Life Goes On

As business (and life) have visibly come to a standstill there’s still activity. In the last few days I’ve talked to or emailed with four people in my industry and all have said they have things going on, just not as many in-person meetings.

I do think buy-sell deals will be delayed as buyers (and banks) see if the virus is having any effect on the business’s performance. In a meeting last Saturday, we all agreed Americans are quick to panic, hence the run on toilet paper and other items, and also quick to get back to normal.

I plan to have us do what we normally do, albeit with a lot more of our conversations on the phone.

Staying Safe Is the Motto of the Day, Week, Month

I’d be remiss to not write this memo about the Coronavirus and yet I’m not going to go into whether it’s just the flu (like some say), over or under reaction, or if people should wear masks to bed. I do know the virus has a longer than normal life of being alive, spreads super-fast through our easily traveled and networked world, and that’s what’s concerning people So, let’s cover what it’s doing to people like you and me, i.e. business owners and executives. 

Part One

The headlines tell us the airline industry, cruise industry, and therefore related businesses like hotels and suppliers are having problems. But what about small businesses, that I really feel for? Here are a few examples:

  • Restaurants – we went out with friends last weekend and a restaurant I’d expect to be full on a Saturday night was maybe at 75%. The Jersey Mike’s sub shop in Kirkland was on social media reminding people they were open (so come on in). Pagliacci Pizza sent an email out about their health and cleanliness policies, i.e. come in for some pizza, we’re okay.
  • Catering – this is an industry hit hard. Two owners told me about all the events being cancelled (one is more concerned about her employees not getting hours and pay than anything else). KIRO7 did a segment on how devastating it is for caterers. My Rotary club, like many others, has canceled at least three meetings. I feel sorry for the staff who won’t be working those days.
  • Product companies – a client is worried about the big industry trade show at which they exhibit because many of their customers are from overseas, and probably won’t attend, and see her new products.
  • A good friend owns a video production company. All their jobs in March and April sans one cancelled in the last couple weeks. Wow!

Alternatively, I was in five retail places over the weekend and they sure didn’t seem to be suffering from a lack of shoppers and a person on a call Monday said he was calling from a jammed packed coffee shop.

Part Two

All over the media is the recommendation from government to have employees work from home, if they can. Easier said than done I say, having had a home office for over 20 years. It takes time to realize you’re “at work.” I used to have a quarterly breakfast with a business friend and when he started working from home he told me how hard it was to stay away from the refrigerator.

Last week a business owner said she has some people working from home and estimates they get done about 70% of what they get done in the office. And, we’ll find out if having certain people work from home improves or damages culture.

Show Urgency or Lose the Game

It’s 2020. Another year, another decade. Doesn’t seem that long-ago people were worried about the world collapsing on 1-1-2000 because of computer clocks, does it?

As Jessica and I talked last week about getting back in the swing of things after the holiday break, one word we used a lot was urgency. Urgency on our marketing, urgency with our clients, and just keeping things moving.

Seattle football fans know the Seahawks would have had a home game in the playoffs if they had shown some urgency on the one yard line instead of getting a delay of game penalty. 

Urgency doesn’t mean rushing into things without a strategy or good tactics. To me it means when the starters gun goes off you move at the appropriate pace. By this I mean, in marketing you can move fast. Making changes to your processes or culture are done at a different pace so you don’t trip and fall. It’s different for all of us.

Think about three areas in your business where you can pick up the pace. And then move on them now, not next month or next quarter.

“Few things are harder to put with than the annoyance of a good example.” Mark Twain

Taking Action – Maybe Tomorrow?

The Wall Street Journal had an article titled, “New Ways to Battle Procrastination.” So, I tore it out to read later.

Seriously, I did tear it out and did so because I was about to go into a meeting and wanted to get rid of the rest of the paper. Like a lot of people, I have a list of things I need to do. And I love checking off those I complete.

But, and this is a big but, when it’s something I can quickly do, I do it right way. Unlike some people I know who say, “I’ll put it in my book.” As we head into 2020, what are the things you want to get done before yearend?

My advice is, get everything you can get done in the next two weeks so 2020 is dominated by new initiatives, growth strategies, and enthusiasm.

“Nothing so needs reforming as other people’s habits.” Mark Twain

Politicians, Businesspeople, and Rotary’s 4-Way Test

As we experience the holiday season with Peace on Earth, Goodwill to All, Thanks(giving), and the meaning of all this, I want to share my thoughts on what I consider to be one of the best codes of ethics around. It’s Rotary’s 4-Way Test and how I see it applying to politicians and businesspeople.

The 4-Way Test is:

  • Is it the truth?
  • Is it fair to all concerned?
  • Will it build goodwill and better friendships?
  • Will it be beneficial to all concerned?

Is it the truth?

Politicians – I think I could stop here because we all know they all lie, about everything. We have a President who sets the standard with over 12,000 verified false or misleading claims. Politifact states Obama made about 14% the number of “pants on fire” lies as Trump (yes, Democrats and Republicans, they all lie). Here in Seattle a Seattle City Council member, on the Berkeley “ban natural gas” bandwagon, stated a natural gas stove poisons the air in the house. A University of Washington scientist debunked that one pretty quick.

Business – My experience is most businesspeople are pretty truthful, other than owners who blend their business and personal checkbooks. They may write off some personal expenses but do report their income. When it comes time to sell, most care about their legacy (they want the buyer to succeed) and really care about their employees thriving with the new owner.

Is it fair to all concerned?

Politicians – Again, pretty simple as they only care about getting re-elected and the people who can help them accomplish that. This means donors and lobbyists not you or me.

Business – Most really care about their employees and customers. Yes, some (way less than 50%) are greedy, pay low, don’t provide benefits, etc. One telltale sign is often the retirement plan. If it has 95% going to the owner, you have to watch out for that person. 

Will it build goodwill and better friendships?

Politicians – Yes, if you’re a donor, a donor’s business, or a donor’s cause. Otherwise, you’ve got to be kidding.

Business – Small business is relationship business. You can’t succeed if there’s not goodwill between employer and employees, the business and its customers, vendors, and service providers. Face it, customers usually have options. In today’s labor market employees have a lot of options (on my list of the top four things an owner can do to prepare the business for sale is, “Show you can attract and retain great talent.”

Will it be beneficial to all concerned?

Politicians – You know my thoughts on this. See the above three sections. If it’s beneficial to the politician they’ll do it (often meaning they’ll do what the Party tells them to do).

Business – If you’re in business, large or small, you must be able to solve problems, meaning beneficial to your customer, your vendors, and you. Try making a promise like a politician and not delivering on it (we’ll have your order out by the end of the month but when it’s two months late you’ll lose the customer). Things must be beneficial to employees also, or they’ll leave. Most want career advancement and want to be able to take pride in their work.

Conclusion

It’s the holiday season and this is a fun essay. I’m sure you picked up on the general theme, we businesspeople have a higher ethical standard than those we elect. As you give thanks on Thanksgiving, wish friends and family Merry Christmas, Happy Hanukah, and Happy New Year, realize it’s best to carry all those feelings throughout the year, not just in December.

The Grass is Always Greener (When You Only Care About Headlines)

One thing President Trump and other politicians have in common is the bashing of large tech companies. It used to be bashing Walmart. Yes, Walmart took over a lot of small to mid-sized towns. Yes, some small businesses (perhaps many) didn’t survive. But the politicians made it seem like these small retailers were thriving businesses with very high paid employees. 

After talking to owners of and/or looking at information on thousands of businesses I can say, 

“Overall, there aren’t that many good businesses.”

There are a lot of companies providing the owner a well-paying job and nice lifestyle, but these don’t have much value. Value comes from profit over and above owner salary. There are even more businesses with overworked owners whose salary is just adequate. 

When I’m asked how businesses are valued my initial response is, “I don’t know anything about your company and in general, it’s a function of profit. The more profit, the higher the value.” So where is all of this going? To these three points:

  • If you own a thriving business (solid profits after your fair market salary) realize you have one of the ~20-25% (the top quartile). Keep it there, grow it, get yourself out of the day-to-day, and if you have a dominant customer, diversify ASAP.
  • If you’re a business buyer, realize it’s like the old “needle in a haystack,” so keep searching because it can take a long time. Not only do you have to find a business in the top quartile, the owner needs to be motivated to sell (for a fair price), and it has to match your skills.
  • If your business is barely getting by, it’s a struggle to pay bills, you can’t save any money, etc. realize it will be tough to sell. And, by all means, remove from your head thoughts like, “We’ve been in business for 15 years so there’s value to the name.” As per above, the value comes from profits.

We all think what we have is great – better than cold beer (or lemonade) on a hot summer day. But that’s not what matters. What matters is what others think including banks, buyers, appraisers, etc.

“Strive not to be a success but to be of value.” Albert Einstein

The Business Roundtable Creates a Snit Attack

The Wall Street Journal (and I’m sure others) sure had a snit attack last week after the Business Roundtable came out with their latest report saying companies shouldn’t emphasize shareholder return over taking care of employees, customers, suppliers, and community. 

Taking care of people sounds like a good subject for Labor Day week. And what the Roundtable is suggesting sure sounds like the Costco model. Fair prices, good jobs at a fair wage with benefits, very community focused, and while I can’t comment directly on suppliers, I do have a friend who sells to Costco and loves doing business with them.

The above is also what my clients strive for. A client looking at a business to buy didn’t see an expense for benefits. He commented on how he’ll have to add in that cost (versus the common adding back of expenses) because he wasn’t going to be an owner not providing benefits.

I looked at a company recently whose owner seemed to be bragging about how little he could pay his employees. He didn’t connect that with the fact he had high absenteeism and constant turnover. 

With an extremely high employment rate it pays to take care of your people, especially in our robust economy.

As an economics major, I well remember Milton Friedman, who’s the person who stated a corporation’s primary obligation is to the shareholders (and which the Roundtable is now disagreeing with). I think he was wrong then and it’s a wrong philosophy now. Take care of your people (including customers and suppliers) and they’ll take care of you.

“Success is a great deodorant. It takes away all your past smells.” Elizabeth Taylor

Did the Houston Astros do the right thing, the wrong thing, or both?

A female reporter with Sports Illustrated reported about how the Astros assistant general manager directed loud and profane comments towards female reporters in praise of an Astros pitcher whom they had recently acquired after he was on suspension for a domestic violence issue.

When confronted on this the team first fought it. But it turned out to be a true story and the assistant GM and the team did the usual insincere apology along with the customary language about their commitment to the issue.

Then the team admitted they were wrong and fired the offender. But so far haven’t apologized to the original reporter, even though she was in the room when they announced the firing. And, it took input from multiple, backup sources before they were willing to believe a female reporter.

If you had an employee do something like this (inappropriate comments in public, or even in staff meetings), what would you do? Would it matter if it’s one of your top people or if it’s a marginal employee? If you were buying a company and found out about this what would you do?

Trade, Markets, Tariffs, and Socialism (and Confusion)

Could you run your business the same way matters are pointed out in the articles mentioned below? Three interesting headlines from over the past few months baffle me as to what’s going on and let me know why there’s so much confusion in the marketplace.

  1. France Teaches a Lesson in Free Markets (Wall Street Journal)
  2. Charles Koch: Tariffs a ‘Cancer,’ Could Lead to Socialism (Newsmax)
  3. The Trade War’s Winners Don’t Include Us (Wall Street Journal)

As a businessperson the last thing I want to see is the rise of socialism. I want to see opportunity. What these three articles state is we’re compressing free markets and it’s coming from a political party that used to be for less government interference not more. You’ll notice the publications and/or people mentioned here are ones typically associated with the party currently in the White House and Senate, which makes this pretty mind-baffling.

Columnist Greg Ip wrote about how France has opened up competition and he compared cellular service, Internet service, and airfares. For the first two items he used the example of a graduate student from France who in 1999 found the US much better and less expensive for cell service and Internet access. That has now changed because we have four major cellular providers, about to be three, while France has opened up the market to competition and prices have dropped. 

Similar story with Internet service (I know what we pay for it and it’s not a low amount). The US also has four major airlines while France has a third of domestic and half of EU flights provided discount carriers, and lower fares than ever before. His overall theme was it’s not about size but about openness (of markets).

The Koch interview was the shortest article. He called “tariffs and looming trade war a ‘cancer on society’” and said it will lead to isolationism and the rise of socialism. He called tariffs corporate welfare and said, “The less trade we have, the worse everybody is.”

Former World Bank president Robert B. Zoellick wrote an op-ed piece with the highlighted section telling it all, “Lost foreign markets, retaliation, higher prices, falling investment. Where’s the upside?” An example given is from The Peterson institute for International Economics that estimated each steel industry job created (by tariffs) cost $650,000 as US firms pay product.

Zoellick tied the trade war to socialism by using the example of tariffs and how they’ve affected farmers. We tariff Chinese goods, they retaliate by putting tariffs on farm products knowing farmers are big Trump supporters, the farmers suffer, the government gives them money, and all of a sudden anything close to a free market has disappeared. In other words, it’s government control of markets.

In addition, we’re running trillion-dollar deficits during a boom (not even Keynesian’s advocate this type of deficit spending during an upcycle). All of this is what led Koch to say, “Corporate welfare and cronyism is, I think, a contributing factor to so many young people being socialists because if the government is going to determine who succeeds in business, who needs the businesspeople. Just let the government do it. So I think it’s suicidal for the long term.”

I’m writing on this subject because I’m puzzled. There doesn’t seem to be a comprehensive plan or strategy. None of us could run our businesses this way (and be successful).

Financial Shenanigans Versus Incompetence

The Wall Street Journal and others recently reported about an accounting expert who had predicted the Madoff Ponzi scheme and recently went after GE for what he said are their deceptive accounting practices (of course, GE responded this person didn’t know what he was talking about). But this is not about GE but rather about accounting irregularities in general.

We have a government with annual deficits of $1 trillion and with a lot more “off the books” because there are non-budget items. On August 26, 2019 the WSJ had an article about how CEO pay is often much higher than disclosed (due to stock appreciation and clauses that escalate compensation).

And then we get to my world of small business where it’s usually not malicious but is accounting incompetence. Too many owners think their accounting department is like Cinderella – the weak little stepsister who must be tolerated at as little cost as possible. Sometimes it’s because they’d sooner “play” with their product than worry about the numbers and often it’s because they’re doing so well it becomes “management by checkbook,” as in, there’s plenty of money so who cares about cash flow, metrics, etc.

I’m working on a potential deal where the owner (and his advisors) setup five companies, two operating, one management, one for real estate, and one for equipment. They are so intertwined it will take a good CFO or forensic accountant to figure out exactly what their earnings are. And, it’s management by checkbook when the owner says, “we bought too much equipment and too many vehicles last year, so we’ll have to sell some.”

Tip to owners – one of the top three things you can do is have solid financial systems, accurate statements, good management reports, know your KPIs, and other metrics. It makes your life easier, especially as it seems we’ll have an economic correction soon, and when it’s time to sell, increases your value and attracts better buyers.

“The simple truth is that truth is hard to come by, and that once fount it may easily be lost again.” Karl Popper