Martinka Consulting

425-576-1814 john@johnmartinka.com

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.

Due Diligence: Spreadsheets, Legal or A Lot More?

Posted on by JohnM

I recently attended an ACG webinar on M&A due diligence. My expectations were that we’d spend a lot of time on spreadsheets and legalities. Boy was I wrong!

In a presentation led by people from Walker (www.walkerinfo.com), within the first few minutes they said that 30% of most businesses value is in the assets and yet most buyers put in 80% of their due diligence efforts on financial, legal and technical. They went on to say that 80% of the time should be put into researching customers.

Their position is that buyers need to engage the customers to determine the company’s competitive position, understand the competitive advantage and how to leverage them.

The above is extremely similar to what I tell my clients.

  1. Concentrate on the people – customers, employees and vendors.
  2. Competitive advantage is what the company has that allows customers to pay what they do so the company profits.
  3. You grow by leveraging your competitive advantage.

I especially liked their “Loyalty Matrix,” which you can get from their website, along with a full explanation, athttp://www.walkerinfo.com/docs/WP-The-Walker-Loyalty-Matrix.pdf, and a copy of which is below.

Customer Loyalty Matrix from Walker

The example they used asked how you would feel about a company that had 80% of their customers as truly loyal and only 15% as high risk? Of course there’s a catch; the high risk have 50% more volume than the truly loyal and at a lower gross margin. The matrix is important at all levels and you must pay attention to the big picture, with all factors considered.

The presentation also covered value drivers and compared the seller’s view with the customers view. Of course, as with all studies of this type, there was a disconnect between what the company thought were the top reasons for customer loyalty and what the customers thought. Very important because all buyers want to scale their acquisition and this knowledge allows them to serve the customers better.

Conclusion

The last point reminds me of entrepreneurs and founders (of startups) in that they are so close to their product that they forget to look at it from the perspective of the customer. The customer wants a problem solved at a fair price. Just like the computer I’m writing this on, about which I’m sure a tech expert could tell me all the things I could do on it but I only want to do those things that improve my efficiency and productivity. When we improve our customers situation, they’ll buy more. When business understand why customers buy, they get a better understanding of the company should feel more comfortable.

What’s Included in a Buy-Sell Deal (Working Capital)?

Posted on by JohnM

An ongoing question in the buy-sell industry is, “What’s included in the deal?” Especially when it comes to working capital. If you just peg a number, say whatever working capital was December 31 or June 30, either buyer or seller could be shortchanged because of seasonality or similar. So a formula that’s fair to both is what’s needed.

Let’s look at this with the understanding that, for this discussion, there are two types of businesses.

  1. A business that is really a job for the owner and the job is doing, making or selling the company’s product or service. These are small businesses, usually selling for under $1 million.
  2. A company where the owner’s job is CEO or president and he or she spends most of their time working on strategy, leadership, management and adding value to the sales process (not making all the sales calls). It usually takes a company selling for at least $2-3 million to allow this.

When selling the company in example one, the seller probably needs every last dime out of the deal. In example two, the buyer is truly buying an ongoing operation and expects there to be working capital included. There will be bills to pay the first week and that means money in the bank or accounts receivable against which the buyer can borrow.

Sometimes agreeing on how to calculate the amount of working capital gets laborious and even stressful. So I was glad to get the following overview from attorney Walt Maas at Karr Tuttle, which he sent to one of our mutual clients (and which he has given me the approval to use and share).

Customary for transactions to be cash free/debt free with a working capital adjuster that uses average Trailing Twelve Months (TTM) end working capital (generally A/R plus inventory, less A/P and accrued liabilities, but excluding in each case cash and current portion of any debt) as a target or PEG amount.

Closing date actual working capital, as so calculated, is then compared to the target working capital and the seller is paid the delta if closing working capital is higher than the target (theory is that seller has invested incremental cash to the extent of the excess and should be repaid that amount by buyer) or buyer is given a price reduction if closing working capital is less than the target (theory is that seller has liquidated working capital below the average and, as seller retains cash, should repay the delta to buyer by way of a price reduction). The idea is that the TTM average, with the adjustments described above, is the amount of working capital at closing necessary to run the business.

Using a working capital adjuster also polices the management of working capital by seller prior to closing (i.e. no benefit to the seller of accelerating A/R or delaying payment of A/P as a means of generating retained cash) and provides a back stop to the buyer’s working capital diligence by means of a post closing true up process to determine actual working capital at closing.

Yes, the above gets modified based on circumstances but it’s a fantastic starting point (thanks Walt!). His definition covers (most of) what’s needed, is an average not just “the closing balance” and prevents either side from feeling manipulated by circumstances.

When it’s fair for both sides it makes the deal a lot easier.

Leaving Cash on the Table

Posted on by JohnM

On our return trip from our Rotary project in Antigua I was the first one to check in and did so via a kiosk. As the machine crunched information it gave me a confirmation screen that asked if I wanted to upgrade on the first leg of the trip. I thought it was a reasonable price so I agreed.

My wife was next to me and about a minute or so behind me. She did not get an upgrade offer. The American Airlines representative said to ask at the counter when we checked our luggage. So, we did and were told that it wasn’t showing many seats and the price was so high he knew we wouldn’t pay it.

I get on the plane and I’m one of five people, out of 16 seats, in first class. I asked the flight attendant why my wife wasn’t offered an upgrade, she didn’t know but did go back and get her so she could sit with me.

American Airlines lost an opportunity to take in a couple thousand dollars that they can never again get. Not a lot to a multi-billion dollar company but one has to wonder how often this is happening.

Without getting into the discussion of “how to upsell everyone any and everything,” it should get all of us thinking about if we’re losing out on revenue, and our customers and clients losing out on our value, because we’re ignoring opportunity, have bad systems, poor follow-up or anything similar. For small businesses, a couple thousand dollars every-so-often can add up quickly.

We returned from Antigua to Seattle and guess what:

“Oh no, it’s raining again…It’s only time that heals the pain and makes the sun come out again.” Supertramp from It’s Raining Again