The Deep Dark Web and More Scary Things

It’s Halloween season so let’s discuss scary things. I recently took advantage of the offer from www.cyberstreams.com to have them run a free Dark Web scan. As I’m writing this, I get a weekly newsletter from Sweeney Conrad CPA firm and one of the articles is titled, “Email attacks up 667% following rise of COVID-19 worldwide.” The statistics are from (cyber) security firm Barracuda.

Obviously, the slimy bad guys (and gals) are out there and after us more than ever.

I received my Dark Web scan report and found it pretty “gentle.” Only five breaches, one from a LinkedIn breach, two from a group affiliated with a business group I’m in, and two miscellaneous ones. None got access to my passwords. So I called David Henderson with Cyberstreams to discuss it and here’s what he told me, with the first point the most important:

  • 60% of breaches are from human error. That’s right, it’s you or your employees causing most of the damage.
  • The above could be people using the same password or a variation on many different sites. For example, someone at one of their clients used (and I’m changing the word) platinum, platinum1, platinum8, and other variations. Once breached, the bad guys try variations of platinum until they get a hit.
  • When a website you use is breached, like LinkedIn, change all of your passwords.
  • Use two-factor authentication.
  • Don’t use your business email for personal matters.
  • Make sure your data is backed up and safe from ransomware (meaning, not on an external drive connected to the system all the time). Use cloud backup that’s protected from ransomware.
  • Do security awareness training (like Cyberstreams does) as well as ethical hacking (testing your people).
  • Use a password service like LastPass, and make sure your password to your service is very strong.
  • 60% of companies with major data breaches go out of business.
  • David’s company is just like yours or mine in that they get attacked all the time. He has 14 people plus past employees. His last scan found 21 accounts with data breaches (not his system but sites his people had been on) with 41 total breaches.
  • Get cyber insurance, it’s inexpensive.

The abovementioned article on phishing also pointed out how one blackmail attack was detected 1,008 times over two days and how most attacks start by a person clicking on something they shouldn’t (click on). I know every so often I get 10-12 phishing emails at the same time, with the same message. It really doesn’t matter if you’re a large firm, small firm, or an individual – they’re after you. 

“It’s so much darker when a light goes out than it would have been if it had never shone.” John Steinbeck

Businesses and Workers – It Must be Teamwork

Two interesting articles appeared on September 6. The Seattle Times published a Los Angeles Times article titled, “Instacart shoppers face unforgiving metrics: ‘It’s a very easy job to lose’” and American Compass released an essay titled, “Conservatives Should Ensure Workers a Seat at the Table.

The Times article covers the harsh metrics imposed on Instacart shoppers including ongoing tracking of order filling, notices to employees via an app when they’ve earned a 10-minute break, and monitoring the words employees use with customers to make sure they use the preferred script. They offer low wages, keep employees from getting enough hours to have benefits, and drive them hard. These are the jobs people leave regularly creating turnover and training costs for employers.

The American Compass is a conservative organization so it’s a bit surprising they wrote what they did about unions, including, “Rather than cheer the demise of a once-valuable institution, conservatives should seek reform and reinvigoration of the laws that govern organizing and collective bargaining…” They make the case it’s a mutually beneficial relationship when owners, managers, and workers work together.

Compare the above to most small businesses. Talking to business buyers, I regularly hear about how they like building teams, helping employees grow, and improve. Business sellers often seem to care more about their people keeping their jobs than the price they get for the business (as in, I’ll take a little less from someone I feel I can trust to take care of my people).

Unions came about because of horrible working conditions. In my opinion, one reason they’ve lost membership is they became too rigid and too political (for private sector workers). 

It’s interesting to see how things could swing back with influence from both sides of the political spectrum. It’s also fascinating to see how some technology-based service companies (like Instacart) are returning to the employment practices reminiscent of 100 years ago.

There has to be a balance between management and workers because animosity hurts all.

“Take a rest; a field that has rested gives a better crop.” (Roman poet) Ovid

Owners Should Know What’s Going On, Shouldn’t They?

The September issue of the Fearey Group’s newsletter was titled PR Failure #26: The Ellen-ments of a Talk TV PR Nightmare. FYI, the Fearey Group is Seattle’s premier PR firm and you can see more at https://feareygroup.com/. I appreciate their allowing me to use an excerpt and write about it.

I’m going to tie their newsletter’s topic to small business ownership and buy-sell deals. First, here are what I consider the top two paragraphs for their newsletter.

Sitting atop the pedestal and feigning a lack of responsibility.
It’s hard to hear “Ellen” and not imagine the smiling, bright-eyed, gregarious TV host. This is by design. Everything surrounding The Ellen Show is made for you to equate the face of the brand with those qualities. The show has a merch store on its website and an offshoot video hub, known as “Ellentube.” The logo for the TV show is simply the word “ellen.” Her production company’s name? A Very Good Production. You get the picture. Like many people who make it big, as her celebrity and business grew, Ellen distanced herself from the employees who make her brand and empire function. In her July 30 letter, she stated, “As we’ve grown exponentially, I’ve not been able to stay on top of everything and relied on others to do their jobs as they knew I’d want them done. Clearly some didn’t.”
  
While this may be true, the head of any operation must stay informed about how business is done. Leadership, from the face of a brand to corporate and organizational executives and CEOs, must recognize their culpability in issues that arise and act swiftly and tangibly to rectify missteps. Hopefully, that’s before the issues go public and become a total PR failure. The words of one of the brave employees who came forward have never rung more true as an example for us all: “If [Ellen] wants to have her own show and have her name on the show title, she needs to be more involved to see what’s going on.”

I think the most important line in the above excerpts is, “While this may be true, the head of any operation must stay informed about how business is done.” Here are three ways not paying attention can manifest itself.

Follow the leader – Businesses rely on their reputation. From what the boss does to what the lowest level employees do. When the employees see the owner/boss cutting corners, not carrying about details, or going through the motions, they will also. They will emulate the pride the owner takes in his business. And it will show with quality, customer relations, and the culture. The employees will push the limits, like on Ellen. In my books I tell the story of visiting a company and seeing the employees eating lunch in their cars. Walking in my first impression was, “they don’t care.” It was a dirty mess, and the lunchroom was worse. No wonder people ate outside. Impressions like this do not increase the value of any business.

Can’t see the forest for the trees – This is the opposite of the previous point. This is when the owner is overly involved, won’t delegate, and micro-manage everybody and everything. It’s known as an owner dependency and it means there’s a lot of personal (owner) goodwill versus company goodwill. Recently we were calling one of our client’s customers to get a feel for how they thought of the company. One area of concern was the customers related more to the owner than to the company. This proved to be false, which is great.

I know nothing – Did you know, at least as of a year ago, the most popular TV show in its time period was Hogan’s Heroes (this from a friend who sells TV advertising)? The “I know nothing” line is from that show and it sure is apropos to the Fearey Group’s example, isn’t it? It also comes into play in buy-sell deals when the seller is asked to represent and warranty that everything they told the buyer is true and correct. All of a sudden the owner who brags at her club about how important she is to the business and says it would fail if she wasn’t around now wants to qualify it (at the urging of her attorney in most cases) by saying “to the best of my knowledge” all I’ve shared is true and correct. Let’s face it, there are a lot more owners described in the second example than the first and they can’t claim they don’t know what’s going on. My experience tells me 90% or more of owners know even the most minute details about what’s going on from customer status, to operations, to margins, to the employees. 

Conclusion

The above is why companies should have a board of directors or at least an advisory board. This can keep the owner/CEO from straying or from ignoring things. Healthy tension should be the relationship between board and owner/CEO. Not like what’s been reported about the Boeing board. Boeing was just hit with a lawsuit saying the board of directors was lax on their oversight of the 737 Max issue. Management knew what was going on (supposedly) but weren’t held accountable. This has elements of all three examples above.

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). 

Advice: 

  • 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

Lowest Common Denominator

Realize what I give as examples below represents at least part of our customer/client base, which is why we can’t assume too much about people, good or bad – too many people just don’t pay attention. It’s also why my wife proofreads my memos and newsletters; because if I start using industry jargon and she doesn’t understand it I know I have to change the language so all readers will get my points, not just those in my industry.

On September 15 I was watching the NBC Nightly News while working out. They did an imitation Jay Leno bit with “people on the street” interviews. The question was, “How many people in the US have died of COVID-19 so far?” The answer is below; see if you know it without cheating, using Google, or asking someone.  Here are three of the answers:

  • Close to 100,000.
  • Tens of thousands.
  • They said it was 100,000 but took that back and it’s about 1,900.

A couple days later I had a routine doctor’s appointment and got to talking to the nurse. I asked if her hands got dried out because she was putting on sanitizer every few minutes. She said, yes, they do, we try to be careful, and then shared a story about a patient. She also works in the ICU and said the guy, with heart issues and diabetes, went to Sturgis, had a good time, came home with COVID, gave it to his neighbor, ended up in the ICU, and died.

Look, for everybody like those mentioned above there are at least an equal number who know what the heck is going on and what to do. The problem is, you can’t automatically tell the two types apart until you engage in a dialogue, ask questions, and get to know them. When you get to know them you build trust and a relationship, which is when a win-win arrangement is achieved.

“There are three sides to every story: you side, my side, and the truth.” Robert Evans

I Didn’t Sign Up for This

We’re doing online training with our adorable puppy Coco and it reinforces our feelings we lucked out and got a great dog. We see and hear the other dogs and their owners on the training and feel fortunate.

One lady was quite frustrated with her puppy and said, “This is not what I signed up for.” My guess is she got a puppy, like a lot of people got dogs, because of the Covid pandemic. I’d bet she thought a puppy/dog would be like her cats (she referenced her cats).

As mentioned, our puppy is very well behaved and I don’t think it’s just luck, or us. One of the trainers we interviewed asked a few questions about our household, the puppy, and our other dog, Dobre, an 11-year-old Lab mix. She said Coco is emulating the older dog, who is laidback. She even emulates him when it comes to chasing tennis balls, which is a lot of fun when they chase the same ball.

A puppy learning from an older dog is like life; it’s great to have a mentor/coach/advisor. It speeds up the learning process and allows us to be more efficient. The most important aspect is having a coach or mentor is to have them to point out what not to do. Been there – done that is a powerful teaching tool.

And while I advise and coach clients, I’m not referring to only business situations. A business owner should be mentoring their employees, helping them grow, even if they grow out of the job. Parents nurture their kids to make them productive adults. Coaches help athletes, dancers, actors, musicians, and more. 

Get someone to help when you need it. Be that help when you can.

“In politics, stupidity is not a handicap.” Napoleon Bonaparte

Change Must Come from Within

It’s no secret the Seattle City Council makes good old-fashioned liberal Democrats look like the old John Birch Society or the Tea Party. So when Danny Westneat, a liberal Democrat, writes his October 14, 2020 Seattle Times column about how things are getting out of hand (with the homeless taking over parks) it seems a tipping point might be close.

Just like in a business, any change, positive or negative, must come within to be meaningful. When the employees lead the effort, it has a better chance of sticking. Think about this when it comes to making changes in your business, especially as you’re thinking of exit planning (which not enough business owners do). And if you or anyone you know need guidance, ask me for a free copy of my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?).

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

Passion Needs Planning

Over the summer, California experienced electricity brownouts and power outages when demand peaked. The reported reason why is because the State forced power companies to invest in renewable power sources and not traditional sources (fossil fuel or nuclear) so when the sun went down and power consumption was still high the systems crashed.

I believe climate change is real and has been greatly amplified by all the CO2 we put into the air. That said, I found it ironic that California recently banned the sale of gas engines by 2035 without a  mandated increase in power generation because with 11% of the US’s vehicles in California it could get interesting (let’s hope the batteries dramatically improve, there are hydrogen powered cars, etc.).

This is basic planning. It requires forethought, not just passion. And it’s what separates good businesses from the not-so-good. Selling more than you can deliver on time is usually worse than not selling enough. Not having a plan to buy or sell a business is also disastrous. 

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).

Conclusion

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.