Martinka Consulting

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Business Buy-Sell and the Business’s Status – #2

Posted on by JohnM

Last post I wrote about the first of the three situations in which businesses can find themselves:

  1. Losing money.
  2. Recent upward trend or reduction of expenses. Is it a spike or a trend?
  3. Long-term consistent growth with steady profits.

Today we’ll look at number two. Realize that business owners are a wide and varied group. Some seek rocket ship growth, others like slow and steady and many reach a point in life where lifestyle becomes increasingly important and they “coast.” They do what it takes to maintain their income but aren’t taken to initiating new strategies or additional investment.

Then it becomes time to sell the business and they read and hear that growing companies are more attractive to buyers and generate a higher price so they take action. Here are three situations I’ve recently seen in regards to situation two and the buyer’s (typical) first questions.

  • Revenues are up but profits are down. Buyer: Are they creating a cost structure that will be tough to change? Is it more expensive to grow than they thought (and led me to believe)?
  • Revenues are up a little and the cost of goods sold is up a lot. Buyer: What the heck is happening, they’ve never had margins like this before? Can I sustain this? Is there any reason I should value the business based on what may be a short-term spike?
  • Overhead costs have declined including wages, equipment, and repairs and maintenance. Buyer: Are employees being worked too hard and I’ll need to hire more people? Why did they suddenly get to the point where capital expenditures are no longer necessary? Are things ready to breakdown (this is especially true of computers and software as almost all sellers stop upgrading when they decide to sell)?

Short term, band-aid type fixes don’t work. To truly raise the value of the company an owner needs to initiate long-term strategies, monitor them and record results (to prove what they did works).

“What counts that we are not counting?” Chip Conley, (quoted in Inc. Magazine’s article titled, “35 Great Questions)

 

 

Business Buy-Sell and the Business’s Status

Posted on by JohnM

Let’s look at three different situations in which businesses may find themselves and how people in my buy-sell world look at them.

  • Losing money.
  • Recent upward trend or reduction of expenses. Is it a spike or a trend?
  • Long-term consistent growth with steady profits.

I’ve recently been involved with a couple deals where the company has been losing money. While the company was a logical fit for the buyer, here’s what happened and what always happens in this situation.

The buyer put the company under a (very) time-consuming microscope.

And when things take a long time (too long) other factors come into play. In one situation there was a new strategic focus with the buying company and the deal died. Had the company been profitable, or at least breakeven, this deal would have closed months prior to the strategy shift.

The company in this short example truly has to be sold to someone in their industry, especially as it has not been performing well. However, I see a lot of lousy companies being marketed as gems in the polishing process (you can see a ton of them by simply going to www.bizbuysell.com).

Simply putting “lipstick on a pig” by making assumptions, adjustments and adding-back expenses (saying they are expenses that are unnecessary to operations) to make the business appear to be making money (or more money) is foolhardy as it only fools the naïve buyer, and that leads to more work for all the attorneys.

More on the other two categories in the next two posts.

“What should we stop doing?” Peter Drucker (quoted in Inc. Magazine’s article titled, “35 Great Questions)

It Takes Time to Think to Create a Strategy

Posted on by JohnM

To non-baseball fans the game is slow and boring because something’s not happening “all the time.” To many baseball fans it’s the multi-levels of strategy. There’s a game strategy, inning situational strategies, which change if someone is on base or not, batter-by-batter strategies and even pitch-by-pitch strategies.

If you’re partial to the up and down of basketball or soccer (with their own on-the-move strategies) the down times the time between strategy implementation (the action) may seem slow. Of course in the NBA the last two minutes of a game can take as long as the first half of an NFL game. And, BTW, football fans can’t complain about baseball’s slowness. In two different Wall Street Journal studies they found that baseball games have about 14 minutes of actual playing time per game while football only has 11 minutes.

Think about this in terms of your business. Are you constantly on the fly, making decisions by the seat-of-your-pants? Or do you take time to huddle with your team to decide courses of action? To you strategize on how to work with different customers or vendors and what skills are needed in your next hire?

Maybe there’s a good reason why there are huddles, time between pitches and timeouts.

Higher Wages = More Scrutiny And Opportunity

Posted on by JohnM

Consider the following:

  • Amazon.com uses a temp agency to hire warehouse people and put them through a probationary period.
  • My friend Gary with three-dozen employees also uses a temp agency for the same reason.
  • Seattle just passed a phased-in $15 an hour minimum wage and there are minimum wage increases coming to many cities and states.

Do you think that employers are going to be fussier about who they hire and that person’s productivity? If an employee is expected to move/make/pack 100 units an hour for $10 an hour will employers expect them to do 150 an hour for $15? I think so.

 I also expect there will be fewer permanent hires making their way through the temp agency system. The long-term burden of hiring someone (who doesn’t perform) is too high, so employers will look even closer at reducing that risk.

 My opinion is that temp agencies are going to see an uptick in business because of this and employees at the entry and just-above-entry level are going to have to build their skills (learn how to be a good employee) more than ever and prove themselves. If I was in or advising to the temp agency industry I would be putting together a marketing plan to make screening services available to businesses that hire people at these wage rates.

 “Never think you’ve seen the last of anything.” Eudora Weity

Communicating – Stories Create Emotion

Posted on by JohnM

As I mentioned last week, Lucas Mack with 4th Avenue Media presented to a group of my clients and me recently. The first thing I wrote down that day was,

“Telling a story is telling the truth.”

He went on to say that we have to define why we do what we do. We have to be able to answer the question, “So what?” So what does it matter if you do what you do? So what happens if we don’t do this?

He reiterated a well used sales expression, “People buy based on emotion and back it up using logic.” Let’s face it, only a minute percentage of us make a spreadsheet of the facts to make buying decisions. Most of us find what we like, make a mental decision to get it and then look at the facts.

I like to say that, assuming a solid relationship is present, a buy-sell deal can happen when the buyer sees where he or she can add value. If the buyer (or seller) sees that the buyer can fill the exact same job description as the seller the reaction is usually, “ho-hum.” If the buyer sees that they can add growth-oriented strategies they’ll make an emotional decision to get the business.

Your story tells people what makes you tick, how you can benefit them and why they should buy from you. Get in the habit of telling stories (giving examples or case studies). When you make an emotional connection you’ll have more and better customers. When you can tell these stories when it’s time to exit you’ll excite business buyers and have a more successful sale.

[After the US World Cup tie with Portugal] “I believed that we would win. Now I believe that we need gin.” Jason Gay (Wall Street Journal)

Communicating – Stories Sell

Posted on by JohnM

The best sportswriter in the country, in my humble opinion, is Jason Gay with The Wall Street Journal. He writes about all sports, has a terrific sense of humor, great use of language and I find myself enjoying stories about sports in which I have no real interest. As his article last Saturday on cell phone etiquette in restaurants shows, his skills transcend sports writing.

He does this by using words to paint a picture. Here’s an excerpt from his June 16, 2014 article on the World Cup.

On Sunday morning I woke up in Rio at our Journal WC 2014 headquarters (medium glam) not far from Copacabana Beach (actual glam) and before I had my a.m. coffee, I was jarred by a noisy ruckus in the streets. I looked out the window to see Argentina fans marching and singing in white-and-light-blue jerseys. It was barely 9 in the morning. Argentina’s game with Bosnia and Herzegovina was not for another 10 hours. Back home, if a bunch of Jets fans came parading past my apartment at 9 a.m., I would take my family to the basement and barricade the door. But this was fantastic. It made me want to run outside and join.

He tells stories, uses humor and hyperbole to suck in the reader. He makes it hard to quit reading.

Think about how you do this in your business. Realize that people don’t want to hear only facts and figures, they want their emotions tantalized. The want to hear success stories. Actually they want to hear all kinds of stories.

Last week Lucas Mack with 4th Avenue Media spoke to some of my clients and me. His presentation was all about “telling your story.” More on this next week.

Bad Product, Bad Service, Bad Experience

Posted on by JohnM

Lisa Forrest was right; you’re seeing this story. A couple weeks ago we were both at our mutual client’s business, Elmore Electric, now owned by Joe Williams as Joe was hosting a reception to celebrate his recent acquisition. The three of us were talking and I mentioned I was going to stop at Seattle Pump (another former client) to get a new pressure washer.

The story is that two years ago I bought a Homelite pressure washer at Home Depot. It worked great the first year but last year it wouldn’t stay running. It went in the shop twice last summer and this year it again wouldn’t stay running. Here’s what then happened:

  • Home Depot punted. They passed the buck to Homelite.
  • Homelite did the same thing, telling me to go back to their authorized repair shop.
  • Since I was just past the two year warranty, they said sorry, but we don’t care.
  • I made some very pointed comments to Homelite about the very low quality of their products and customer care attitude (or lack of it). I also mentioned the repair shop near my house wouldn’t touch their machine, even if I paid for the repairs, stating it was of such poor quality they knew it would be back, on their warranty. (My comments did nothing but it felt good to vent.)
  • Got a new, better pressure washer at Seattle Pump.
  • Starting to pursue my credit card company’s extended warranty coverage (up to one more year of warranty, which I’ve used to replace a printer, phone, camera and maybe other things).

Somebody at each company made a decision that the “letter of the law” is more important than a customer with a bad product. I’m sure whomever made these decisions isn’t a bad person, they just got caught up in the “keep the margins high” mentality and not the “do the right thing” mentality.

We All Need Reminders

Posted on by JohnM

Three times a year we visit my mother-in-law and it always triggers one particular “reminder” in my head. You see, she grew up during the depression and, like my dad, has a hard time getting rid of things.

When my dad moved in with us we discovered that he had every tool known to mankind, most in duplicate, some in triplicate and the majority bought at garage sales because “it was too good of a deal to pass up.” Plus, I’ll bet he had over 12,000 nails, screws, nuts and bolts.

My mother-in-law isn’t in to tools but has piles of paper, empty boxes, etc. We took her out for ice cream and she wanted to save the plastic dish. She saves used envelopes in case she needs something to write a note on (yeah right, as if there’s not enough paper in her condo).

It reinforces to me that we have too much stuff, even though it’s a fraction of what she has. Every time we go there, we come home and get rid of even more things than we usually do – and that’s good. The same goes for our businesses. We tend to build up clutter and get distracted by the administrivia. It takes reminders to help us get rid of the clutter so we can focus on what’s important.

“Time exists in order than everything doesn’t happen at once…and space exists so that it doesn’t all happen to you.” Susan Sontag

Making Business Impossible

Posted on by JohnM

Saturday night we were watching Restaurant Impossible as we ate dinner. Regular readers of my newsletters know that I write a lot about how business owners need to reduce dependencies, usually the business’s dependency on the owner. In this case it was on the key employee. Her many hats included:

  • Back of the house manager
  • Baker
  • Cook
  • Bookkeeper
  • Bartender
  • Server
  • Front of house manager

How can one person do all of the above (and do it well)? They can’t, that’s why this failing restaurant was on the show.

Compare this to a non-restaurant business and you’ll see that it’s impossible to be successful if one person (owner or employee) is in charge of:

  • Operations
  • Making the product
  • Sales
  • Finance
  • Delivery
  • Office manager

The above looks like a startup and it has to grow to the point where a team is in place to handle all the functions. If it doesn’t, the owner has a job, and not a very good job at that.

On Restaurant Impossible the recommendation was to make the key employee the general manager, making sure everything is done right, by others.

The same goes for every other business. Get good people, let them do their thing and monitor, coach and provide encouragement.

Who’s Endorsing Whom?

Posted on by JohnM

While I like LinkedIn for certain things like finding people, researching people and making contacts, at the same time I have to admit I’m perplexed by all of the endorsements I get, including:

  • Being endorsed by someone I don’t know
  • Endorsements from people whom I’ve never worked with on the type of project they’re endorsing me for.
  • Endorsements for things I don’t do, like training and start-ups.

Somewhere and somehow people have been convinced that if you have a lot of endorsements people will hire you. As most of my contacts are with peers, other advisors, I have to wonder if prospective clients really take all these endorsements from my friends seriously.

First, I’m in a relationship business. Endorsements don’t matter if we can’t relate to each other. Second, don’t people care most about the results that they’ll get (the value)?

Maybe I’m missing out on the “Secret LinkedIn handshake” that let’s me decode and understand all of this.