When City Slickers Go Camping

I was reminded of the Billy Crystal movie City Slickers when I saw the following, which would be funny if these people weren’t damaging our planet:

  • A Seattle Times article on how the Cascade wilderness areas are being trashed (organic and inorganic waste) by city people deciding to get outdoors during the pandemic but not knowing how to act (as in, carry out their waste).
  • A neighbor who loves the isolated outdoors said a deep-woods campground that usually has half of their 30 campsites available was filled with large RVs the last time he went there.
  • A recent Wall Street Journal human interest article about city dwellers experiences in the outdoors. The two best stories are about the young lady who didn’t bring a sleeping bag because it was hot out, camped in a valley, and said she had never been so cold in her life and another lady who was appalled by campsite restrooms (an outhouse I’m assuming) and drove over a mile to a gas station to relieve herself.

So what does this have to do with business? The analogy is there are a lot of people who get into business with the same amount of preparation as the city slickers described above. I get calls regularly from people wanting to get into business (often starting one) and it’s usually to create a job using their skills versus growing a business (I refer these people to the local SBA/SCORE office so they can get a mentor and counseling). 


  • Know why you want to do what you’re going to do.
  • Get the right help to succeed.
  • Realize getting into business (or exiting) isn’t easy. 
  • Plan.
  • Make a decision; analysis paralysis doesn’t help anybody.

Things always look better and easier from the outside. Just like, “the grass is always greener on the other side.” It’s only looks easy, better, or greener when you don’t do the things you’re supposed to do and do them correctly. Doing it the right way takes more time and effort, and it’s worth it.

If You Don’t Have Time to Do It Right, When Will You Have Time to Do It Over” John Wooden

Nothing is as Good or Bad as Proclaimed

Disclaimer: the title has nothing to do with current events like Covid, the recession, racial injustice, any political party, or similar. While not about sports it may have something to do with your favorite team, especially if they’re bad.

What caught my attention was a front-page article in the Wall Street Journal’s weekend Exchange section on August 22 titled, “Why Aren’t There Enough Paper Towels? The lede was, “A decadeslong effort to eke out more profit by keeping inventory low left many manufacturers unprepared when Covid-19 struck. And production is unlikely to ramp up significantly anytime soon.”

The article “blamed” the just-in-time inventory system, i.e. lean manufacturing, which means only having enough on-hand to last until the next shipment arrives. When you operate like this it’s tough to increase output when there’s a spike in sales. The same applies to the manufacturing operations. If your machines are cranking out all they can operating 24/7, you can’t quickly increase production (this is how the paper towel plants were operating).

On the other end of the spectrum I talked to the owner of a manufacturing operation doing about $20 million in sales who told me they constantly struggle with productivity and therefore profitability. He said, “It must be me.” I won’t argue with him, at least until I know more because often it is a people issue, and more often than not an owner issue.

Georgia-Pacific increased production by 25% by reducing the number of products made, which reduced the amount of equipment changeover. The owner I spoke with can probably increase productivity with a manufacturing process expert advising him. Just-in-time isn’t a panacea and operational inefficiencies can be improved.

The above is what planning is for.

  • What if sales go down 10-20-30%? Banks call this a stress test. 
  • What if sales go up 20-30-60%? Can you handle the production, the cash and credit needs, the stress on your people, and even finding enough people?

Most businesses don’t do this. Even more owners don’t plan for their exit. Nobody predicted Covid and very few were ready for its effects whether good or bad.

Nothing is as Good or Bad as ProclaimedNothing is as Good or Bad as Proclaimed“Nine tenths of the ills from which intelligent people suffer spring from their intellect.” Marcel

Inflate the Swimming Toys Not Your Assets

On August 24 my phone buzzed with a news flash from The Wall Street Journal. It said the New York Attorney General is investigating the Trump Organization to see if the Organization and President Trump inflated his assets in financial documents. The reason is supposedly “to secure favorable loans and tax benefits.”

I’m not going to take sides but rather ask a few questions and tie this to what I see daily with the buying and selling of businesses. The questions:

How could this happen? His assets are mostly real estate and it’s easy to appraise real estate.

Why did this need to (supposedly) happen? In my world it means the deal doesn’t qualify on its own.

Why didn’t the bank(s) verify? This one seems easy. They wanted to make loans to a prominent borrower.

This can’t (easily) happen with business buyers. Yes, they can inflate their resume, like they do for jobs, and that’s why relationship is so important. A good seller will sniff out a buyer giving a line of baloney (and I really don’t mean baloney).

A business buyer can’t inflate their liquid assets because they’ll need to use those funds. They can’t inflate their real estate assets because banks will get an appraisal. In other words, the bankers in my world are a lot more thorough, aren’t desperate, or swayed by a big name.

It’s a bit different on the seller side. Can inventory values be inflated, sure, but if the deal says the lower of cost or market the value can’t be more than the cost. And dead inventory is not hard to determine. All you have to do it look at purchase dates and if it’s been around too long it’s not very salable.

Fixed asset values are a little trickier and I tell buyers and sellers the buyer’s real concern should be when the assets will have to be replaced (their remaining useful life) not the exact, current value. “Anticipated capital expenditures” is the key phrase. 

Cash flow is, however, the tricky one. Small business accounting tends to make cash flow a moving target anyway and a lot of owners “manage by checkbook.” Meaning, when there’s money in the bank we’re doing fine.

It’s when we get into my term AAA, adjustments, assumptions, and add-backs (click here for more on this), that it starts to resemble the asset inflation mentioned above. There are three situations driving this:

  • Either CPA driven or owner driven there’s an incessant need to reduce taxes. This is why owners will buy a new truck or piece of equipment they don’t need. I find it ironic when CPAs tell an owner to buy something they don’t need to save on taxes. I’d sooner have ~70% of after-tax cash than 0% plus something really not needed.
  • Owners blend their personal and business checkbooks. The reasoning is the same as in point one.
  • When it comes time to sell there’s the desire to get as much as possible (understandably). If the true value is not enough the numbers get manipulated. For example, the owner who brags at his or her club how important and indispensable they are to the business is suddenly an unneeded detriment to the business (so their salary is really profit). Or we’re not sure the marketing worked so let’s add it back to profit (because we won’t do it again).


Inflate the Swimming Toys Not Your AssetsI don’t know what really happens with mega-banks and mega-loans as in the opening paragraph other than greed rules. The borrowers want the money, the banker was the bonus, the bank wants a “name” customer. I do know it’s a lot more ethics and sanity in my day-to-day world, and I’m glad about that. 

The Phone Doesn’t Right Just Because You Want it To

A good friend of ours told me his sales team made their first sale ever to a non-affiliated customer. He was hired earlier this year to build a sales team and plan a sales effort because for the last 20 years the only sales were to other firms under the same ownership umbrella.

The salespeople at this company were order takers. And I’m guessing lazy order takers at that. When I taught a class at the local SBA/SCORE office on growing a consulting business I always told a story about a fairly new consultant who loved the computer and felt because he sent out a newsletter once a month the phone would ring. Yeah, sure it would, from telemarketers. 

“It’s amazing what happens when you actually pick up the phone and call your customers” was said to me by Keith Jackson with Industrial Revolution, www.industrialrev.com, in response to my question about how his marketing was going about six months after buying the company. I’ve used this statement before and it’s such a good line I can’t help using it again (I know it verbatim because I wrote it down when I heard it and I use it regularly). And, I know Keith is reading this. 

Some tips:

  • Want to increase sales? Have your people (and/or you) reach out to prospective customers and referral sources. As you grow it increases your chances of exiting with style, grace, and more money.
  • Want to buy a business? It’s contact sport; the more contacts you make (who get to know you) the better your chances. It’s hard to find a mature, profitable, and fairly priced business so be active.
  • Want to sell your business? You and/or your intermediary had better be active with the marketing (not just the advertising). Calls to your/their network, their database of buyers, and others will accelerate the process.

In this day and age of text, email, LinkedIn, and Facebook personal, one-on-one contact is still the best for B2B, advisory, and many other businesses.

“If the phone doesn’t ring it’s me.” Jimmy Buffett

Coasting – Downhill

A business owner told me his sales were X dollars – put in whatever figure you want, $100,000, $1,000,000 or $10,000,000. His actual sales were:

  • 2017 – 90% of X
  • 2018 – 75% of X
  • 2019 – 65% of X
  • 2020 – on track for 50% of X 

The abovementioned owner is coasting and the business is going downhill. And once on the slope it’s tough to recover. I’m sure there’s not a lot of calling to customers, much less prospective customers. I can’t imagine there’s much marketing at all.

What’s compounding this is he has no idea of what’s really going on. Yet all it takes is paying attention to the financial statements. He doesn’t need to have management reports, although they would add a lot of value and clarity.

Business buyers want one of two things:

  • A well-oiled machine with room to grow.
  • An underperforming business in a solid industry (coasting).

What they rarely want is a damaged beyond-repair business. Whether you’re an owner or advise owners, keep these points in mind. Coasting (downhill) doesn’t let you exit with style, grace, and more money.

“If liberty means anything at all it means the right to tell people what they do not what to hear.” George Orwell

Over Promise; Under Deliver

I’ve had a security camera in our house for a couple years now. I won’t mention the company name (they’re local) as the main subject of this memo is about their announcement that while their cameras came with free storage for their person detection feature, they’ve realized it is way too expensive to provide it (to over 1 million customers). They’re not going back on their agreement but rather asking customers to voluntarily pay for it.

My first thoughts included the title of this memo, over promise and under deliver, plus didn’t they see Apple, Amazon Photo (for videos), and Google Drive offer some free storage and then charge, and did they get caught up in the creative process and not pay attention to the budget?

So, what can and should businesses do? Here are five tips:

  • Plan – a good plan will cover things like this and put them to the stress test, i.e. what if people use a lot of storage?
  • Budget – here’s where I’m a bit baffled by my above example because this company has raised over $35 million and much of it from some pretty savvy investment firms. Didn’t somebody catch this? A good budget will run different scenarios from slow to fast growth and usage.
  • Realize, growth sucks cash – super fast growth can be as bad to a company, especially a new company, as slow growth. 
  • Know your market – as mentioned, if the big players like Apple, Google and Amazon don’t offer unlimited free storage why should this firm. It reminds me of something about 10 years ago in my Rotary Club. When expanding our fun run from a 5K to also have a 10K we discussed pricing. One of the number cruncher types said (and I’m not making this up) we should figure out how much we want to raise and divide it by how many people we think will run. That would have given us a fee 2-3 times the market rate and Econ 101 says price elasticity would have driven those numbers way down.
  • Get help – pilots don’t fly solo the first time out and neither should any of us with a (new) business.

The above is speculation as I’m not privy to all the inner workings of the company. But when a business has to retreat from a promise, which was probably a selling point to some customers, it warrants comment. As always, it often comes down to paying attention to the basics.

“To err is human – but it feels divine.” Mae West

Owner Versus GM and a Feel for the Business

It happened again. It shouldn’t surprise me, but it always does. Maybe I’m too optimistic about successful people knowing what they’re doing. 

A burned-out business owner hired a general manager so he could step back and clip coupons.  Of course, the manager didn’t have a “feel” for the business, made changes, and proved it’s rare when a non-owner manager can do as well as someone with a vested interest, i.e. the owner’s money (at risk). Now the owner is back in the company, more burned-out than ever. This is why I did a video podcast on this subject, which I titled, “Small businesses need the adult supervision only and owner can provide.” 

When does it work? To me, it seems when it’s not the founder stepping back there’s a much greater chance of success with a manager/COO. The founder has (typically) done things “their way,” knows the little intricacies of the business they often don’t’ share with others, and hasn’t built a solid management team (and if they have, they often don’t delegate as they should).

A buyer/investor who is used to a board of directors, delegating, not knowing the nuts-and-bolts of the business does better when not in the business day-to-day. They’re used to a chain of command and holding people accountable. 

Back to the story at the beginning. The value of the business is much lower than it was two years ago (lower based on the above, nothing to do with Covid). This foray into a manager with an inactive owner cost him millions. And, it proves that the salary to an owner is not discretionary. The owner earns their keep and it’s a legitimate business expense. 

On September 9 I’m on a panel at the (online) meeting of the Northwest Family Business Advisors (www.nwfba.org)on the topic of “Selling a Family Business.” I may use the above story and definitely plan to emphasize how owner salary is not profit, it’s an expense for valuable work.

“The greatest enemy of knowledge is not ignorance. It is the illusion of knowledge.” (Historian) Daneil J. Boorstin

Be Like Oliver; Do a Little Extra

My wife and I were having dinner last week on the new deck at the Wallingford Tutta Bella along with Joe Fugere, the owner (not name dropping, him being there is integral to the story). It was a beautiful evening and as we shared a dessert and had an espresso, we noticed a young man, Oliver, walking around outside the restaurant.

He eventually went in and then came out to the deck. After a while one of us asked if he needed some help. He didn’t, it turned out he was there looking for a job. He finally met with the manager who must have told him the owner was outside because he came over to Joe to tell him how much he’d like a job at Tutta Bella as he really wants to work in a restaurant.

After he left, we talked about how he did what he did. He didn’t just apply online. He went out of his way to take advantage of the owner being there. And the benefit was Joe gave him some tips and actually went online to write on the application that he (Joe) recommended Oliver. I commented I hope he’s as good an employee as he is being aggressive to get a job.

Six months ago, Tutta Bella and most other businesses were clamoring for employees. Now, the prospective employees have to take action. And it’s not much different for most of our businesses. We have to be aggressive and creative to generate business (or get a job). What worked 6, 12, 18 months ago doesn’t necessarily work now.

We are constantly trying new and different strategies to keep our name in front of referral sources and prospective clients. Like many businesses I see, every potential customer is valuable.

“One of the difficulties of being alive today is that everything is absurd but fewer and fewer things are funny.” (Humorist) Alexandria Petri

When Family Ties Don’t Bind: It’s Trouble Succession Planning Gone Wrong

The July 11-12, 2020 Wall Street Journal had a fascinating article on the dysfunctional British Barclays family. It’s a good example of why it’s great to plan and at the same time the plan must be solid and emotions can’t play (too large of) a part.

The simple story is how the now 85-year-old Frederick and David Barclay built an $8.8 billion empire from nothing. Literally nothing, no inheritance from dad or grandpa, no government grant, etc. They were a team, described as inseparable. They owned London’s Ritz Hotel, the Daily Telegraph newspaper, an online retail business, a logistics and parcel-delivery company, and more. They were noted for being adept at buying and selling companies. 

One good thing they did was start the succession planning process about 30 years ago. How they did it makes one wonder how such smart and successful people can make what appears to be basic mistakes. For one, a big one, they decided three of David’s kids would each get 25% and one of Frederick’s kids 25%. Given they were 50-50 partners does this make sense? Frederick now says he felt sympathetic for his brother because he was ill at the time. This is where the emotions come into play; the hugging at the heartstrings. 

Fast forward to recently and it sounds like a bad reality TV show with secret meetings, bugging meeting rooms, etc. No trust, damaged relationships, and a waste of time and money.

If the article is right, a big mistake was trusting others, even family members. As President Reagan said, “Trust but verify,” which leads me to offer some thoughts on succession planning in general.

  • Don’t get overly obsessed with succession to your kids or grandkids. It has to make sense for all not just the desire to have your kids continue on with what you started (or bought).
  • Get advice from experts and pay attention to it. They’ve been there, done that.
  • Start early (the Barclays’ did).
  • Make sure it follows Rotary’s 4-Way Test and “Is fair to all concerned?”
  • Think through it, there probably isn’t a rush.
  • Monitor what you did, things change.
  • Consider all options including family, management, outside investors or buyers.
  • Know what’s driving the process. Is it money? Is it legacy? Is it giving your kids or team the business? When you know this the rest will be a lot easier.
  • Once you do it, get out of the way. Dad and/or mom can’t hang around too long or be too involved. A board seat is fine, coming in every day to look over your successor’s shoulder doesn’t work.
  • Relationships rule in buy-sell deals. When there are multiple family and/or management members make sure there are good relationships, or you’ll be doomed, and probably back running the business.

It has to be a fair deal. Mom can’t give the business to her son or daughter. Dad can’t go for the jugular moneywise like I wrote about many years ago when Seattle institution Larry’s Market went under. My theory was the kids overpaid and a banker who rejected the deal confirmed it. 

“Is it fair to all concerned?” Rotary’s 4-Way Test