Not Rehiring? More Business Ownership?

Over the last four years we’ve tracked every incoming referral. We note the date, source, and type (business buyer, seller, exit planning, etc.). There’s no pattern, that’s for sure. But there’s been growth and consistency within a tight range. 

That is until mid-February of this year when, guess what, a certain virus started making headlines. Over the next 10 weeks we got a total of two referrals. Then, six in 10 days. 

My thoughts:

  • There’s pent-up demand to get going again. 
  • Maybe (former Presidential candidate) Andrew Yang is right when he says companies have been looking to shed workers (before the pandemic) and won’t be rehiring them. They’ll run leaner.
  • I wonder if managers and executives are sensing this and starting to think about controlling their career destiny via business ownership.

Speaking of business ownership, there are only three ways to get into business. You can start one, invest in a franchise, or buy an existing company. Preferably a mature, profitable, and fairly priced company (disclaimer: this is where I come in, helping people buy the right business the right way).

Buying the right business the right way means separating yourself from the bottom-feeders that have come out. I’ve talked to numerous owners in pandemic-distressed industries (and to other advisors). They tell me the bottom feeders will say things like, “We’ll get you out of your business by purchasing your customer list,” or, “We’ll buy your (tangible) assets.” No mention of what happens to the seller’s lease, equipment payments, etc. 

“There’s gold in them thar hills” (Mark Twain, The American Claimant, 1892). Unfortunately, some businesses won’t make it and this means opportunity for others. There will be openings for acquisitions (second disclaimer: I wrote a book titled, Company Growth By Acquisition Makes Dollars & Sense). And I mean fair acquisitions to bail out a bad situation, and maybe even a job for the seller. 

A crisis like we’re going through brings out the best and the worst in people. Be part of the best, not like the bottom feeders. 

“A ship in a harbor is safe, but that’s not what ships are for.” (Author) John A. Shedd

Make a Decision

One could write a long essay on businesses lessons from the virus crisis, there are so many, both good and bad. One of the top lessons is about making decisions.

Here in Washington, our governor does not like having to make decisions (other than, it seems, to be in charge of everything). He waffles, postpones, is forming committees (and we know how efficient and effective government committees can be), and is creating backlash.

While I’m not in New York, Georgia, or California, it seems those governors are much better at making decisions. Whether you agree with those decisions (or if their decisions worked out okay) is not the point. They’re taking action. 

Many years ago, a very wise and experienced businessperson told me one of his best attributes was to make a decision and move on it. He said even if half of his decisions were right, he was way ahead, versus not making a decision. And then there’s Grantland Rice who said, “A wise man makes his own decisions, an ignorant man follows the public opinion.”

Tying it to my business, during buy-sell due diligence, some buyers get analysis-paralysis. They need to make a decision and move.

Deficits and Protection

The May 5, 2020 of the Wall Street Journal was, not unexpectedly, filled with articles on the virus. The ones standing out were the headlines on the front page discussing the massive amount of new debt and the risk workers and companies face as businesses reopen. 

I wrote a few months ago about how we’ve been running huge deficits in a booming economy instead of reducing the deficits. Now we’re looking at borrowing $4.5 trillion this fiscal year so the economy had better get super-healthy pretty darn quick.

But the above falls into the, “That was then, this is now” category. One of the best lines was from a director at the Committee for a Responsible Federal Budget (which seems to be a bi-partisan organization) who said, “When your farm is burning you don’t worry if you have enough water to make through the next three crop seasons. You put out the fire and then you worry about it later.”

So it’s all-aboard to pump up the economy. But, as I wrote in a recent Random Thoughts memo, what if the customers are too scared to come back? We’re already getting reports of customers and employees being scared to return to work in states that started opening up two weeks ago.

Which brings us to the second subject, the dispute about the government giving businesses liability protection against worker lawsuits in regard to getting COVID on-the-job. The meat packing industry (vegetarians can laugh here) is at the forefront of this. The President has ordered them to stay open, workers are scared, many can’t work as they have the virus, so it’s the proverbial “can of worms.”

The Republicans want full protection for businesses, the Democrats don’t, fearing companies will take advantage of workers, and the U.S. Chamber of Commerce is in the middle, wanting protection for firms that follow federal and state guidelines. I can see both sides. A business, especially when ordered to be open or considered essential, won’t want the risk of lawsuits. Employees have good reason to fear bosses will not prioritize their safety to meet production numbers. The Chamber’s position seems to be a good compromise.

Again, a couple interesting situations with no easily agreed to solutions.

“You may glory in a team triumphant, but you fall in love with a team in defeat.” (Sportswriter) Roger Kahn

What Will People Hoard Next?

We must be in the minority because we eat a lot of fresh fruit and vegetables. Now we’re eating more than before the virus crisis and I’m reading that farmers are not able to sell their crops because so many people are buying primarily meat and shelf stable food (cans, dried, frozen). Just look at the (low) price of strawberries over the last couple of weeks.

More proof, Costco posts a list of items they are out of and last week it included milk and eggs (they had some but what they had would be gone by early afternoon the day we were there), and fresh chicken. The produce section was overflowing. 

On April 27 the Wall Street Journal had an article titled, “Farmers Forced to Destroy Their Crops.” This after an article the week before about farmers dumping milk and eggs. It’s not that there’s not enough food, it’s what people are buying and how it’s packaged. If it’s packaged for food service distributors the packaging won’t work in the grocery stores.

On April 28 the WSJ had a headline, “Overcrowded Barns Hamper Pork Industry.” There’s a surplus of hogs as well as cows and chickens given the virus outbreak in meat packing plants. Tyson releases a notice about upcoming poultry shortages, stores can’t get their usual supply, and people hoard what is in the store.

I’m guessing they don’t teach about this in supply chain classes. Of course, they don’t teach about common sense and the lack of it is what’s fueling the fire (hoarding). So, will the produce aisles be hit hard next when there’s limited meat? We’ll have to wait and see.

“The secret to be successful with a child is to not be its parent.” Mell Lazarus

More Information Than Ever

Like a lot of you I’ve been on more webinars the last six weeks than I usually go on in six months to a year. And, there’s actually been some good ones.

An interesting one was put on by Salesforce and featured Mark Cuban. A few of the things he said were:

  • Now is the time to amplify your brand.
  • Connect with people, don’t sell.
  • Everybody is scared (at some varying level).
  • The disaster recovery programs from the government are like automatic overdraft protection.

A really good webinar was put on by Business Brokerage Press (BBP) and the points the experts made are valuable for more than just the buy-sell industry. Here are the ones I noted with my comments in parentheses:

  • We all need to do a better job of screening potential clients and customers to make sure they’re serious, what they have is viable, they’re viable. (Not just now, always.)
  • Most owners are concentrating on core business functions, not exit planning. (Many are concentrating on survival.)
  • For new clients, now is the time to get paperwork in order and be ready to go when the time is right.
  • Baby boomers are not getting any younger. The tsunami of exiting owners predicted over the last 10-12 years hasn’t hit yet. Maybe this will push it over the top. (I agree, there’s been no spike of exiting owners, just a slow increase.)
  • To business sellers, set a firm expectation of value and cash at closing. (They emphasized the word firm as we know people remember what they want to remember.)
  • To owners who have been coasting – watch out! (Yes, a culture of coasting will be hard to change to one of urgency.)
  • Good people will be available to improve your team. (On my Zoom Happy Hour on April 16 Joe Fugere said they’re looking at all the good people let go by other restaurants.)
  • Show you can bounce back. (Not just for those selling but for those wanting to reassure customers, employees, and vendors).
  • Business buyers will be expecting deals and consider using an earnout.
  • This will push up bottom feeder (business buyers) and it’s way too soon to get freaked out over value. (I agree, I’m seeing the bottom feeders out there, going after businesses in industries hit hard.)
  • Business buyers who want to pay based on the last 12 months of earnings for businesses hurt by COVID-19 won’t want to pay based on the last 12 months for those companies that got a spike. 
  • The reverse is true of sellers.
  • Buy-sell experts are going to have to figure out how to mitigate the situation. We could see deal structures change (more seller financing), more earnouts, buyers will be more cautious, etc. (And, we don’t know how banks are going to look at all of this.)

On the other end of the spectrum, I was on a Zoom meeting with a bunch of corporate people and corporate consultants. Talk about heads in the ozone. These people had no idea about the “real world.” One lady actually said that nobody will want to own a car anymore now that we know we can all work from home. Okay, other than those people delivering things to her home, working in stores, on construction sites, installing furnaces, cutting hair, etc. Or, those who like the freedom of getting out, hauling their boat, going skiing, and other activities.

Conclusion

Regarding the points from BBP, I can’t argue with the points made and I also think you can take out the business buy-sell specifics and apply most of these points to business in general. Businesses shouldn’t coast, we don’t know what banks will do regarding lines of credit and other non-transaction loans, and many of us will have to mitigate numerous circumstances.

Need Versus Free (Money)

One of the most famous lines in literature is Charles Dickens opening of A Tale of Two Cities, “It was the best of times, it was the worst of times.” One could apply that line to what’s going on these days with the pandemic. 

It’s the best of (business) times for grocery stores, streaming services, cleaning supplies manufacturers and distributors, etc. It’s the worst of days for those getting sick, having knee replacements or rotator cuff surgeries postponed, and owners and employees of a devastated small business. Given this is a business newsletter let’s talk about the last point.

Let’s start with two examples that represent quite a few situations I’ve discussed with people over the last couple of weeks.

A client with a distribution business was worried about making her payroll a week later, even at its current 50% of normal level. She didn’t know if her PPP application would be approved by then. The big problem is her customer base has been forced to close and she estimates 20% are closed for good. The same goes for companies supplying restaurants, hair salons, coffee shops, really any personal service, etc.

The owner of a service business told me his normal service is down, but their backlog of project work will keep them busy for three to four months. He also applied for the PPP and I’m sure he’ll get it. Given it will cover costs, the revenue will fall straight to the bottom line so at least the government will get a percentage of it back in taxes. And I know of businesses applying for the PPP even though their sales will be strong.

I’m sure the government officials were in a quandary. How to get money out ASAP versus qualifying who will get it. They chose giving it to all business meeting the topline criteria, which was mainly size of company and keeping people working (or calling them back to work). There were no “need” qualifiers like how much have your sales declined? Or, what will your Q2 sales be compared to 2019? (Yes, I know there’s a question asking the applicant to state they’ve been affected by the virus.) Given the business owner has to hire back their people to get loan forgiveness, what will those people do if there are no customers?

Not an easy decision and I wonder if there will be qualifiers in the future phases of the relief programs. There should be.

“I am not the kind of person women fall in love with. I sort of grow on them, like a fungus. Jeff Bezos

Random Thoughts Part 3 on the Virus Crisis

I get more feedback on my random thoughts memos than any four to six weeks combined, so here are some more.

Politicians look very well groomed, hair salons and barber shops are closed, I really need a haircut, so does anybody know where the governor is getting his hair cut?

“Non-essential” businesses are essential to the business owner and employees, aren’t they?

Did Joe Biden paint himself into a corner by saying he would pick a female running mate just before Andrew Cuomo became a star? 

What happens if government opens up the economy and workers are too scared to go back to their jobs? And/or the customers are too scared to go and buy?

We need a middle ground between Trump not caring if people get sick and (WA) Governor Inslee not caring about business owners and their employees.

And speaking of politicians, one of the best lines I’ve seen or heard came from a State rep in Wisconsin who said, why can we go to Walmart and buy flowers, but we can’t get flowers at the local florist?

There are almost no autoresponder replies to emails these days, other than from bankers telling us how busy they are with the paycheck protection program (and it’s true).

It’s easier to stay at home, especially on sunny days, if you’re an allergy sufferer and the pollen counts are at the top of the charts.

And speaking of allergies, what is the point of an allergy eyedrop coming in a .085 fluid ounce bottle (that’s about 1/7 of a teaspoon). The plastic must cost more than the solution.

I get a kick out of people who cross the street when they see you walking towards them. The mist we create when breathing doesn’t carry nearly that far (I’m guessing less than the six feet we’re told to be separated).

There’s a lot of well-deserved praise for health care workers, grocery store employees, and the same praise should be given to those in the supply chains that provide the products to the stores and medical facilities.

There’s a lot of creative comedy out there. A friend sent me a picture of an enraged Al Bundy with the caption, “Just to be clear, we’ve all agreed that liquor stores are “essential” and schools are not!”

There’s a huge and growing need for social/people interaction and Zoom Happy Hours are here to save the day. I think they’ll continue although not as frequently. 

Realize the officials in charge of the virus and economy in Washington State are the same genre of people who built the West Seattle bridge that is in danger of collapsing (on its own) about halfway through its expected life.

“If you make up your mind not to be happy, there’s no reason why you shouldn’t have a fairly good time.” Edith Wharton

One Bad Apple

In college basketball there are players known as being, “one-and-done,” as in playing one year for the college team and then going off to the NBA (because of rules preventing them from going to the NBA straight out of high school).

As a casual fan, I’ve come to appreciate the job certain coaches do with these players (aka prima donnas), not to mention their parents. Most of these players don’t want to be in college, it’s only a steppingstone, and often they tend to be culture disrupters. This appreciation comes from seeing all the other teams where these one-and-done players cause the team to underperform.

It’s just like in business, isn’t it? You strive to build a culture for growth, profits, advancement, and an enjoyable workplace and yet one person can damage, if not destroy, this. In an owner group I’m in I’ve heard about employees who:

  • Refuse to cooperate with others, it’s their way or no way.
  • Exhibit inappropriate behavior, sexist (sexual) in nature.
  • Bully co-workers.
  • Leverage special-class status (threatening that any action towards the employee would result in a legal action based on said status).

The above and other situations are why there’s constant interest from owners and managers on culture, employee relationships, managing all the HR regulations, etc. It’s a balancing act whether you manage single digits of people or hundreds. Unfortunately, there’s no easy, quick-fix solution; it takes patience and skill.

“Anything can happen, but it usually doesn’t.” (Humorist) Robert Benchley 

Your Business is Really a Community

I wrote this in Antigua, West Indies on another Rotary service project installing computers and Wi-Fi networks in schools, training teachers how to teach more effectively, with and without technology, and setting up our eighth sewing center.

As we were organizing the latest sewing center it really hit me how big community is on the island. While US cities from New York, to Seattle, to many others have neighborhoods and those neighborhoods have organizations, in Antigua it just seems they are tighter.

Main reasons for this are many people don’t have cars, they often stay in the area they were born, and so very much of their lives center around church (many, many types of churches, most of them small given the lack of mobility). They help each other on a regular basis. Ladies we would not consider to be “well off” sew clothes for those less fortunate because they care.

Think about this in regard to your business (or, for advisors, your client’s businesses). Community is like teams within a business. Most business buyers I meet tell me they are good at team building. Given a business is its people, both employees and customers, being able to bring employees together for a common goal is incredibly important. 

I recently wrote about our most recent Getting the Deal Done Breakfast Conference and guest speaker Bob Donegan, president of Ivar’s. Ivar’s has employee turnover less than 1/3 the industry average. Why? Because they value their people, give them advancement opportunities, and decision-making authority, especially if there’s an unhappy customer (from management down to maintenance people they can offer unhappy customers remediation). 

In a recent meeting with a roomful of business owners the following was asked, by an owner looking to buy another company, “What do I do first after closing?” The common answer was, talk to your people, ask them what they would do to grow the business, and, above all, listen. Good advice whether after an acquisition or any other time.

“Man’s character is his life.” Heraclitus

Factories and Their People Get Smarter

Fact: Politicians, all politicians, from both parties, promise more jobs, better jobs, increased pay, and anything else they think will garner them votes. 

Fact: None of the politicians have any idea what’s really going on or what to do.

Help wanted is very common

It’s a fact of life these days that a majority of businesses can’t find enough good workers with the emphasis on the word good (as in skilled, competent, will show up for work every day, etc.). Not just in big cities like Seattle but in small towns I’ve been to over the last couple years. Signs abound seeking workers. 

In December 2019 the Wall Street Journal had an article titled, “American Factories Demand White-Collar Education for Blue-Collar Work.” The article summarizes what I regularly see, an increase in advanced machinery, more production with fewer workers, and the need for smarter workers. The article is filled with statistics, which I won’t repeat here, and the bottom line is, from large firms like Honeywell, Caterpillar, and Harley-Davidson to small businesses, more is being done with less, as the following graphs from the article show.

A close up of a map

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Education

My mother was a teacher, many of my parents’ good friends were educators, so I grew up in a culture of education (you can imagine the repercussions when I misbehaved in school, i.e. disrespected a teacher). So it’s no wonder I’ve given a lot back via my Rotary projects in schools.

Want people to have better paying jobs, give them the training and education to get them. A couple years ago we had a speaker at the Bellevue Breakfast Rotary Club whose organization was (is) trying to get our educational system to emulate the European system by getting kids who aren’t going to go to college into a trade program sooner versus later. An alternative to graduating high school with no interest in college and no real job skills. It’s why I admire companies like Dick’s Drive-In and Starbucks that pay for higher education for their workers, even though they may use that education to get a different job.

It’s a technology world

Technology is really what it’s all about. Not just code writing or playing games but knowing how to use technology on the job. The WSJ article states not only has the manufacturing industry dramatically increased the ratio of capital to labor, but they’ve had double-digit growth of jobs requiring “complex problem-solving skills” versus a decline in jobs requiring the least amount (of complex problem-solving skills). In fact, over 40% of manufacturing workers now have a college degree, almost as many as those with a high school diploma or less.

One of the members of my Rotary Club is with a company using technology (artificial intelligence actually) to match people, employers, and careers. When you get people doing what they like (love) they’ll be better employees, change jobs less often, and be more productive. As the WSJ article said, in a quote from a plant manager, “If you want to be one of those people [who want to just punch in and punch out every day], you won’t be successful here.”

Conclusion

This is why I added “Show you can attract and retain great employees” to my list of what business owners should do to make their business more attractive to buyers. It’s why one of the important skills a buyer can have is to be successful at team building. As I often say and have repeatedly written in my newsletters, business buyers aren’t really buying the company, they’re buying the people.