Author: JohnM

Being Thankful

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The week of Thanksgiving, I was working on our Rotary project in Antigua, which will be in February 2019. It’s the time of year for reflection, as in, what are we thankful for and I got to thinking about the difference between Antigua, a small, developing country and here (and even less developed, third world countries).

I immediately came up with four items to compare.

  • Family– this is an interesting topic for comparing. We know the statistics state families in the US are not what they used to be, i.e. a lot of single parents. This is an issue in Antigua also although in many cases (extended) family is what keeps people going there. Family and church are very important in Antigua.
  • Basics– are you thankful you don’t even think about the basics? The power is on, the water clean, food may be expensive, but choices abound and are plentiful. And while the roads seem to always be crowded, we do have pretty well-maintained roads (and transit). In Antigua, even the locals don’t drink from the tap, food is even more expensive, there are regular brown-outs, and the roads, to be blunt, stink. Have you seen the Dominos commercial about how they’re fixing potholes? They’d go broke trying that in Antigua.
  • Education– our schools aren’t perfect but there’s a reason we go to Antigua to work in the schools. Ninety percent of the schools pale in comparison to schools around here. The other 10% are private, expensive, and have resources so they aren’t dependent on the Ministry of Education.
  • Project completion– government in the US may be inefficient and costly, we may need massive amounts of infrastructure improvement, but mostly things get done. Our project in Antigua missed 2018 and 2019 is a small-scale project. Why? Because the government took two years and massive amounts of prodding to put the Internet in the schools (they only had to do 10-12 schools to fulfill their obligation to Rotary – let’s not touch the subject of their obligation to their students). There were inter-Ministry squabbles, intra-Ministry bickering, no sense of urgency (island time), etc.

Here’s the thing, finally, no matter what it’s like compared to the US or Europe, the people in Antigua are incredibly happy. The island way of life seems less stressful.

Think about what you have to be thankful for, in business and life.

How to Ruin a Deal

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As part of Jessica’s training I went through my folder of old articles and other industry materials. I came across something from a business broker and while it’s probably 20 years old it’s as viable, and valuable, as ever.

Here are five points with my insights on how they apply to all businesses, not just the buy-sell world.

Don’t make friends– It starts with the line, “People want to do business with people they like.” Customers who don’t trust a salesperson won’t buy from them. I’ve been saying for 20 years, “Nobody will buy from or sell to someone they don’t like.” Relationships are the most important factor.

Hide the flaws– Full disclosure, open Kimono, no secrets. It doesn’t matter what phrase you use, don’t hide things. In buy-sell deals the due diligence process is for confirmation not surprises. In everyday business it means being honest about what your product or service can do, what it can’t do, etc.

Don’t listen– In the class I teach at the Seattle SBA I say sales is asking questions and listening. It’s not smooth, persuasive talk. Your prospective and existing customers will tell you what they want and/or need. If all you’re thinking about is your next statement, you’ll miss important clues.

Ignore the marketplace– The buy-sell world has ranges of value/pricing. Almost no business is so special it defies those ranges (as super-motivated buyer is most likely the one factor causing a higher than normal price). It’s the same in most industries, unless you’ve carved out such a strong competitive advantage you stand out from any competition. It’s tough to do with widgets and much easier to do with software, which is why software has such high margins.

Statistics prove my point– The author used statistics to show sellers who priced their business well above the professional’s estimate of value sold for less (than the estimate) because the buyer picked apart everything, because the price made no sense. Use statistics whenever you can. For example, our process increases donations by 37% or our sales training shows a 24% increase in sales and 5% increase in gross margin. A tour company owner told me how the most successful guides (those who get the biggest tips) use statistics about the area because customer soak up that information like a dry sponge soaks up water.

There were some other good ones, including “Don’t put it in writing,” “Delay” (meaning you should show urgency), and “Take unreasonable positions.” My conclusion is, these things are universal and I’m sure you have industry rules that apply to most other industries. The key is to follow them.

Elections, Passion, and Justification

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As a prelude to the elections there was a story on the morning radio the other day about an elected official either convicted or about to plead guilty on three charges. Voters (supporters) said they’d vote for him anyway because a crooked member of their party was better than anybody from the other party.

While driving between meetings I was listening to a local talk show where the host and a guest sports announcer were justifying the Seahawks signing of a player who pleaded guilty of Insider Trading. They were excited because his suspension ends before the end of the season, so he’ll be back on the field. Never mind he’ll be sentenced to Federal prison in January.

The end justifies the means. I wonder how those voters would feel if a member of the other party was running after being indicted or convicted. Would the announcers feel the same way if a rival team signed a criminal?

I know there are people who feel this way about business; I don’t win if you don’t lose. It crops up occasionally in buy-sell deals. But most of my clients want a fair deal, want the employees treated fairly, and want customers to receive value.

It comes back to the old line, “If you tell the truth you won’t have trouble remembering what you said.” I can sense a good business when the owner tells me his employees get paid at the high end of the scale, turnover is low, or they do fun things like “beer Friday” or monthly BBQs. They want things done right.

“Only the doctor who has the disease really understands it.” Physician William Osler

 

Somethings are Just Out of Our Control

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Two weeks ago, I received a couple positive comments about the memo sent that morning. A few people noticed it was dated September 18 and was the same content as the September 18 memo. So, I investigated.

For background, my process is:

  • Take a recent memo.
  • Delete the content.
  • Paste in the new content, link a different video, and change the date.
  • Send a test message to myself and edit if needed.
  • Schedule it.

First, I went in the Constant Contact system and yes, the memo dated October 9 was the one from three weeks prior. Second, I checked the test message I sent myself, and it was what was supposed to go out October 9. So sometime between the test and the scheduling the system reverted back, with me not having any way to know it.

Normally I would say these things happen because of human error (meaning I screwed up) but my test was correct and I also had my (almost) monthly newsletter scheduled to go out on October 11 and received an email from Constant Contact the next day saying technical issues prevented if from going out (with a lot of apologies in the message). Therefore, my assumption is, their system was at fault.

Things happen and some of them can’t be controlled. We have random acts of kindness and random glitches. You have to roll with the circumstances. The downside was I repeated a message. The upside is people noticed and I get to write this explanation. The old adage, control what you can control is true. Make sure you control enough to be effective.

“Control what you can, confront what you can’t.” (The band) Maine

Sometimes You Just Can’t Win

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In the Seattle Times October 7, 2018 business section’s, “Speaking of Business” feature (a weekly roundup of quotes from the week’s most popular stories) were a couple examples of the above headline.

“We listened to our critics, thought hard about we wanted to do, and decided we want to lead.” Jeff Bezos on Amazon’s raising it’s starting wage to $15 an hour. Amazon got a lot of praise and then the Seattle City Councils admitted Socialist declared Mr. Bezos evil because he’s still rich. Others jumped on board because the wage increase came at the expense of stock grants, which were eliminated.

“It’s been a little like watching the air going out of a balloon.” Richard Lattanzi, steelworker and mayor of Clairton, PA on the unmet expectations of higher wages and better benefits due to tariffs on steel imports. The workers initially cheered because they felt the tariffs would raise all boats but now feel it’s only raising company profits not wages (correct based on other reports).

Everybody has an agenda. From the shop workers to middle-management to executives and especially the politicians. I don’t think this is different from past eras. One of my first jobs, in high school, was cleaning a warehouse a few evenings a week. I lost the job when the manager had a friend become unemployed and he got to take over the minimum wage, part-time job.

Every decision we make has repercussions, some good and some not so good. Being in business is often like raising kids. You better make sure you think through how others will perceive “what’s in it for me.”

“There are no easy answers, but there are simple answers.” Ronald Reagan

The Scan That Saved My Business’ Value

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The title paraphrases a Wall Street Journal article from August 27, 2018 titled, “The Scan That Saved My Life.” The sub-title includes, “After years of exercise and healthy eating, a reporter’s blocked artery came as a shock.”

A health industry reporter, who exercised, ate healthy (a lot of salmon, oatmeal, and similar but with a passion for cheese), and paid attention to his health found out he had a almost completely blocked carotid artery. He had an ultrasound scan after a few “minor” symptoms of something being off. This resonated with me because a good friend had a stroke this past summer and found he had a 99% blocked artery.

Business Scan

Scans, tests, exams, and similar are common and necessary when health related. But when it comes to businesses, most owners don’t want anything close to a diagnostic exam of their company. Probably why the WSJ wrote only 10% of businesses are likely to sell for maximum value and Kiplinger’s wrote, “Most businesses will sell at a discount.”

Why won’t owners want an assessment of their business? Three reasons come to mind, for small, mid-sized, and lower middle market firms:

  1. Ego– the attitude of nobody knows my business better than me, it’s special, it’s unique, the standard rules, i.e. proven good business practices, don’t apply to my firm. I remember a client who, every time a strategy or tactic was discussed started out his reply with, “Yes, but….” and went on about how his firm was different.
  2. Time– yes, it takes time. Whomever is doing the assessment will interview the owner, management, key employees, customers, walk around observing, etc. It will take time away from the day-to-day, but it does give a fresh perspective. Here’s an example. A client had a very thorough assessment done and one of the observations was the shop employees have a quasi-union going on, meaning they set their own rules. Interesting.
  3. Money– money always plays a part in this, especially when the owner doesn’t think others will “get” his or her business.

Benefits

You can assess the financial systems, operations, management, marketing, and other areas. Here’s what you should get from it.

  • Confidence your numbers are true and correct or an understanding of what will make them better. Accurate financial statements will help with operations, the bank, and any eventual buyers.
  • Uncovering cultural issues or advantages. The quasi-union mentioned above is one example and on the other end of the spectrum is a client who says they have no problem finding employees because of their reputation. In fact, their vendors refer people to them because it’s a better place to work than others in their industry.
  • Better operations are often the result of this. It could be work flow, sales, supply chain, marketing, sales, or something else.
  • Growth will occur when bottlenecks and inefficiencies are corrected.

Overall, this means an owner will know more about their competitive advantage and how to exploit it.

Conclusion

The previous sentence is no doubt the most important item in this article. When you have a competitive advantage and use it your company has a much better chance of thriving. To be an owner, and especially a founder, means you are super confident. It shouldn’t mean you know it all or should refuse advice from experts. The owners who value outside advice, are in peer groups, and always strive for continuing education have a much greater chance of success whether it’s a few employees or hundreds.

 

Confirmation Not Blind Belief

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As part of Jessica’s training we are reviewing one chapter a week from Russell Robb’s book, Selling Middle Market Companies (which is really about selling non-micro but still small to mid-sized businesses). Chapter four had a few topics near and dear to me.

  • It started with the topic of preparing a business for sale. He strongly said sellers should not take on any big, new projects or purchases (that will hurt short-term performance but has long-term potential). In my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?), I say owners should run their business on a day-to-day basis as if a sale won’t happen. And, to discuss any big plans with their advisory team before just doing something.
  • Next was his explanation of how buyers will look at EBITDA and how smart ones will factor in upcoming capital expenditures. He calls it EBITDA-CAPX and discusses this to warn sellers they can’t skimp on replacing assets that need to be replaced. For example, if a company normally replaces two vehicles a year but stops getting new ones a year or two prior to selling the buyer will factor into their valuation the cost of more new vehicles than normal.
  • Finally, he warns sellers not to delay paying their bills (accounts payable) in order to pay off long-term debt. He states sharp buyers will peg a working capital amount that will stay in the company and therefore won’t be fooled by this tactic.

One of the pieces of good news from our weekly study is Jessica is always saying things like, “I’m familiar with this because it’s just like in your books.” Continuing education is necessary, especially in industries like mine where things are so different than they were in years past. It’s good to have multiple sources of information to get both different viewpoints and confirmation of the basics.

“You can only hold your stomach in for so many years.” Burt Reynolds

 

Competition Drives Prices

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Every summer we take a road trip. I’ve noticed motel prices going down over the last few years and it seems obvious why they’re doing so – there’s a proliferation of franchise/chain motels everywhere.

In Bozeman, our dog-friendly place sits in the middle of five similar places. Across the highway are five or six “lower-level” motels and in back of our place there’s a development for a two-hotel convention center. The same seems to be true in other places along our route.

So, what’s going on here that we should pay attention to? Here are a few things.

  • Saturation – Too many similar businesses means price competition. Doesn’t matter if it’s motels, sandwich shops, oil change places, or something trendy like Curves used to be. Be unique.
  • Commodity – No differentiation. If you didn’t see the name you’d have a hard time telling one from another. Again, be unique.
  • Low barriers to entry – What’d it take to get into the motel business? Pay your franchise fee, build a building, and away you go. Whether it’s skills, a product, or something else, make it hard for others to duplicate.
  • Little competitive advantage – See above about being a commodity. Other than rewards programs what’s the reason to stay at any particular place? Oh, I got it, price is the reason. Make quality and service, i.e. value, your competitive advantage, not price.

Price shopping – Which brings us to how easy it is to compare prices these days with Expedia, Kayak, Hotels.com, etc. Position yourself so competitive pricing and shopping is not an issue.

Bottom line, if it’s easy to duplicate someone will duplicate it. Be unique.

“It’s better to prepare children than repair them.” Jim Zimmerman

Asking Why – A Great Question

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I’m known in my family for constantly asking, “Why?” Others will say something about what they’re going to do, what they want to get, etc. and I’ll ask, Why?

Sometimes I get the answer, “Because.” And no, that’s not a reason why you want to do something.

  • A client told me if he had the money (at the time) he’d like to buy a larger machine. Why? It turns out because he likes big machines, not because the business needed it.
  • Years ago, one of my clients bought a business with way too much inventory. Why? Because the owner loved seeing full racks of stuff (and those full racks turned into cash with better management).
  • An owner had way too many employees. Why? Seems he didn’t want to work too hard, so he didn’t pay attention, and therefore made less money.

A client of mine, in a buy-sell deal, made it a (conscious) point of avoiding the why question by giving the answer in advance. For example, “This information is needed by Friday because (let’s say, to keep the bank on schedule).”

It’s a great simple one-word question to ask about marketing tactics, purchases, hiring, and much more.

“Even the smallest act of service, the simplest act of kindness, is a way to honor those we lost, a way to reclaim that spirit of unity that followed 9/11.”President Barack Obama