anything when the market is tough.
But when the economy is booming, as it sure is in Seattle these days, buyers feel they are making a move from a position of strength. Some individuals even quit their jobs to concentrate on the search. Owners are more willing to grow by acquisition to add people, capacity, customers, and more.
Since everybody wants to sell at the top, owners considering selling are more willing to sell when they should, not when they have to. Of course, many have to get over their short-term memory loss before doing this (as in, recession, what recession? Things are great and always will be, right?).
When you know you should, take action. Timing is everything but don’t try to micro-manage the timing process.
“Karl Marx was right, socialism works. It is just that he had the species wrong.” [Biologist] Edward O. Wilson