The Five Types – Buyers, Owners, Employees

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.

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

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.

Confirmation Not Blind Belief

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

 

Don’t Forget to Have Fun

By Jessica, with a tad bit of help from John

Page one of “Buying a Business That Makes You Rich” lists the top nine reasons audiences have shared on why they want to own a business. The reason we think is the most important is, “to have fun”. But over 98% of the time it’s not mentioned.

According to a recent article in the Wall Street Journal, “An Ignored Skill in Aging: Having Fun,” seniors have experts on almost all age-related issues except on having fun. Yet, they are the ones with the most time to have fun, many say they have forgotten how since they have spent the last forty years plus going to work, raising children, and taking care of aging parents.

Seniors have fun and business buyers looking for something that will be fun have a lot in common.  Fun is in every aspect of our lives work, family, and friends, as it should be.

Dread getting up in the morning and going to work? How productive can you be if it’s not fun? FYI, the Gallup poll on the workplace shows about 70% of workers are not happy or engaged in their jobs, and it’s been that way for at least five years. And, if it’s the grind of a job you hate it will take a toll on other areas in your life.

When this happens, people start thinking about a career change to bring back the fun.  For some it is to own their own business. Sick of the corporate world, they want to call the shots and benefit from their actions and decisions.

If this is you, one question to ask yourself is “What are my reasons for wanting to own a business?” Chapter one goes into a bit more depth on how to answer and assess those questions. (And realize, it’s not for everyone.)

On the other side, there are the business owners that are ready to move to their next great adventure in life. Hopefully they have an exit plan for a smooth transition and to pave the way for the new owner’s success.

A Win-Win! Is when the buyer comes in and has fun and the seller leaves with style, and grace and more money.

When buying or selling a business, the two parties involved need to have a good relationship. One thing we often hear from business owners talking about selling is “take care of my employees, they’re family.” If a seller feels like her employees are not going to be taken care of, it could mean the difference between deal or no deal.

Employees are just one example, but the buyer needs to understand what is important to the seller, it is imperative they get along and have a great working relationship. They both need able to wake up and be excited for the day ahead.

Control Doesn’t Mean Controlling

“I like being in control. I don’t like to listen to anything from anybody.”

The above is from the owner of a struggling business on the TV show Restaurant Impossible. When my wife and I heard it we immediately hit rewind so we could play it again and transcribe it.

I’m sure there are all kinds of fancy names for this as it’s one of the most common traits of business owners, especially founders. Ironically, in my opinion, the strongest statements about being in control come from owners of business not firing on all cylinders. No wonder there are over 1,000 books on Amazon when searching by “delegation” and over 300,000 when searching by “management.”

The top “blemish” I see in the hundreds of companies I come in contact with every year is a controlling owner who:

  • Has his or her hands in everything
  • Thinks they’re the only person who can do it right
  • Believes delegating is a sign of weakness

I recently visited my friend and past client Keith Jackson, owner of Industrial Revolution. He told me his four-person management team pretty much runs the day-to-day. On a personal note, Jessica has been with me since January 1. I turned over some client-based office work and she’s doing things I don’t know how to do, getting it done faster than I could, and this allows us to grow the business.

Being in control doesn’t mean doing it all. It means making sure it gets done and done right, and that makes the business more valuable.

“Only the educated are free.” Epictetus