Preconceived Notions Are Dangerous

Regarding my upcoming book, Company Growth by Acquisition Makes Dollars & Sense, a good friend asked me why I bothered having a print edition, implying most book sales are now electronic. I answered it was because most of the sales for my two existing books are the print versions.

And, according to the Association of American Publishers, as recently noted in the Wall Street Journal, last year printed book sales grew by 4.5% while e-book sales declined by 17%. Maybe there’s a reason why Amazon is now opening brick and mortar stores. Could it be for all those printed books people are buying?

Preconceived notions can be dangerous. No, they’re usually dangerous.

  • I’ve heard people question why they should do a marketing action because, “It didn’t work for someone I know,” ignoring the fact it’s worked for most other people.
  • Business buyers constantly make judgments about target companies with only high-level information. I tell them to ask (about everything).
  • Salespeople wonder if they should call prospects, so they don’t.

This isn’t like fake news, it’s rushing to judgment, and because of it we make mistakes or miss out on opportunities.

“The other day I was thinking, ‘I just over-think things.’ And then I thought, ‘Do I though?’ ’’ Demetri Martin

Are You Listening?

The big news in the NFL earlier this year was the best player in the NFL, Aaron Rodgers, was injured and will be out at least eight weeks. I was listening to a press conference as his coach described how they weren’t going to go after a veteran quarterback to replace him, how he had two and three years invested in the quarterbacks on the roster, and felt comfortable moving forward with them.

Then a reporter asked him if he would try to sign Colin Kaepernick. The room took a sudden chill as the coach glared at the reporter and said, “Didn’t you just hear my answer to the previous question….?”

A brilliant example of when people are so busy thinking of what they’re going to say they don’t listen to whomever they’re speaking with. At a recent conference, we discussed building a relationship, as soon as possible, when you meet someone. And a great way to do this is to listen and ask intelligent questions related to what the other person says.

A great illustration of this is when, after a 15-minute conversation where the other person talks for over 13 minutes, they tell you how you really understand their situation or their business. It’s why I tell business buyers and sellers they have to get to know, and like, the person on the other side of the transaction. And you start the process by listening.

“Silence is the ultimate weapon of power.” Charles de Gaulle

Distractions are Everywhere – Avoid Them

Everywhere you look there are distractions. Just think about it:

  • All the advertising with which we’re constantly bombarded.
  • And if TV, radio, and print weren’t enough, there’s also the Internet and social media.
  • In sports, the opponent wants you to think they’re going right when they really want to go left, that they’ll throw a fastball when they’re throwing a curve, etc.
  • In politics distractions are created to take the voters’ attention off the fact nothing much constructive gets done as promised.

But nowhere are distractions more important, and annoying, to us as when they attack us on a daily basis. Years ago, I had regular breakfast meetings with a friend in a complementary business. At one point his company went virtual, he was working out of his home, and I remember him telling me how tough it was to stay away from the refrigerator.

This doesn’t mean there aren’t distractions in an office setting. Offices have refrigerators as well as coffee machines, water coolers, cubicles, and other people. Managing those distractions is what allows for productivity increases, especially when we don’t let them get in the way of what’s important (see my memo on the book Rest and how humans are “wired” to be super-productive four hours a day).

I see how distractions get in the way of my clients and other business owners. It takes a lot of focus to not let them get in the way. In the buy-sell world, I have to make sure my clients don’t get off on tangents not important to the deal. Those tangents are alluring because they’re “fun.” Or shall I say stress relief from what really needs to be done.

It can be very beneficial to close your email program, turn off your phone, close the door, and get the important things done.g

“Don’t let the dog bite you twice.” Chuck Berry

 

It’s Counter-Intuitive – Buy the Company and Lower Prices

The news has been filled with stories about Amazon buying Whole Foods, what might happen, and what did happen. I liked the pictures in the Wall Street Journal showing the price of bananas before and after the deal closed.

Amazon did something counter-intuitive, they lowered prices (supposedly on about 100 regular items, like bananas). One of my favorite stories of how a buyer fixed a company is about when he raised prices about 25%, because he knew the company was severely under market (and no customers left or even complained).

Most new owners look for fat to trim and there’s often a lot there. It’s just like all the storage areas in our homes. After years and years, we suddenly realize we can’t navigate through the attic or closets because there’s just so much stuff. A lot of businesses build up expenses and don’t notice if there are duplicate services, what they have is overpriced, etc.

Amazon’s strategy will no doubt work. They’ll get people in the stores because now they’re competitive on the things we always buy (the Seattle Times just did a comparison on prices for common and not-so-common items between Whole Foods and other stores). Once their people will buy other things because it’s easier and cheaper to pay a little more versus traveling somewhere else to save 43¢ per pound.

The best strategy is to get a customer because if you do what you’re supposed to do you’ll keep them. And, all the studies I’ve seen say it’s 6-10 times more expensive to get a new customer versus doing more business with an existing customer.

“We will not make the same old mistakes. WE will make our own.” Henry Kissinger

Let’s have fun (my wife’s motto)

On September 20, I’ll be again volunteering to teach my class, “Dynamically Growing a Consulting Business” at the local SBA/SCORE office. It’s always an opportunity to remind myself the things I’m recommending to the students are the things I should be always doing myself, especially to enjoy what you’re doing.

Last week in a newsletter from Alan Weiss he wrote how he always asks coaching clients, “Are you having fun?” And, how many of them don’t like that because they think if you’re hard-charging up the corporate ladder or running your business it’s work not fun.

But it better be fun. On page one of my book, Buying A Business That Makes You Rich, I cover the top nine reasons people in audiences give me on why they want to be in business for themselves (whether it’s buy, start, or get a franchise). Then I tell them the number one reason should be to have FUN, which is mentioned maybe 2% of the time.

When business is good, it’s always more fun. When there are challenges they are at least your challenges and you control how to deal with them. But being in control doesn’t mean you are by yourself on the decision-making island.

As the video below covers, you do better with an advisory board or board of directors (or a business coach). Being in business can be lonely, that’s why there are scores of roundtable groups, coaches, and advisory boards. Use the one most appropriate for you.

“No matter how dirty your past is, your future is still spotless.” Drake

Protecting (Someone’s) Turf

While on a trip this summer I was listening to the radio and heard a feature story about a new firefighting plane. It seems a company in California has outfitted, and got FAA approval, for a 747 to carry and disburse fire retardant. And not just drop it but spray it so it doesn’t destroy trees, equipment, or people.

Only one hitch, the US Forest Service won’t let them use the 747s (to help fight fires). In an interview, the owner of the firm couldn’t understand why. He also said the Forest Service put out an RFP for new planes and put in specific size criteria so this firm couldn’t bid.

Last Friday at my Rotary meeting our speaker talked about teamwork, turf battles, and similar. It sure appears this is a good-sized turf battle (and I know there’s two sides to every story). It’s why there’s so many companies able to thrive because they know how to get people to work better together.

I see it not just between employees but between owners and employees. The all-controlling owner, i.e. the control-freak, micro-manager, creates a culture where people stay simply because they don’t want to go through the hassle of a job search (and because the devil you know may be better than devil you don’t know).

It’s why when someone buys a business they are often the, “Breath of fresh air” the company needs. And since at least half of the buyers I meet say they’re good at team building, it’s a great way to get some instant improvement.

The lesson for business owners is to not wait for a buyer but to create your own breath of fresh air, increase productivity, and see the value increase also.

“A jackass can kick down a barn, but it takes a carpenter to build one.” Sam Rayburn

 

When You Think You’ve Had a Bad Day; Or, The Best Laid Plans….

Take a look at this video of a Jimmy Fund (a Boston based charity supporting the Jimmy Fund Clinic for pediatric cancer) former patient throwing out the first pitch at a Boston Red Sox game. It’s funny if you’re not the recipient.

https://www.youtube.com/watch?v=bq-nwZmuLBY

Things don’t always go as planned, do they? In fact, they rarely go as planned, and sometimes that’s not-so-good and other times it’s great. That’s why plans have to be flexible. I’ve given my talk, “Lessons from Unusual Places” dozens of times. The story is about how we took my dad, age 80, to Europe for the first time. After the first full day in London we realized he couldn’t keep up with our plan, so we adapted it (so he could take a nap every afternoon).

The same in life, business, and the buying or selling of a business. We are constantly thrown “curveballs” like the one in the video. It’s like one of the stories in my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)?) about a lady who blended her business and personal checkbooks in order to write-off every personal expense she could. When a medical emergency hit, she had to sell and sell quickly. She admitted the taxes she saved via scamming the IRS was nowhere close to the amount of the reduced price she received.

  • Have a plan for your business, it’s growth, and realize opportunities will popup where you least expect them.
  • Business buyers, know what you want, realize finding a company is sales, it’s like finding customers, and keep working your plan.
  • Business sellers, take some time before you decide to sell to make your business as attractive as possible to buyers. It will pay off handsomely.

“It’s good to be idealistic. But be prepared to be misunderstood.” Mark Zuckerberg

The Cost of a Startup

Seattle Magazine did an analysis of the costs of opening a 2,000-square foot restaurant and the total costs ranged from $671,000 to $856,000, with, as you’d expect, about 90% of the costs for architects, construction, furniture, fixtures, and equipment. The remainder of the costs were the first week’s labor, food, beverages, etc.

Sounds similar to other industries. Want to open a machine shop, you’ll spend a lot of money on equipment. To become a distributor, you have to have inventory. Service businesses require equipment, parts, and (perhaps) vehicles.

The above is one reason I have a business helping clients buy and sell companies. Unless you have an idea for something new, bold, and exciting (I think all people starting a restaurant think that’s exactly what they have) why not buy an existing business? As long as you put the adjectives, mature, profitable, and fairly priced in front of the word business.

Buyers do more than get a profitable platform with customers, employees, and cash flow. They help the seller move on to their next great adventure in life. Or, as I like to say, when sellers do it right, they exit with style, grace, and more money plus maintain their legacy by selling to the right buyer.

But it doesn’t have to be an individual buying a company, it can be another company and that’s why I have a new book almost finished on the topic of Growth by Acquisition. A company can diversify their product offerings, expand their geographic footprint, take a competitor out of the market, or a combination of the preceding and my other 16 reasons why to consider growing by acquisition (Chapter Two).

“A first-rate soup is more creative than a second-rate painting.” Abraham Maslow

Deceit

It’s a game, a deceitful game. According to a July 7, 2017 Wall Street Journal article, television networks play a game to disguise possible poor ratings. Here’s an excerpt from the article:

“In a game largely sanctioned by TV-ratings firm Nielsen, television networks try to hide their shows’ poor performances on any given night by forgetting how to spell.

That explains the appearance of “NBC Nitely News,” which apparently aired on the Friday of Memorial Day weekend, when a lot of people were away from their TVs.”

It appears all networks do this and have no problem justifying it. But they’re not the only ones playing games. I see or hear about things like this all the time.

  • People I know in the job market find a lot of misleading job descriptions. And to be fair, we know there are a lot of embellished resumes out there.
  • In the small-business buy-sell world there are a lot of misleading games. Using middle-market or public company price-earnings ratios when valuing a small business (or when trying to get a listing) is one.* Trying to convince a buyer owner salary is the same as profit so it appears there are higher profits is another, and much more common.

I’m sure you see or hear of things like this all the time whether it’s pricing in a store or the advertised deal that seems “too good to be true.” You really have to be careful of what you’re being told.

* For those into numbers, according to the PeerComps database, which is small-business buy-sell deals financed by SBA loans, the average price-earnings ratio (the multiple of earnings) is about four, with a coefficient of variation of just over 25%. This means small-businesses typically sell for three to five times EBITDA (earnings before interest, taxes, depreciation, and amortization). Other databases show middle-market firms sell for 6.5-7.0 times EBITDA (I don’t have info on the variance). For reference, at this time the PE ratio for S&P 500 companies averages about 25 and for major bank stocks it’s about 15.

“The practice of deception is not particularly exacting, it is a facility most of can acquire.”  John le Carre

Do What You Do Best

I recently met a business owner whose business was slammed by the Great Recession. It got to the point where family members had to lend the firm money. Their bank then pulled their line of credit so they’re now with a factor, at a very high interest rate.

I’ve been around long enough to know banks usually subordinate owner debt, meaning it’s considered equity, and well behind any bank loans when it comes to repayment. However, this owner said no, his bank doesn’t do that.

In the car after the meeting I called a banker friend with his bank, told her the story, and said, “I bet his banker is in a branch and isn’t a business banker.” Sure enough, that was it, and she said they subordinate debt all the time (so this was an opportunity for her).

This story brings up a good point – you can’t be everything to everyone. The branch banker should have brought in a business banker (and should be glad the client didn’t find this out from another bank). I don’t help startups, other than consulting practices. Business attorneys don’t do family and divorce law. You get the point.

Know what you do well and do more of it. A client of mine, in the market to grow by acquisition, gave me a tip for others (this will be in my upcoming book on growth by acquisition). He said it’s important to take stock of what you do and do well, and know what you offer the marketplace. Only then can you best serve your customers and know what kind of companies you should acquire, including what kind of operational issues you can target and improve.

A good tip for all of us is to know what we do well, i.e. our competitive advantage, don’t worry about what we don’t do, and grow by leveraging our competitive advantage.

“Any man more righteous than his neighbors constitutes a majority of one.” Henry David Thoreau