One of the most gratifying feelings we get from our clients is seeing and hearing their excitement and enthusiasm after a buy-sell deal closes. It’s truly their next great adventure in life – and they’re lovin’ it.
Author: JohnM
When the Fever Hits
The fever can hit anybody over just about anything. It’s called “Buyer Fever” when we want something so much we throw logic out the window. It could be a car, a house, a job, an employee to hire, a spouse, and in my day-to-day world, a business (or to get out of a business).
Recently we were referred to a business owner who had the fever and desperately wanted out. Why? Because a couple years prior he got buyer fever and desperately wanted in. He loved the company’s services so much he had to have the company.
Unfortunately, the fever got in the way of logic and due diligence. The business seller had the experience, and more importantly, the required licenses to operate the business. The buyer had to hire someone with those licenses (there goes $100,000 out the door the seller didn’t have to pay).
Let’s be realistic, you have to have the desire for what you’re buying and in the case of businesses there’s a huge difference between, “I can see myself going to work there every day, adding value, and enjoying it” and, “I must have this, at (just about) any price.”
More realism – business buyer fever doesn’t happen that often. Most buyers are overly fussy and skeptical. With my clients I can only think of a few over the last 20 plus years. But I know it’s out there because every year I meet multiple owners who got buyer fever and are digging themselves out of it. It’s usually a good business bought the wrong way (meaning they paid too much).
It will be a hard lesson for the above owner, hard as in money-losing. Given it’s a specialty, licensed service I referred him to an industry expert because it needs work. Maybe the owner should have asked “The Magic Question,” described in the video below.
“Beauty is always transient, which is why it is so interesting. Ugliness lasts longer.” Stephen Bayley
What Is the American Dream? Part One
During the 2018-19 holidays ProPublica published an article titled, “If You’re Over 50, Chances Are the Decision to Leave a Job Won’t be Yours.”*Let’s start with some highlights from the article:
- While there are stories about individuals and their situations, most of the facts come from a study started in 1992 that’s been tracking 20,000 people, especially when they hit age 50.
- By 2016, 56% of these people had been laid off or left under such circumstances it was evident they were pushed out (forced retirement).
- Only 10% of them earn as much as they did before they lost their job with most suffering big money losses.
- In 2018 there were 20.7 million people laid off. Older, more experienced people have their experience held against them and one-third of those in their 50’s lose two or more jobs.
- While layoffs hit all age groups, those over 50 suffer the most as they don’t get hired as often or as fast as younger job seekers.
- There is less government oversight to prevent age discrimination. (I’ve written about this before as my dad was part of a group layoff of people over 50 and they won a class action lawsuit to get their jobs back. The company lost a group of loyal, I’ll do-what-it-takes employees for bitter, I’ll go-through-the-motions employees).
There are a lot more statistics in the article, but you get the drift. So, what are the alternatives? Given what our business focuses on, the buying and selling of businesses, you can bet that’s one of the alternatives, but not the only one.
First, it’s easy to say, “Take control of your life and get your own business.” But it’s not that easy and it’s not for everybody. It takes capital (or other household income), the right skills, and guts. The last point isn’t meant to diminish people who don’t have the desire or fortitude to own their own business. As I write in Buying A Business That Makes You Rich, my mother was a college level teacher who couldn’t imagine anything riskier than a government paycheck every month. She just didn’t have the risk tolerance.
An option besides business ownership is to work for a small to mid-sized business. While the pay and benefits don’t always match what one can get from a large corporation, there’s a lot more flexibility and good people are highly valued. I’m not just saying this; I see it. Owners regularly tell me about the long-tenured employees they have (caveat: if many of those long-tenured employees are in their sixties buyers get scared about too much institutional knowledge walking out the door in the near future, which is why all businesses need expertise spread out over all age ranges).
When it comes to business ownership, there are three, and only three, ways to get into business. You can start a company (and this includes consulting or advisory work), buy a franchise, or buy a (mature, profitable, and fairly priced) business. Buying a business is for those people who:
- Are fed up with working for someone else.
- Don’t have the creative juices to come up with an idea for a new company.
- Have honed their management skills so, to varying degrees, they can manage people, processes, money, and systems, with an emphasis on people.
- Have the money, or access to it, to fund a down payment (the bank and the seller will finance the rest of the deal).
Then it’s a matter of why, as in, what do I want to get out of business ownership? Many people think money is the prime motivator, and it is for some, especially those tied to private equity, search funds, or similar. But from asking hundreds and hundreds of audiences, here are the reasons I hear the most (and they’re on page one of my book):
- Control
- Reap the benefits of my smart and hard work
- Independence
- Decision authority
- Flexibility
- Income potential
- Equity or net worth
- Creativity
- So I can be the boss
To give away my punch line, the top reason should be to have fun. To enjoy what you’re doing – it’s your business after all – because of all the above reasons.
Notice the common thread in the above; control, independence, decision authority, be the boss, and creativity (to solve customer problems not as in starting a business) are all about the same. Business buyers want to do things their way, pure and simple. No big boss in Pittsburgh micro-managing their numbers every week. No corporate ladder peers (or employees) doing whatever it takes to advance, with no thoughts of ethics or integrity. No risk that once you’re making “too much” money you’ll be replaced with someone half your age and one-third your salary (see above).
Conclusion
For most people, the concept of working the same job for 40 years or more is a foreign concept. If you’re not in government or quasi-government (think Boeing) you’re going to have multiple jobs. Some by your choice and some by your employer’s choice. Heck, friends in their 50’s at Microsoft feel (know) their days are numbered. For some, business ownership is a way out of this trap.
Next, I’ll cover what exactly is the American Dream and how it’s been changing over the years.
* Thanks to Jeff Levy for making me aware of the ProPublica article.
The Goal of Independence and Unexpected Consequences
July 4 is a holiday just about everybody celebrates. Political and other differences tend to get overlooked when enjoying friends, family, and fireworks. Our nation’s independence means something to most of us.
What the US has is a reason so many people want to get into this country. And factors we don’t think of influence this, including when life gets in the way. At this time we have a lot, and I mean a lot, of people wanting to immigrate from Guatemala. (This is a business memo not a political one.)
Why? One big reason is the dramatic drop in coffee prices. Yes, a drop in coffee prices (although not at Starbucks and other shops). Guatemala grows some of the best coffee in the world and there are thousands and thousands of small coffee farms. And they’re all hurting.
It seems Brazil has invested in equipment that makes the cost of harvesting coffee beans much lower. This has caused the price of coffee beans to drop and it’s no longer sustainable to have a small, labor intensive, coffee farm.
Every action has a reaction (Newton’s Third Law) and the solution (for many), is to get out. Go where there’s more opportunity, which sounds a lot like what happened centuries ago and lead to the Declaration of Independence.
A business decision and improvement in one country led to a recession in another country’s top industry, and finally to a border crisis. I am willing to bet nobody thought of, much less predicted, anything close to this when Brazil modernized their coffee production.
It’s hard enough to forecast and predict what will happen in our day-to-day businesses. Much less when you see the ramifications of something as “simple” as modernization.
“The United States is the only country with a known birthday.” – James G. Blaine
“Independence Day: freedom has its life in the hearts, the actions, the spirit of men and so it must be daily earned and refreshed – else like a flower cut from its life-giving roots, it will wither and die.” – Dwight D. Eisenhower
“I like to see a man proud of the place in which he lives. I like to see a man live so that his place will be proud of him.” – Abraham Lincoln
Preparing a Business Buyer to Buy
There’s an emphasis on exit planning for owners (including my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)). What about preparation for buyers so they don’t sabotage themselves? That’s where we come into play!
Are You Funny?
I attended an event recently and witnessed one of the speakers do the following:
- Start out with a joke that fell absolutely flat. Then he explained the joke and guess what, it didn’t get any better.
Then, during his talk he made a couple non-sensical statements, again trying to be funny. One that caught my attention brings up a good lesson on PR. He said he has seen a lot of articles that are really lists, as in, the top 10 things to do, the top 7 things to not do, etc. His “funny” comment was about how the writers must be doing this to get search engine hits.
Well, not really. They’re doing variations of the “Top 10 list” because:
- PR experts say lists attract people’s attention (they do).
- The authors want to attract the attention of reporters and if you want to get interviewed or quoted you need to be attractive to reporters (reporters love lists).
- Negative lists are what capture the most attention, like, “The Seven Traps That Snare Business Buyers and Sellers.” (Reporters especially love things to avoid because they resonate with readers because most people prefer to avoid a mistake over doing something right.)
If you’re not naturally funny, don’t try to be. And, when joking about something, make sure you know what the heck you’re talking about.
For the Right Price…
“You can’t afford to buy the business” dad said to his kids, who were running the business as he enjoyed retirement. Not to insult dad, but if it’s priced right it’s affordable. Dad obviously feels the business is the cutest puppy or most adorable baby there is – so of course his kids can’t afford it.
Well, sentimental feelings don’t count for much when valuing a business, a car, a house, and many other things. These things aren’t like a piece of art where beauty is in the eye of the beholder. When there’s a raft of comparable sales and/or financing limits there are built-in pricing guidelines (with limited exceptions).
When we’re attached to something it’s hard to let go and especially hard to believe it’s worth less than we feel it is (the key word being feel, as in feelings or emotion versus logic or evidence). We can put an emotional component on a lot of things as in:
- I’ll take a smaller salary to work here because I don’t have to commute, the culture is great, or I’m learning skills I can leverage in the future.
- I’ll buy the red convertible because it makes me look cool, even though there’s no room for the car seats.
- I’ll pay more for (fill in the blank) because I love it.
In other words, business buyers – be careful you don’t let emotion cause you to pay what “dad” wants for the business.
“Clothes make the man. Naked people exercise little or no influence on society.” Mark Twain
What’s Worse Than an Owner Dependency?
The company does $15-20 million in annual sales and the owner has taken a fancy to being “one of the guys.” He thinks it’s fun. And I’ll bet it is fun. The problem is a top customer commented to one of the management staff about this, as follows:
“We’ve never seen anything like him. We’ve never seen an owner making deliveries, stocking, or pushing a broom from a company big enough for a project like this. If he’s doing that, who is running the company? Based on that and other things I don’t know if we can recommend using your company again”
So let me repeat the headline, what’s worse than an owner dependency? Well, maybe an owner who doesn’t impress his customers (or his staff). An owner who should be seen as a leader, not a doer. An owner who should be keeping customer relationships tight, managing cash flow, motivating his people, etc.
When I and others say owners should reduce their dependency it means they should concentrate on growth, vision, and strategy not doing menial tasks.
“Self-righteousness feels good for a moment, but only in the way that peeing your pants feels warm for a moment.” (Author) Nadia Bolz-Weber
Do You Listen?
The workers at Vale, the Brazilian iron-ore giant, predicted the dam holding mining waste would fail. It did.
Boeing workers complained there were shortcuts taken on the 737 Max. They were right.
Both sets of workers comments fell on deaf ears. It could have been their managers didn’t want to take bad news up the corporate ladder, or they feared they’d lose their bonus if deadlines or metrics weren’t met, or perhaps some other reason. But in the end, they didn’t pay attention to the warnings.
I’ve met quite a few business owners who started their company because their employer wouldn’t act on their idea. I’ve seen firms who’ve lost employees because the employees wanted career growth and the owner was content to keep the business at the same level.
This last point raises the question, do you listen to your people? Business buyers often find out more about the workings of the business from the staff than from the owner. They get more ideas regarding growth from the employees.
Do you listen to your customers? What about your vendors? I’m sure most people would say yes although I wonder if it’s true. One of my former clients has employees and customers encouraging (nagging) him to upgrade equipment and offer more modern services. But he can’t make a decision. He’s at an age where he sees the end of the line and is happy with the money he’s making and the amount of time he works.
So, the question is, who will he lose first – his customers or his employees? (Or will they leave at the same time.)
“To pay attention, this is our endless and proper work.” (Poet) Mary Oliver
The Pitfalls of Absentee Ownership
Absentee ownership is a dream of many would be business owners. Imaginations run wild when thinking of having a business where all you have to do is check in every so often and have money transferred to your personal bank account.
After a recent meeting with the managing member of an absentee ownership group I realized there are (potential) pitfalls, both ongoing and when it’s time to sell. Here are three I noticed:
- If it’s not yours, you don’t take as good care of it compared to if you own it. In this case the employees went about their jobs but the building was filthy, the equipment area was a mess, and there wasn’t the pride of ownership. The offices needed a coat of paint, carpets replaced, bathrooms scoured*, and some general upkeep. Given the owners are thinking of selling the business one would think they would spiff it up to make a good first impression.
- The above is part of a larger issue and that’s the overall culture. The saying, when the cat’s away the mice will play, is very true. I’ve said for years small to lower middle-market companies need the adult supervision only an owner can provide. I’m not saying the employees won’t do a good job. I’m saying it’s often the little extra that’s the difference between profitable and very profitable, bonuses or no bonuses, career advancement or no advancement.
- Finally, unless the business is large enough to attract a strategic buyer the market is limited, at least at the price the owner(s) want (based on the company’s earnings). A financial buyer will have to figure out how to get a salary plus pay for the company. One of the worst things the buyer can do is come in and replace a loyal employee (in order to justify his or her salary).
As the saying goes, it’s always something. Planning and preparation can prevent many issues, like what this memo is about.
“Happiness is not an absolute value. It is a state of comparison.” (Author) Zadie Smith
* This reminds me of a deal many years ago. The closing was at the company’s office, the offices were well taken care of, especially for an industrial business, and the buyer’s wife proclaimed the first thing she would do would be to clean the bathrooms. It’s all a matter of perspective. Industrial office bathroom cleanliness is different than luxury hotel cleanliness.