Charlie the Farmer; Do What You Do Best

While on vacation in Northern Wisconsin we were on a restaurant’s patio waiting for a table when we started talking to another couple, Charlie and Denise. They own a farm in Central Wisconsin. Not just a hobby farm but a real farm, a business. They have 10 large greenhouses, acres of crops, and quite a few employees, in their year-round operation. In the summer they work the farmers market circuit, selling thousands of pounds of produce a day.

As we talked Charlie made three points I believe are valid for all businesses.

He said people always say to him, “I’m a Master Gardener.” His reaction, which he doesn’t say to them directly, is, that’s great and now that you have a certificate, what can you do with it? Can you support yourself as a Master Gardener? Just like in most businesses, certificates are virtually useless. Do you want someone with a piece of paper or someone who can get the job done?

Farmers go to University seminars and those seminars are always three years behind what the farmers are doing every day. Makes sense, it has to be proven successful before it can (should) be taught.

Most important, when asked, “what should I grow?” he said he tells people, “grow what you and your land grow best.” You could be five miles away from me and growing completely different crops. He told us a story about how he can’t grow radishes. For a long time, every three to four years he would forget he can’t grow radishes and plant them, only to fail again. He’s now learned, and doesn’t plant them.

This last point is so key. Do what you do best. If someone asks me to help them improve their factory’s operations, I will politely decline. I can’t do that and the project would fail. If someone asks me to help them prepare their business for sale or buy a business I can surely add tremendous value. Heck, I’ve written the books on those subjects.

“Life is a lot like jazz – it’s best when you improvise.” George Gershwin


Always Bring Your “A” Game

I recently went to watch my sons’ softball team play (a doubleheader). It’s a rec league and they have a decent team with a few guys, like my sons, who played baseball through high school, a guy who made it to AAA, and a couple other athlete types.

They were playing a team of guys who were obviously not athletes. While I congratulate them for getting out there and they were having a lot of fun, they just weren’t very good. Everybody on my sons’ team noticed this, didn’t take it too seriously, and therefore the first game was close. Well really not too close, they led by 6-7 runs most of the game but didn’t 10-run them until the sixth inning (if up by 10 runs or more once it’s a legal game the game is over, to prevent a major slaughter).

I commented to a couple players the game was lifeless, to which they agreed. They talked in the dugout between games, came out pounding the ball with six straight hits, and had five runs in the first inning. The second game wasn’t close.

Ever feel like this team felt? This will be easy. This is a no-brainer. No way will this not work. Oops, you can’t play to the level of your competition, you have to play your A game all the time, and for the whole game. In 2014 the Kansas City Royals came within an inning of being eliminated in their first playoff game, came back, won it, and made it to game seven of the World Series. Every year there are major upsets in college football (a major team loses to a team in a lower division).

I could give all kinds of examples but you’re smart enough to make the comparisons to your business. Just don’t underestimate any situation.

“Most of American life is driving somewhere and then driving back wondering why the hell you went.” John Updike

The Upgrade Went Backwards

I’m a fan of Microsoft products. I use Office and think it’s great. They’ve been a huge supporter of my Rotary computer projects as they’ve donated equipment, we get software and an almost-free price, etc.

However, they recently upgraded to Office 2016 and it’s taken a few steps backwards, at least with Word. While they’ve added some nice, timesaving features, in just a few weeks I’ve found a number of features, which I regularly use, to be missing. The most notable (to me) is I can’t customize the toolbar. No longer is there an icon to immediately print, and I can’t put it on the toolbar. I can’t add icons for emailing the document or for “save as.”

When I wrote them I was told the customizing feature hasn’t been added yet. Really? It’s been on every version I can remember. How do you upgrade a product and miss including long-time features?

There’s an old adage, if it’s not broken, don’t fix it. It baffles me when a company as successful and with as many smart people as Microsoft does something like this.

As I’ve written before, it’s a classic case of overthinking. We put on so many bells and whistles it caused us to forget about the basics. When you put the customer first, you avoid this kind of thing. Because it’s not about how many features there are, it’s about ease of use of the ones someone needs or wants.

More importantly, it’s making it easy for your customer to buy and then recommend your product.

“The weirder you’re going to behave, the more normal you should look. It works in reverse too. When I see a kid with three or four rings in his nose, I know there is absolutely nothing extraordinary about that person.” P.J. O’Rourke

Getting Old, Getting Stagnant, and That’s Trouble

The July 29, 2015 edition of the Wall Street Journal featured an article titled, “The Cost of Germany’s Graying Managers.” The subtitle was:
“At small businesses led by older bosses concerns are raised about stalled investments, succession.”
In my books, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)? and Buying A Business That Makes You Rich I make the following three points:
  1. Employees want to contribute and grow, i.e. career advancement.
  2. Too many (elderly) owners are coasting, just gliding along, with no thought to what coasting really means to the value of their business (to not invest and especially not have any kind of succession plan lowers value).
  3. Way too many businesses, especially those exemplified by point two, aren’t investing in people, equipment, or technology as they should. Short term profits look better but a smart buyer will look at the anticipated capital expenditures and adjust the price accordingly the naïve buyer will be enamored by the profits and pay the price later (pun intended).
These points directly correlate to all the statistics about how many small businesses will sell in the next decade or so as to many business owners are in their 50’s, 60’s, and early 70’s. And they’re coming to play in Germany now.
One example in the WSJ article was about Autohaus Ochs GmbH, a Volkswagen dealership. Ten years ago the business had a 69-year owner, eight employees, and hadn’t made any significant investment in years. The then 31-year-old buyer added a breath of fresh air, investment and the company now has 100 employees. Coasting owner, vibrant buyer, and now a thriving business. Talk about a buyer making a contribution!
German business-chamber association DIHK says 73% of senior managers, “haven’t assembled the basic documents needed for a handover, such as power of attorney, supplier and client information, bank-access data or a will.” If you think 73% is high, think again. When it comes to small business owners and any kind of succession plan 73% would be a great number, meaning 27% of owners had some kind of succession plan (a few years ago an M&A organization and the WSJ stated it’s about 10%).
My final example (from the article) is about the Brockhaus Group. As dad coasted, competition raged. When the son took over the business they shed operations that were half of their sales and staff. They invested in their remaining divisions and within four years sales are up 50%. While this was a family succession issue, which needed to be taken care of first, if the company was looking for an outside buyer they would have needed to implement the new strategy and investment first, shown the 50% growth, and maximized value and price.
A client company recently grew by acquisition by buying a direct competitor. The seller should have sold one-to-three years earlier. Given his age, family situation, and inattention to company culture the price he received was about half of what it would have been (had he acted earlier). Once stagnation hits it may not be a turnaround but it sure is a fixer-upper, and that is something all sellers need to avoid.

The Numbers are Just The Beginning

A recent Business Brokerage Press newsletter featured an article titled, “What Serious Buyers Look For.” It mentioned seven topics, in which they say business buyers will be interested, other than the financial statements, and which sellers often don’t think about. Those topics were the industry, inventory, cut backs in spending on marketing, R&D, etc. (meaning the bottom line looks better but the future isn’t as bright), under-market wages, capital expenditures, and future cash flow.

All great topics. All of them, and many more, on every due diligence list a buyer can get from me, their CPA, attorney.

So, what do I think business buyers are really looking for? It’s simple,

Buyers look to see if and where they can add value.

 Then it’s can they get behind the product, will it challenge them or bore them, and does it line up with their personal values? They want to grow the firm, create jobs, make more money, and feel good about what they’re doing.

It’s no different than when people look for a job. They don’t want to be stuck in a rut for 5, 10, or more years. They want to contribute, advance, and be recognized.

If I’m selling something, especially a business, I want to appeal to the emotional side. There are enough checklists to cover the logical side.

“Life is like a game of poker: If you don’t put any in the pot, there won’t be any to take out.” Moms Mabley

The Little Things Matter the Most!

While in a big company one bad hire is an issue, in a startup it can spell the difference between success and failure.” Eric Ryan, co-founder of Olly.

Substitute “small business “for “startup,” it’s the same thing. It’s a point many people don’t understand and some business owners prefer to ignore. A hiccup to large corporation is a disaster to a small business, which is why small businesses are valued so much differently than large firms.

If a machine goes down at Boeing nothing much changes. If a machine goes down at ABC machine shop it can be a crisis, create overtime situations, and delay deliveries (and the ramifications of irritating customers on a just-in-time schedule).

This is why valuing a small business is so much more than just the numbers. When I’m asked, “what’s the multiple (of earnings) for this business or industry?” my standard response is, “I don’t know. Let’s discuss the specifics.”

I want to know about the customers, dependencies (is the owner the only person who truly understands how to price jobs?), capital expenditures, and the employee base’s capabilities.

And this also applies to the numbers. Are the financial statements accurate, how do the ratios compare to industry averages, is the business checkbook an extension of the owner’s personal checkbook, is the company skimping now to show more profit at the expense of the future?

It’s the little things that define a small business and its value.

“Humor is what happens when we’re told the truth quicker and more directly than we’re used to.” George Saunders

Good Economy, Bad Service, Why?

A client from 10 to 12 years ago absolutely hated the Bush administration. In her eyes, they could do nothing right. However, at one point she interrupted her grousing and admitted the economy must be pretty good because “everybody” was taking off the last half of December.

I’ve been saying to people this summer the economy must be in great shape because so many people are not around and those who are around take one to two weeks to do what takes one to two days in May or October.

I’ve also noticed when the the economy is great, customer service from small businesses goes down (it’s usually always low from large companies, right?). Our cabin still has a few “loose ends” from some work done before the Great Recession (noticeable only to me, but still annoying). This summer I’ve had a few instances of slow service, unresponsiveness, etc.

It puzzles me because one would think when times are good and things are busy it’s time to do great work and raise prices.

The same applies to selling a business. The experts in my industry all believe we’re closing in on a peak (the economy tends to stall the year after a new president takes office and that’s only 18 months away). In this case I can understand the slowness rationale. Business owners have short memories, “recession, what recession,” is their mantra.

The smart owner will recognize the trends and take advantage of the situation. Sell before the economy turns, values decline, and interest rates increase.

“It’s amazing what you can get if you quietly, clearly, and authoritatively demand it.” Meryl Streep

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).