Know What You’re Going to Say – And Say It

On May 10 I was on a panel at the monthly Association for Corporate Growth meeting titled, “Deal Warriors of the Lower Middle Market.” My co-panelists were Lisa Forrest, Greg Russell, Todd Marker, and John O’Dore.

I realized after about two remarks my regular lines, quips, and stories are new to others, no matter how familiar I am with those lines. Statements that make me a “unconscious competent” get laughs and applause from others.

It goes to show how important words are. When used properly they create a full-color, HD picture. Good salespeople don’t just talk, they say the right things and ask the right questions. They know the correct words and how to use them.

No matter what business you’re in, communication is what makes you successful. Think about what you say and concentrate on:

  • Stories of past client/customer experiences. We all remember stories, more than anything else we hear or read. I know my story on the panel about the advisor who didn’t understand transactions but still was “helping” a client went over huge.
  • Statistics that make a point (as to why your product or services make sense). Statistics that are legitimate but show they are legitimate (sorry, but today you must, given all the “fake news,” as per President Reagan, “trust but verify”).
  • Examples of results you’ve generated. Stories tell how things happened, results are what happened. In my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)? I open with a story about George, how we prepared his business for sale, and how he sold it with more cash at closing than the total offer before we started working together.

Time spent on saying the right thing is critical whether you sell your services, machined parts, food, construction supplies, or anything else.

“To overpraise is a subtle form of disrespect.” Mary Gaitskill

 

 

When Rookies Wing It

Every competent attorney will tell you they want another competent attorney on the other side of a deal, whether it’s a buy-sell deal, contract negotiation, family law, etc. They don’t want a litigator working on business transaction or a business attorney doing divorce law.

I write this based on having the experience of a recent conversation with a rookie in my industry. He didn’t understand how things are done, the process, and especially the qualifications both buyer and seller must have. If he’s like this consistently he’ll do his clients a disservice.

My business is not much different that most businesses in that we want a satisfied buyer and satisfied seller (in my business we want them equally, and a little bit, unhappy as that’s when a deal happens). So do people in real estate, retail, manufacturing, and other industries. When perceived equal value is provided and received both sides are happy.

So, what’s my point here? It behooves us all to be competent professionals whose goal is to get the work done efficiently and at a fair cost. If something is over your head, get help. Better yet, don’t take the assignment.

The person mentioned above was new to his business and came from a different industry. He needed a mentor or coach. Contrast this to the class I teach at the local SBA office on, “Dynamically Growing a Consulting Business.” The students are experts in what they do, they need help marketing and securing clients. Big difference. Be an expert first, get clients second.

“You never see further than your headlights, but you can make the whole trip that way.” E.L. Doctorow

Forget Startups – Buy a Business

Fast Company recently had an article titled, “Forget Startups Just Buy a Small Business from a Retiring Entrepreneur.” The first sentence was, “Sure, you may want to found the next “Uber for [insert service here],” but that’s not the only entrepreneurial path you can walk.”

They gave eight tips on how to best make an acquisition and I’ll comment on three of them (one of the others being “perform due diligence,” which even partially competent buyers automatically do some of).

But first, let me take issue with one of the facts mentioned. Using statistics from BizBuySell.com the article stated the median price of businesses at the end of 2016 rose 8% from 2015 to $216,000. Let’s face it:

If someone buys a business for $216,000 they are buying a job, and a mediocre job at that.

For reference, the average price of my clients deals over the last year or so was about $3 million, and every one offered the buzzword buyers use and want, “scalability.” The micro deals from the BizBuySell.com stats mean the buyer/owner will spend their time working “in” the business not “on” the business, and that means a rut that’s hard to get out of.

Now for the top three points in the article.

Figure out how to appeal to the owner. Or, as I’ve preached for years, build a relationship because nobody will buy from or sell to someone they don’t like. The article makes a great point, “Prospective individual buyers may have an edge; many retirees want to sell to someone with similar values, hopes, and dreams. It’s their baby and they want to bring their grandkids by it in 5-10 years and tell them how this very successful business used to be theirs.

Be ready to add value–even to a successful business. I like their line, “If you’re merely keeping the lights on, then you have a boss: the bank.” Bill saw who he could immediately add value by turning the website from a brochure to an ordering system. Matt started promptly following up on leads (amazing what people coasting don’t do). Richard but in a sales system and culture, which attracted customers and high-quality employees.

Have a 100-day plan. I mention this one because I stress it to buyers and sellers. Don’t fall into the following endless loop the day after closing:

  • Buyer: Tell me what I need to learn.
  • Seller: What do you want to know?
  • Repeat

It’s why I give my clients an outline of a transaction plan and encourage them to formulate their own details with the other party. The transition often gets overlooked as the rush to close gets frantic (and overwhelming with administrivia). Three key transition points:

  • Initially the buyer should shadow the seller to see what he does on a daily basis.
  • After three to four weeks the seller should disappear for a week to let the staff know the buyer really is in charge.
  • Make sure the transition agreement covers the seller being around for annual events that don’t fall within the contracted time. This could be trade shows, contract renewals, annual closing of the books, or other things specific to the business.

Entrepreneurism isn’t for everybody and if it is for you, and especially if you don’t have an idea for the next greatest thing (or don’t want to put in 80 hour plus weeks), consider buying a business. It’s faster, cheaper, and easier to finance. You trade your capital for immediate cash flow, i.e. you get a paycheck on payday just like everybody else.

And in closing, a great line from the Fast Company article, “If you’re buying a company because you want to be your own boss but don’t plan on making any changes once you take over, keep your day job.”

Estimates and Misclassifying Will Hurt You

It’s March and that means college basketball tournaments aka, March Madness. It’s your typical tournament in that all the number one and two seeds won their first games and by the end of the second round a number one, two number twos, and a number three had been upset. Also, the “experts” proclaimed some teams had been seeded lower than they should have been and therefore got games too tough too early.

Recently I wrote a very well received post about how projections are mostly meaningless. The same applies here but we should give credit to those seeding these teams as 75% of the “Sweet Sixteen” are where they’re supposed to be. Of course, even the experts brackets were busted by these and other upsets.

Those teams upsetting the much higher seeds got hot at the right time and these factors the same in our day-to-day businesses. Think about how often a “for sure” client doesn’t become a client. Or how the longshot customer buys from you without (what you perceive to be) too much effort.

We all misclassify the likelihood of someone doing business with us (both ways) and every so often we get “hot” at the right time, say the right thing, etc. That’s life, and it’s part of what makes life and business interesting. Of course, if, like sports teams, we practice what we do (and practice correctly), we reduce the chances of upsets and increase the chances of getting hot.

“The man who says his wife can’t take a joke forgets that she took him.” Oscar Wilde

Projections are Useless

At the end of the third quarter of the February, 2017 Super Bowl the announcers were saying viewers should go online and vote for the game’s MVP. With the Falcons ahead by a few touchdowns I’m guessing all the early votes were for Falcon players. I said to my wife, “What if Tom Brady completes a gazillion passes in a row and the Patriots win?” Guess what happened?

Projecting a game’s MVP two-thirds of the way into the game is meaningless. Most business projections are meaningless, especially if over one year. Customers come and go, employees turnover, etc. One of my clients had a couple customers tell him near the end of Q3 they had over-ordered early in the year and there would be no more orders until January. The customers’ projections were off and therefore my client’s projections were off.

Yet I see businesses for sale put out nice five year projections. And guess what, they all show steady sales growth and escalating profit growth. When is the last time you saw a business grow at the same rate every year for five years?

Just like picking an MVP in the third quarter of a football game business projections are usually nothing more than an (optimistic) guessing game, and are usually off base, especially when for longer than 12 months.

“Behind every failure there is an opportunity someone wishes they missed.” Lily Tomlin

Deal of All Kinds Get Disrupted

In the business news at the end of January were stories about how the Walgreens deal to buy Rite Aid had the price drop because Walgreens, as per a government edict, can’t take over as many Rite Aid stores as planned (someone will have to find a buyer for those other stores).

Things happen all the time to derail deals, and not just buy-sell deals.

Jobs – a good friend was in the job market, had “the perfect” job lined up, an offer was out, and, boom, the parent company did a reorg and froze all hiring.

Customers – a friend’s company went through hell when some changes at their top customer put the emphasis on price and nothing else. They lost a big contract or two, for very little money, even though the customer’s people who use the product hate the competitor, say they have poor quality, and don’t deliver on time. I guess the number crunchers won this round.

Buy-sell – A few years ago I went through a stretch where three deals disintegrated after signing a letter of intent (LOI). It had been a long time since even one went south after there was a signed LOI (when the Great Recession hit six weeks before closing is all I can remember). Two of these deals had legitimate reasons for not happening, i.e. something happened that changed the company.

The other one (and one from about 1.5 years ago) went bad for the reason most good businesses don’t get a deal done with a good buyer, and the reason is trust, or the lack thereof. The deal from three years ago had a seller who wouldn’t sign a contract representing and warrantying what he had told the buyer about the business was true and correct. At this point any trust evaporated.

The more recent one was more complicated but it centered around the perception the seller wasn’t interested in the buyer’s success. When the seller wouldn’t take interest, or offer much help prior to closing it became evident once he had his money he’d be hard to track down.

Things happen, and if there’s trust those things are overcome. As in a case from about 10 years ago when the selling business had a sales decline (the seller took his eye off the ball) and he did what he had to do to keep the buyer on board. In this case, it was hiring him to learn the business while it was being “fixed” and prior to closing.

“Democracy is the theory that the common people know what they want, and deserve to get it – good and hard.” H.L. Mencken

 

Huge Risks? What’s Your Comfort Zone

Last year in Inc. Magazine entrepreneur and columnist Norm Brodsky wrote a column on risk versus reward. As he put it (for one of his businesses), “We have an unexpected shot…. – but it comes with huge risks. How do we decide?”

Every month, week, and day we face business decisions and all have some amount of risk, from minuscule to huge.

Small risk: When we pick up the phone we could hear “no” or we have a great call (on the way to a new client or customer). Some focus too much on the possibility of a no.

One of our Partner On-Call franchisees had telephone phobia. He was a super person, very smart, outgoing, charming, and deadly afraid of the phone. He told me he’d stare at the phone for 15-20 minutes, finally pick it up, dial, and have a great conversation. He’d then repeat the process (starting with the long look at the device). All of this just in case someone said no (I kept telling him the other party can’t reach through the phone line and punch him).

Medium risk: Implementing a growth plan (strategy) may distract us from our normal day-to-day activities. However, if our strategy is right it will sail us past where we are now and create better activities.

High risk: One of the ultimate risks is when a business owner decides to sell or to buy another company. There are the normal risks of an acquisition including culture and process integration. However, the benefits can be huge, if it’s the right target and done correctly. The goal is to have 2+2=22. You don’t do it just for bragging rights.

Selling your business is also fraught with risk. Is the owner truly ready? Will it sell for enough money (for the seller’s-next great adventure in life)? Will he get paid? What will she do post-sale? I’ve learned the top risk (and top reward) is making sure you sell to the right buyer. Most owners prefer a buyer who will take care of their employees, customers, and legacy over a little more money (from the wrong buyer).

“You can get much farther with a kind word and a gun than you can with a kind word alone.” Al Capone

Ignore the Balance Sheet at Your Own Risk

A number of years ago I worked with an investment group. The president was a very experienced and very good operator but somewhat new to the deal process. He told me something that’s stuck with me when he said how as an operator he was concerned with the profit and loss statement but as a deal person he found an appreciation for the balance sheet and its importance.

The balance sheet tends to get overlooked by many businesspeople, sellers, and buyers, which is a shame. The balance sheet is filled with information, some of which is:

  • How does the company manage its cash flow and what level of working capital is needed?
  • Does the company replace assets regularly?
  • Is the owner bleeding the company of cash for personal use?
  • How is inventory managed?
  • Are they using proper accounting techniques (easily noticeable when there’s work in process, they take deposits for future work, issue gift cards, etc.)?

I often look at the balance sheet before the income statement to see the above or more. Unfortunately, too many people just look at the bottom line, more get fascinated by EBITDA (and ignore capital expenditures), others believe what they see when it’s “adjusted” EBITDA (one recently included the salaries for three owners, all who are leaving the company when it sells).

In my industry too often buy-sell professionals ignore the balance sheet, and working capital (buying the job of owning a deli – no need for working capital, buying more sophisticated business – the deal should include normal working capital). I don’t know why. It could be a lack of understanding, it could be “if we don’t mention it then it will go away,” or perhaps there’s worry it opens up too many questions about the business and its current and future state.