Getting Comfortable With the Uncomfortable

Posted on by JohnM

“You have to get comfortable with the uncomfortable if you want to grow.” I heard this recently and it hit home. It reminded me of our Partner On-Call member who had a hard time picking up the phone, until he picked it up, and the call went great. Of course, he deliberated again for 15-20 minutes (his estimate of time) by staring at the phone before making another (successful) call.

The other day I asked Jessica to make a list of the top three things she’s uncomfortable with after one year in her job. Her list was:

Writing – not surprising, is it? As I tell groups, if you can write a few paragraphs people are impressed because most people can’t write a decent sentence. So, she works on it weekly.

Asking for referrals – this is tough, isn’t it? To actually ask someone for something. It takes confidence in yourself, which was another issue with our Partner On-Call franchisees, being at the desk where the buck stops is a lot different than running a middle-market company or a large department.

Follow through – again, it’s easy, for 80% of us, to get distracted. Start five things, finish none, repeat the next day. An accountant friend recently told me she’s not organized (yes, surprising coming from an accountant). It’s why I short list tasks, number them, and don’t start the next one on the list until the previous one is done.

What are your uncomfortable things? (We all have them.) It takes effort to get comfortable with them, but it’s worth it.

“You have to get comfortable with the uncomfortable if you want to grow.” Matt LaFleur

What, You Only Have Six Customers?

Posted on by JohnM

For the foreseeable future once a month this memo will be on a topic to increase value in a business, which is exactly what business owners should want and is definitely what business buyers are looking for.

I’ll start with one I’ve seen a lot of lately, customer concentration. Here are three examples:

  1. Seventy percent of sales to one customer.
  2. Seventy-five percent to three customers.
  3. Eighty percent to three customers (one being a middleman buying for their clients).

This should scare owners, but usually they feel their relationship is so tight all is okay. To a buyer, with acquisition debt payments, it scares the bejeebers out of them. To spin this around, I’ll repeat something I wrote about years ago because vendor concentration can be as deadly as customer concentration. A past client had about 70% of his sales from one vendor, he lost the line, built up his business, and again was with one vendor at 65%. Lost that vendor when the vendor’s competitor took sales in-house and his vendor went to my past client’s larger competitor.

This stuff happens, all the time. It’s not make-believe or fantasyland. I talked to an owner recently who lost his top customer. Why? Because his salespeople (I’m using the term loosely) made contact once a year. The rest of the year they took orders and cashed commission checks.

So, what happens when it’s time to sell? One recent deal had a price 30% of what it would have been three to five years ago, which was before the top customer changed focus and sales reduced significantly. One of the examples above is a company close to selling and the facts include:

  • The price is 50-60% of what it would be if there was no customer above 10% of sales.
  • There’s a claw back provision for 20% of the price (if sales drop below certain levels).
  • The seller has to stay for (at least) one year to maintain the relationship.

So much for exiting with style, grace, and more money.

The real problem is no matter how often their CPA, banker, consultant, and M&A professional tell them to fix this problem the owner is “fat, dumb, and happy” riding the top-customer wave. It’s why the Wall Street Journal published statistics showing 90% of small to mid-sized businesses are not ready to sell for maximum value.

“There is more stupidity than hydrogen in the universe, and it has a longer shelf life.” Frank Zappa

Are You Making a Difference?

Posted on by JohnM

“We can’t measure what you’ve done for us over the years. We are so far ahead of where we would be without your help.”This is one of those statements that sticks in your brain, at least it stuck in mine.

The above was said by the Director of Education of the island country of Antigua as we reviewed our Rotary service project and planned for the future. No matter what business you’re in, look at your testimonials; do they sound like the above? i.e. we’re better off with you (or your company) than without you? This being one of Partner On-Call’s tag lines.

When I teach my class at the SBA on “Dynamically Growing a Consulting Business” I use the “better off” line at least half a dozen times. I want to drill it into the students head you have to offer value, not just be an expert in your field. It doesn’t matter if you offer advice and counsel, make widgets, rent money, or anything else, your customers must feel they can’t live without you.

There’s not much more I can write on this subject without being redundant by filling more space.

Leadership – In Rotary Projects and Business

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Some things are the same everywhere. I’m writing this on the flight home from Antigua, following our Rotary project. Last week we were at one of our favorite schools, a prestigious private primary school.

We had some issues with the Internet, so I talked to one of the non-teacher employees about it and asked if the principal, Mrs. Pringle, was still there that day. He replied that she no longer worked at the school and said if she did still work there these issues wouldn’t be happening.

Leadership is leadership whether it’s a large business, small business, non-profit, or a school. Good leaders keep the situation under control when “things happen.” And, the employees know (a good leader from an ineffective one).

Here’s a different example. Because we didn’t do this project last year all of our students were first timers. So, no experience. While the teacher assigned team leaders, after a few days we could see changes. On one or two of our teams the natural, take charge kids stepped up and very quickly we had the real leaders. They were the ones who not only knew what they were doing but did what needed to be done and instructed others on what to do.

In your business do you see people stepping up? Business owners, do you allow this to happen (employees taking charge)? I ask because a dependency on the owner is something I’ve seen a lot of lately and it usually means a lack of delegating. Combined with customer concentration issues (the owner has the relationships with the few customers totaling 75% of annual revenue). It’s a huge issue, it scares business buyers and banks.

“One of the hardest things in life to learn are which bridges to cross and which bridges to burn.” Oprah Winfrey *

* Owners, burn the bridge where you control everything and cross the delegation bridge.

Developing Versus Developed (Countries)

Posted on by JohnM

I’m writing this from the island of Antigua where we’re here on a Rotary service project, “Improving Education Through Technology.” We have 10 Bellevue school district students from the technology program working on computer networks and installing Wi-Fi networks.

There are similarities and differences between Antigua and the US. Some of the similarities include:

It doesn’t matter where you are, people are people. Some are different colors, different sizes, have different customs, etc. But they all (pretty much) care about each other, their country, their friends, and families. We are warmly greeted here by not only the local Rotarians but people at the car rental place, hotel staff, restaurant staff, and others. It’s like we’re old friends.

There’s a lot of growth in both countries. Seattle leads the US in cranes and Antigua has numerous new buildings, businesses, and restaurants since we were here last year, just not as high.

The roads suck in both places and traffic stinks. We saw a bumper sticker here today reading, “Not Drunk, Avoiding Potholes.” Not enough capacity, poor upkeep, limited planning – it seems to be universal – with road construction everywhere.

Some of the differences are:

There’s a lot more respect for leaders and authority here. Imagine this in the US: at a planning meeting Sunday one of the local Rotarians was talking about a meeting we had Monday with the Prime Minister. Even though the Rotarian is in the “other party,” when questioned he said how he would respect what the PM said as he was “my country’s leader.” Imagine a Democrat saying that about Trump or a Trump supporter saying that about a Obama or any future Democrat President.

The US, and especially areas like Seattle, are fortunate to have a lot of growth, capital to grow, and money in general. Things are pretty good all across the country. In Antigua, there’s a lot of impoverishment, menial jobs, and limited opportunity. If some think there’s a huge divide in the US they should check out places like Antigua.

We’re here because there’s a great need. The Ministry of Education has pretty much said they won’t support the primary schools with technology. This includes helping the teachers improve themselves so they can teach better using technology and the many applications now available. The students know more about tech devices and how to use them than most of the teachers – and they want to learn via their devices, not via the old blackboard.

“Human relationships are vast as deserts. They demand all daring.” John Ruskin

Fussy Buyers & Naive Sellers

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My friend Dennis Hebert with CFO Selections called recently regarding a client of his who is thinking of selling to his COO/GM. The holidays got in the way and then Dennis told me he felt they didn’t have a good understanding of what it takes to do a deal, so he gave them a redacted purchase and sale agreement. It caused them to pause and think.

Business sellers often underestimate the complexity of what’s involved in selling a company. It’s their cute little puppy so they think everybody will think it’s adorable. Even when others find it adorable there’s still a lot of work. The amount of detailed information requested by the buyer, bank, and attorneys can be overwhelming. Deal fatigue is common.

Most business people are optimistic, it’s a necessary trait, and sellers are no different. The complexity of a buy-sell deal can be extremely high and reduce optimism. It’s not like selling or giving away a cute puppy.

On the flip side, most business buyers are too fussy. I remind all buyers there are no perfect businesses and no perfect deals. Watch out for anything that looks too good.

No small business saves the world or changes western civilization. But these businesses do create jobs, wealth, and a lifestyle, for both the employees and the owner. In fact, boring is often best. Buyers need to answer the following three questions:

  • Can you see yourself going in there every day?
  • Can you add value?
  • Is it a viable business model that doesn’t violate your values?

The rest is analysis, due diligence, negotiation, etc. And, on the flip side to the seller underestimating the complexity of the process, the buyer needs to realize they can always ask another question, and they need to get over that impulse, and make a decision. As I write in the preface to Buying A Business That Makes You Rich, buyers will make a leap of faith and it needs to be off a chair not the roof.

“How desperately difficult it is to be honest with oneself. It is much easier to be honest with other people.” Author Edward E. Benson

What Sets Business Owners Apart

Posted on by JohnM

What’s the difference between being a manager and being a business owner? Let me use a sports analogy. I recently read the following about new NFL coaches (as it’s that time of year where there’s job turnover).

“If there’s one thing I’ve heard from new head coaches, it’s dealing with all the things he’s not anticipating, and still devoting the proper time to the things he was.”

In other words, there’s a lot more responsibility. You don’t have just your silo of duties, you have everybody’s silos. It’s like the owner who told me he came to realize while he didn’t have to know how to do everything in the business, but he had to know what needed to be done, who needed to do it, when it was to be completed, and what it looked like when done (correctly).

And then there’s the unanticipated. I learned many years ago, the hard way, you can’t budget the whole day because something will sneak in the side door and disrupt your schedule. It could be a client situation, a great new prospective client, a negotiation item, etc. But something will disrupt your day and the tighter your schedule the increased odds this will happen.

Similar is scheduling meetings too close together. Especially in today’s world of smartphones, giving yourself enough time between meetings is smart. Because the tighter our schedule the more likely Murphy’s Law appears by having the first person we’re meeting show up late.

Coaches strive to become a head coach; many executives strive to be owners. It’s often more work but with higher rewards, financially and emotionally.

“Success is relative: It is what we can make of the mess we have made of things.” T.S. Elliott

The Five Types – Buyers, Owners, Employees

Posted on by JohnM

I’ve been in my industry for about 25 years. I’ve seen a lot of business owners, business buyers, wannabes, employees; meaning people of all types. I’ve concluded there are five types, whether they’re business buyers, owners/sellers, or employees. When it comes to buyers this analysis is after I determine if the person is an offensive or defensive buyer. Defensive buyers rarely do a deal. They’re too worried about any and everything including the economy, the industry, the debt, the weather, and especially (although they won’t admit it) their own abilities.

All of these types have beneficial traits, and some have more detriments than the others. It depends on the person and their objective. And, it depends on the life phase the person is in at the time.

Driven by money– everybody is driven, to some extent, by money. Even the homeless, which is why there’s so much crime near homeless encampments.

The business buyer in this category probably has significant assets but wants more. He’s worried he won’t have enough in 20, 30,40 years. He wonders if the company he buys can scale from $1 million in earnings to $5 million and how fast it can be done.

When this is a business owner/seller, employees and buyers need to be careful. This is the person who tilts the pension plan to 90% to owner and 10% to the few dozen employees. She pays as low a wage as possible, provides skimpy or no benefits, and is extremely aggressive as she blends her personal and business checkbooks (deducts personal expenses on the business’ tax return thus cheating the IRS).

Employees in this category are often in sales. Sell more, make more. Others climb the corporate ladder just for the pay. Seventy-hour weeks, no problem because they’re making more than their friends.

Driven by accomplishment– Offering a broad-based opinion, these people make great buyers, sellers and employees. They want a great income but it’s not the top (or only) motivating thing.

The success driven buyer wants to grow and expand, create jobs, innovate, and feel good about what they’re doing. They’re the owners (I know many like this) who will say something like, “Our earnings are $2 million a year but I still take only $20,000 a month in salary and reinvest the rest in the business.” He’s focused on the end game.

Owners like this are often most concerned with legacy. When selling, it’s take care of my employees, do good by my customers, etc. because I want to take my grandkids here in 10 years and see how well you’re doing.

Success driven employees are what you want. While looking for career growth, they want to be part of a successful team and see the results of their work. Many become owners later in life.

Life Balance– here we can lump all three categories together. They want to work a normal work week, be productive, earn a good living and still have time for family, hobbies, non-profit work, etc. These people don’t accumulate vacations because they want to work more. Owners in this phase are often “coasting,” working hard enough to make their great living but not wanting to grow too much.

Lifestyle– This is where it gets interesting because what on the surface seems like a great thing, it’s something that drives buyers nuts.

The buyers not driven nuts by this are ones often featured in articles about franchises, main street (mom & pop) stores, etc. They want something they’re passionate about, with reasonable income. But most buyers are in the above three categories not this one.

Here’s what I mean, via the combination of a few real-life examples. The owner said they work from 8-4, make enough money to get by, get done what they get done, and there’s always tomorrow. No urgency, no emphasis on the customer, and surely no career path for the employees. And, not much value to a buyer who will figure they’ll lose the employees when they come in and want to grow the business.

Employees in companies like this tend to be ones with bumper stickers like, “A bad day fishing is better than a good day at work.” It’s a means to an end to them. In a book I’m reading, “Invisible Influence” by Jonah Berger, he says it’s tough for those who want to be successful to relate to these people as there’s not much commonality.

Hate the boss– some people just hate authority, no matter who it is. My thoughts are when these people get so sick of working for someone else, they buy or start something that’s a job and nothing more. Route sales fall into this category as does anything else where the job is task driven and there are no employees, because they probably (would) hate employees as much as they hate a boss.

Employees like this can’t wait to leave (every day, especially Friday, and eventually for good). They’re the bad apples that make the culture rotten and if they ever inherit some money they’re probably gone, into some business described in the preceding paragraph.

Conclusion

In my day-to-day goings on I see, and want to see, mostly success driven and life balance people. I see quite a few money driven folks, nothing wrong with them especially if they also take care of their team, and if I was in the private equity world I’d see a lot more of them. The lifestyle owners and buyers don’t cross my radar and I stay away from the last type.

Think of your clients, your employees, your customers, and others. I’ll bet you’ll find you have a lot of them with the same traits you have.