When “Word of Mouth” Isn’t Enough

I’m talking to an owner who’s pretty darn proud of the fact he doesn’t do any marketing or have any sales effort because it’s all “word of mouth.” He tells me this knowing I know his friend (with the same type of business) in a noticeably smaller market that has two to three times the revenue he has.

My first thought was, maybe if you did some marketing, you’d be making more money, and more importantly, have a more valuable business. By his own admission, this owner spends a good amount of time working “In” the business. He’s working well under his pay grade when he does this and probably works more hours than he would if he grew the business.

Word of mouth is great, especially for businesses like mine where referrals are the platinum standard. But those referrals only come as the result of marketing. But for a more traditional B2B or B2C firm (like this one that sells to businesses, government, and consumers) there needs to be marketing plus some sales effort.

A salesperson should be calling on the businesses and government buyers letting them know about new offerings, building the relationship, etc. As consumers, what’s the first thing we do when we need a new product or service? Right, we Google it. Some SEO or AdWords is sure worth a try.

Marketing is what creates customers, which creates buzz, which leads to the word of mouth phenomenon, and even more customers.

“I don’t always follow my own advice.” Edith Wharton

Getting Culture Right

In November I had the pleasure of attending the all-staff dinner as part of the Farallon Consulting retreat (Farallon is an environmental consulting firm on whose board I serve). It was an exhibition of culture at its best.

While I only heard reports about the day’s activities (and happy hour) I witnessed a group of people on the same page. While there’s an endless supply of “bad” stories about managers, culture, etc. a good way to start the new year is to consider what a good culture means, whether you have a few employees, dozens, scores, or hundreds.

  • Realize even companies with the best culture still have issues, but those issues are at the other end of the spectrum from the shenanigans on The Office. It’s simply because people are people.
  • A good culture means better collaboration to achieve goals, whether it’s increased revenues, better productivity, reduced costs, or anything else. When employees work well together the boss (business owner in small companies) spends less time refereeing and more time strategizing.
  • When employees enjoy their work environment they want to work there, will do extra, will not be job switching and that means higher employee retention. Given the costs of replacing someone, this is huge.

There are a lot of people who help companies improve their culture, and it’s worth it (when done correctly). This month is a good time to assess your culture and do what it takes to improve it.

“Every day on Earth is another chance to get it right.” Steve Earle

We recently went through another election cycle, or should I say, a continuous election cycle. The recounts are over and now it’s time for good, old-fashioned political arguing.

The results are interpreted based on one’s perspective. A Democratic leaning business writer wrote how the Democrats picked up seats in the House in spite of the gerrymandering issue. The Wall Street Journal editorialized that the gerrymandering issue isn’t real because the Democrats picked up seats.

The Democrats are glad because with one chamber of Congress under their control they can influence some legislation. The Republicans are glad because the Democrats don’t have both chambers and therefore can’t revise recent legislation.

What about in your business? Isn’t is also all about perspective?

  • The owner worries about cash flow and the employees wonder about bonuses and raises. The same amount of money is coming in and there are different perspectives about where it should go as it goes out.
  • Is the economy at a peak? A lot of people think it is. Some business sellers want to base the valuation on the last 12 months. Buyers and now banks want to look at multi-year averages.
  • With the economy where it, is and to use a sports analogy, do you play to win or play not to lose? In other words, do you take aggressive but smart moves to grow or hunker down waiting for an economic correction, which may be soon or in many years. FYI, in my opinion, in sports, teams who play not to lose usually lose.

Tough decisions all and our individual perspectives are what influences us.

“I don’t think we all have to take the same coordinates to reach the same destination.” (Singer) Janelle Monàe

Dead or Playing Possum?

In honor of Black Friday and Cyber Monday, and other big shopping days, here’s an opinion on the retail industry, trends, and sticking with it.

“What goes around comes around” is an old saying meaning things eventually return to their original value after some sort of cycle (and it’s a hit song by Justin Timberlake).

How long ago was it when every pundit and everybody you spoke with was saying “retail is dead?” Other comments included the Internet passed retailers by, the cost of stores is too high, people don’t want to shop, they want to get a package at their door, etc.

Guess what? A Wall Street Journal headline was, “Retail Stocks Roar Back On Consumer Strength.” The S&P Retail exchange-traded fund was up 16% this year at the time of the article and many major retailer stocks were up 30-50% this year (and are bouncing around like all other stocks). On September 4 The Seattle Times had a business section headline of, “Retail trends drawing shoppers into stores.”

Retailers seem be figuring it out. They took a hit, regrouped, found where they can shine, and appear to be doing so. Some of their tactics are new and some are the same as before including racks of clothes, fitting rooms, private brands, personal assistance (think Nordstrom not Walmart), etc.

Think about this in regard to your business. You can jump onboard with the latest greatest software, marketing program, manufacturing scheme, etc. but I’ll bet there are things you do the same way as before (or come back to them), because they work.

I recently spoke with the owner of a company that bids on jobs. I asked if they used any industry software or ERP system to bid. The answer was no, they use Excel and Access, because it works for them (to me working means the bids are right and they make money on their jobs). I’m not sure how time-efficient it is, but it works.

I remember from a past business life an industry leader talking about a marketing program and saying something like, it worked so well for so long we decided to do something different. If it works, keep doing it, but always look for ways to do it better.

“There seems to be some perverse human characteristic that likes to make easy things seem difficult.” Warren Buffett

Lessons From Events

On November 6 we* hosted our 10thanniversary “Getting the Deal Done Breakfast Conference” at the Bellevue Club. About 150 people heard about our featured topic of management buyouts & buy-ins from our panel and our presenters, Tom Varga, founder of CFO Selections, and Kevin Briscoe, CEO.

Tom and Kevin shared their experiences and feelings as part of Tom selling off ownership and giving up control and Kevin investing in the company and taking over its leadership. They were incredibly open. One might say it was “open kimono” time as they shared detailed financial information, their fears, and the results. FYI, Kevin shared with me prior to the start they wondered if they could fill 30-35 minutes. They did such a good job we had to stop questions after 60 minutes.

Our panel then discussed our thoughts and experiences with management acquisitions. And, of course, Marc had his annual prop, a statue of Zeus with the lightning bolt of tax, which he brought out to signify the exciting tax law changes from the recent tax bill.

Some of the insights offered by our panel included:

  • Make sure management wants to take on the responsibility of ownership, and, most importantly, they are willing to sign personal guarantees (and if there’s a bank use their home equity as collateral).
  • How to handle it when the business is too large for management to buy (using other investors).
  • Financing options, the bank and more.
  • What entity should the buyer’s firm be, especially if there’s roll-over equity for the seller?
  • What the bank is looking for in both the buying team and the company moving forward.
  • What’s the bank’s relationship with the buyers and will the buyers agree to guarantees.
  • The industries most conducive to a management buy-out (construction and professional services top the list.
  • How advisable is it for the founder to stay on in some capacity?

We had to hustle to end at 9:30 so all-in-all, a very successful event.

* Greg Russell – PRK Law, Marc Hutchinson – Hutchinson Walter CPAs, John O’Dore – Chinook Capital Partners, and Kit Gerwels – Columbia Bank

 

On November 13 I was part of a panel presenting at Seattle U as part of their Family Business program. Others on the panel were Julie Eisenhauer with Clark Nuber CPA, Jesse Ficks with Skis Painting, and Casey Schindler and Jake Licht with Baden Sports.

The focus of the meeting was “Value Creation” and it was a combination of Q&A, small group discussions, and audience participation. Besides giving overviews of our respective business we discussed:

  • Strategies and tactics the operating company representatives have used to grow their business.
  • Examples of how the two advisors have worked with clients.
  • Measuring of value, i.e. it’s not just the dollar amount. This includes culture, life balance, passing the business on to the next generation, the quality of work, and keeping valued employees
  • The challenge of change when you have longtime employees.
  • Having a strategy and matching it to value drivers.
  • The use of metrics, management reports, etc. to make decisions.
  • The softer things like safety training and getting rid of bad customers.
  • Knowing what’s important and what excites you.

In addition, one of the audience members shared how his company has made four acquisitions and how they were willing to pay more for companies with “their house in order.” In fact, he said one company received twice as much (multiple of earnings) as another because they had their house in order.

The bottom line, if you run a company as a business and not as a lifestyle, cash cow, or toy business you make out in the long run, both financially and emotionally.

Being Thankful

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

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

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

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