Business Buyers Have Multiple Mindsets

My eight-year-old granddaughter brought something home from school about “growth mindset versus fixed mindset.” It’s an interesting concept and I find it enlightening they are teaching this to kids.
In simple terms, someone with a fixed mindset believes they are what they are and that’s it. If you look at the old European class system this was prevalent. Born in a coal mining town to a coal mining family and if male you’ll be a coal miner and, if female, a mother/housewife.
A growth mindset has one believe they’re a work-in-progress, challenges are learning opportunities, and there’s always more improvement on the way. Growth mindset people are happier and achieve more.
Entrepreneurs are growth mindset people (company founders, operators, buyers, etc.). Owners see the upside, believe more potential is right around the corner, and don’t doubt the value they provide their customers.
Business buyers are both, and sometimes if tough for business sellers to understand this. Buyers get interested in a company when they believe:
  • What the company does can hold their interest (they’ll want to go into work every day).
  • Their skills match what the company needs (to grow more).
  • They see the overall upside.
However, buyers have a fixed mindset because they (and their bank) want to pay based on historical performance. Part of this is skepticism (and if a buyer has no skepticism they aren’t a serious buyer). Part of it is reality; historical profits have to pay for the business because if it doesn’t grow like the growth mindset part of the brain wants it to there will be serious problems.
Interesting concept, glad their teaching it to kids, and I’m glad I don’t have a fixed mindset.
“The key is not to prioritize what’s on your schedule, but to schedule your priorities.” Erica Jong

Restricting Income Potential

On February 3, 2016 the Wall Street Journal had an article titled, “Noncompete Pacts Hobble Rookies.” The prime example was about a young legal industry reporter who changed jobs only to find out her employment agreement had a noncompete clause related to working for another legal reporting firm.
As I work on buy-sell deals noncompete agreements are standard. No buyer wants his seller setting up shop again in the same industry and same area. Attorneys have told me seller noncompete agreements are the easiest to enforce as the seller received substantial payment for the business.
Attorneys have also told me it’s tough to enforce an employee noncompete in Washington as the courts have ruled you can’t prevent someone from earning a living in their area of expertise. However, they say you can prevent someone from soliciting customers and employees for a certain length of time.
According to the WSJ, “Labor experts say courts generally frown on noncompete agreements that aren’t aimed at protecting proprietary information like intellectual property, formulas, trade secrets or business strategies.”
During 2015 there were local stories about how Jimmy Johns had sandwich makers sign an employment agreement preventing them from working for another sandwich shop. A restoration franchise had the same thing for their field workers.
I don’t know why noncompetes are exploding in popularity but here are a few thoughts:
  • Too many lawyers involved (in business decisions).
  • General paranoia.
  • Oversized egos, I mean seriously, restricting what a sandwich maker can do?
Just like in a lot of things, common sense has disappeared.
“If your dog will not come to you after having looked you in the face, you should go home and examine your conscience.” Woodrow Wilson

What’s a Great Referral

So what is a good referral, whether you’re an advisor or a plumber?

1) Here’s what it’s not:
“I gave your name to so-and-so. Maybe she’ll call you.”

2) Here’s a medium referral:
An email introducing two people with no contact information other than the email address.

3) Here’s a good referral:
An email introducing two people with a short description of the situation, the benefit of meeting, and phone numbers for both people.

4) Here’s a great referral:
An email as per above preceded by a conversation with each party telling them why it serves them to meet each other.
Or, you get the two people together on the phone or in-person as you make the introduction.

I’ll admit, I sometimes get so busy I do number one – maybe 10% of the time. I never do number two, so close to 90% of the time I am doing an introduction with contact info, usually after telling the person requesting help to whom I’m referring them and why.

It shows you care when you take a little extra step and give personal attention.

The Right Way to do Business

Recently I put the word out to my network that I needed to replace the person who’d been doing outbound telephone work for me, to match business buyers and sellers.

I was surprised at the response and the number of quality people available. Jay Miller, with “I Can Open Doors for You,” was referred to me by multiple people at HomeStreet Bank, as he has a long-standing relationship with the bank.

While some prospective providers sent me a proposal after one telephone conversation, basically telling me I fit into one of their boxes, Jay was at the other end of the spectrum. And while it wasn’t a fit for us to work together, the way he approached it was first class.

After doing some research he asked me if he could get a sample list, make some calls himself, and see if it was something his firm would like to do. No proposal, no suggested four-month trial period, no special offer for the first few months. Just, “Let me try it and see if it’s for us.”

His usual market features longer sales cycles and more relationship building. I’m guessing it could take a year or longer to get a business owner to agree to meet a banker. With my business, it’s a yes or a no.

It was refreshing to have someone not push for the sale before knowing if it was a fit.

Ignore Good Advice at Your Own Peril

Awhile back I wrote the following on a piece of paper and put it by my computer.

“I tell my business buyer clients what it will take to get the deal, they make a low offer, don’t get the deal, and it sells for a price in the range I told them.”

One could easily substitute seller for buyer. I, and others, can tell a seller the price their business will (most likely) sell for and they ignore it. Then they get beat up by buyers for wanting too much (and end up selling in the range in which they were told it would sell).

I’m guessing we all do this, to some extent. “This” meaning ignoring the advice of experts, those with experience. In my world I think it’s more pronounced as I deal with clients who want to be in control. That’s what makes them good business people, they’re not lemmings doing the same thing as others.

Win the Battle and the War

A business owner friend, in the process of selling his business, told me how frustrated he was with the deal and especially the buyer.

The buyer looked at it as a transaction not a partnership. The buyer kept attacking with strategies costing the seller large amounts of unnecessary tax and asking for impossible conditions.

Buying a business is not like buying a car, a refrigerator, or even a house. In all of these cases once the money transfers it’s over. With a business there’s an ongoing relationship, usually from a few months to years (at least as long as any deferred payments to the seller).

Buyers should want to make the seller happy. To have the seller tell the customers and employees they’re in good hands. To have the seller tell all his industry friends what a great gal the buyer is so when they decide to sell, guess who will be their first call.

It’s not about winning the battle (the deal), it’s about not losing the war (the future operations).

Job Security for the Ineffective

Business seller: “We implemented our plan, hit a speed bump, regrouped, profits are lower than per the plan, but pay me for the business as if all went well.”
Business buyer: “You’re (expletive deleted) crazy.”
You could substitute business owner telling a customer the price went up because of an operations issue no fault of the customers and get the same response.
The above was triggered by a flyer we received in the mail recently from Sound Transit. They’re hosting community meetings to discuss their $50 billion, yes, that’s a B, train project over the next 25 years. For a 19th and early 20th century technology in a time when Google, Audi, and others have logged millions of miles in self-driving vehicles. This from a group that:
  • In a 1996 tax and bond package promised light rail from the airport to the University District and virtually guaranteed it would be done in 10 years and within budget (no additional taxes the County Exec said).
  • In 2008 “rebooted” the project for a shorter run (only to the stadium), another eight years, and with a new budget (a lot more money).
  • A 2016 announcement they finished on-time and on budget.
Don’t you wish you could do that? “We rebooted your project and it will cost you more than you contracted for, it will take longer, but we’ll meet our new timeline and budget.” No, actually you don’t wish it, as your ethics don’t allow you to lie.
Back to the beginning, I do see a lot of business marketed with the premise of, “Ignore what happened last year, you’ll do a lot better.”
Advice: run your business to show a lot of profit, do so consistently, and you won’t have to struggle with ethics and integrity when it comes time to sell. You won’t have to “add-back” (to profit) phony items plus your salary to inflate the net income. And while you’re at it, don’t sell it when it’s not ready if you want “full price.”
“Success loves a witness, but failure can’t exist without one.” Junot Diaz

Spring has Sprung

It’s a different mindset when walking through our front patio and entryway or when sitting on the deck when there are bright flowers in the pots. The sun is out, fruit and other trees are blossoming, and there’s a lush green everywhere.
Now when I look at the weather at our cabin I see snow this past weekend and realize how nice this weather was (and will be later this week), especially after a winter of record setting rain.
In Seattle one doesn’t have to notice these things to realize when it’s an early-spring, bright, and sunny day. All you have to do is pay attention to the traffic patterns in the afternoon. Rush hour is earlier, and there are more people walking their dogs, running, and biking. The gym is less crowded, as are many offices. At least judging from the lack of calls or emails after mid-afternoon (I had no more than five business emails after 3 pm last Wednesday).
Now a curmudgeon would whine about all the lost productivity. I say, enjoy it while you can, there’s always time to catch up. I’ll bet productivity goes up after people take time to enjoy the post-winter weather.
“It’s not enough to be busy. So are the ants. The question is, What are you busy about?” Henry David Thoreau 

What’s Your Succession Plan? I Hope It’s Better than United Airlines Plan

On March 14 was the day United Continental Airlines CEO Oscar Munoz eturned to work after he had a heart attack and heart transplant last October. As the Wall Street Journal stated on March 7, 2016:
“Mr. Munoz’s illness has shaken a company that was already under stress.”
What would happen to your company if you needed a heart transplant? What about months of chemo or dialysis?
United has taken heat for not disclosing Mr. Munoz’s health issues, not announcing the heart attack for four days, and for not being prepared with a succession plan.
Guess what, they’re not alone. Most businesses aren’t at all prepared for succession, sale, or even the owner taking a four-week vacation (with no cell or Internet service).
This is exactly what business buyers look for, a catastrophic event. The three D’s are divorce, death, and disability but anything that delivers a haymaker to the owner is spelled “opportunity.”
One of my client’s top customers has an owner in his 80’s who states he’ll never retire and doesn’t plan on dying. Think there’s a succession plan there? Think he’s read my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)?
Do yourself or your clients a favor and get it. Then do as my client Rod Jones says and have a Nike moment. Instead of planning on when to read it, “Just Do It.”

Sporadic Marketing = Disaster

Recently I volunteered to teach my class at the local SBA office. I do it two to three times a year and it’s titled, “Dynamically Growing a Consulting Business.”
A week out I told the SBA admin I thought we should cancel because there were only three registrations (I want at least 10 as it’s a very interactive class). We ended up with 18, which has been about average over the last few years. Here’s why it was at three and then 18.
  • The previous admin seems to have gone MIA and no active marketing had been done. Only passive marketing, a listing on the website. Their other recent classes also experienced low attendance.
  • They did two email blasts to their list and picked up 15 people in one week.
FYI, it was a great class with smart people who willingly commented, questioned, and taught me a couple things!
The point of the above is, as I mention in my class, marketing must be consistent and repetitious. I get the hardcopy quarterly newsletter from Zachary Scott without fail. My friend Dan Weedin has his Extra Points newsletter in my inbox every Monday morning.
Consistent: Whether your marketing plan has you doing something daily, weekly, monthly, quarterly, or on a different schedule you must do it religiously. Don’t let me see your blog and find the latest entry was nine months ago. Don’t call it your monthly newsletter if you’re only sending six a year. If your goal is to make two phone calls a day then make two every day.
Repetitious: Know your schedule, what works for you. A very technical newsletter is fine to send four to six times a year. Something short, like this memo, needs more frequency. (And my opinion is don’t send me a teaser paragraph with a link as I’m too busy to click on links based on 22 words).
Finally, I don’t pay attention to how many people open this, click on my website, etc. I know even if people don’t open or read it every week they notice it. Many have told me they appreciate getting it and see my name whether or not they get a chance to read every issue.
“The trouble with telling a good story is that it invariably reminds the other fellow of a dull one.” Sid Caesar