Even Adults Need Adult Supervision

Running a small business is easy. Having a small business as an absentee owner is a piece of cake. The employees can operate the business without adult, i.e. owner, supervision. 

The above are all myths of small business and here’s an example:

In the mid-1990’s at a Chamber of Commerce meeting I met the owner of a new auto service center in Kirkland. We hit it off, started taking our cars there (as did numerous family members and friends), got great service, honest pricing, etc. They did little things right like saying you’ll need brakes in about six months versus wanting to do them immediately. Or giving the car a once-over look for no charge.

Unfortunately, the owner died a couple years ago. His wife sold the business to a technology executive who bought it as a passive investment. I hope the wife got paid in full at closing.

We started noticing little things like the phone not being answered and messages not returned. Our only needs were oil changes, the (recently promoted) service manager knew us, and all was good (for us). But obviously not for other customers and definitely not for the employees. It went from a family-business culture to one where the manager said to my wife, “It’s now just a job. I work my hours and go home.”

Guess what? Now the phone isn’t answered at all, the blinds are down, and the doors are locked. About five years ago I started using the term “adult supervision” to describe what an owner needs to bring to the business. This business used to have adult supervision and thus the employees were happy, the customers were happy, and the business thrived.

Don’t think this only applies to very small, consumer businesses like a garage. I’ve seen business with sales of $5-15 million suffer similar issues when the owner decided to take his or her eye off the ball, spend more time vacationing than working, or just clipped coupons (taking a huge salary or distribution as the business grew stagnate).

“The universe if full of magical things patiently waiting for our wits to grow sharper.” (Author) Eden Phillpotts

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

When Selling – Take Action

We recently spent a long weekend cleaning out our family cabin, which recently sold. As we thought about all we did over the years, we realized it was about a five-year project, which ties very well to what business owners should do when planning their exit.

It was about five years ago when we made an effort to get rid of junk. The cabin’s been in the family for almost 60 years and my dad was a hoarder. If one tool was good, three of the same were better. We got rid of five winches, and I don’t recall seeing one in use for decades. We estimated at least one ton of stuff went to the dump.

In my ACTION Plan* ™ to sell a business the “A” stands for arrange all the affairs of the company. Like with our cabin, it starts with cleaning. Cleaning the facility so it looks like you care. Cleaning up the books so they paint a true picture of the company’s performance. Making everything (operations, finance, marketing, etc.) look as presentable as possible to a pair of (skeptical) buyer eyes.

Once we decided to sell it was a full effort to “have it ready.” This meant quasi-staging (there’s only so much you can do in 700 square feet). This meant getting rid of glasses, plates, area rugs, furniture, and anything else that made the place look cluttered or smaller (it’s small already). We cut and trimmed the grass a lot more often, touched up the paint, removed an old storage building, and kept it clean and tidy.

What we learned is no matter what you do, a buyer will find things you didn’t do. And believe me, a home inspector will find even more of those things. Just like business buyers approach companies with a skeptical eye. And the bank looks at it with a completely different set of eyes, given they really want to get paid back. (Given we don’t live near the cabin, we really didn’t have the time to get to the little things, like we all should at our homes and owners should do in their business).

The “C” in my ACTION plan stands for counsel the company, its people, and processes. This means keep everything up-to-speed, like we did with the cabin once we put it on the market. In a business this means pay attention to the non-financial factors. Its customers, employees, suppliers, market conditions, and anything else that influences the numbers. 

I learned some interesting lessons selling a cabin in a soft market, from 2000 miles away, and not having the ability to be there enough to manage the little things. Given owners are around their business daily it’s not a good excuse to not pay attention to the things making a business more attractive to a buyer.

“Don’t ever think you’ve succeeded. Always try to do better – otherwise, drop dead.” Arturo Toscanini

* Arrange all the affairs of the company 

Coach and counsel the company; its people, process and systems

Transmit and teach all the good “things” about your firm

 (and those “things” are)

Intricacies that make your company special 

Operations and management systems in place that will make a transition smooth 

Numbers, all the financials in understandable form, straightforward with no “tricks” 

What is the Bane of Your Business?

Goals are an ongoing task, not just for a calendar year.

Many years ago I was a regular at a pretty cool restaurant in Minneapolis, when I traveled there about once a month on business. I remember the manager telling me, as he propped up my wobbly table, unstable tables have always been, “The bane of the restaurant industry.” And he’s right. Invent a table that doesn’t wobble and you’ll have quite a business.

So, what’s the bane of your business? Is it:

  • Marketing – this is a common one. I’ve talked to so many owners who say something like, “If only we knew how to market better.”
  • Sales – too often there are more order takers than true salespeople. And, finding a good salesperson is one of the toughest hires there is.
  • Inefficient operations – growth, and I mean profitable growth, can mask a lot of problems. But if there’s not growth or when it stops, it’s time to get an expert in to improve productivity. Improve gross margin by 2 points in a $5 million business and it’s $100,000 to the bottom line.
  • Poor culture – let’s face it, most problems have to do with the people. Don’t believe it? Just look at all the articles, podcasts, etc. on management, leadership, culture, and similar. I always find it amazing when we do “focus group” type meetings with employees. Very insightful (and usually the owner is surprised by the results).
  • A dependency (key customer, an employee who if they left would create a huge problem, or you, the owner, can’t get away without risking catastrophe) – easy to spot, tough to fix (quickly). But when it comes time to sell, a large dependency will scare buyers away or reduce the price.

It’s time to figure out the bane of your business and deal with it (or them).

“The main dangers in this life are the people who want to change everything – or nothing.” Nancy Astor

High Rise – High Risk – High Reward

Gazing out the window of a high-rise I saw workers on scaffolding on a building across the street. My first reaction was, “That looks like fun. It must be exciting to work above the city.”

My second thought was hanging from a building is a lot like entrepreneurship. It’s risky, thrilling, and can be very rewarding. It may not be your life at risk (like hanging from a building) but rather money, respect, and sanity. And the odds of an entrepreneur failing are much greater than a cable, with multiple redundancies, snapping. 

Within a business the scaffolding reminds me of what too many businesses have, and that’s a dependency. The workers suspended above the ground are dependent on the equipment, the maintenance, and other people. If any fail the result can be catastrophic.

The same is true in business, especially small and mid-sized businesses. Too often there’s a dependency on one, two, or three customers, a key employee or two, or the controlling, unwilling to delegate owner.

Often it works out in spite of the dependency. But then it’s time to exit and the buyer worries the cable will snap leaving him with acquisition debt payments but a missing key customer or employee or the (previous) owner, who has too many secret sauce recipes in her head. 

Lesson: high-rise scaffolding has redundancies to prevent a disaster and a business’s redundancies are having a diverse customer base, knowledge spread amongst numerous employees, and an owner who’s built a team he delegates to. This is what leads to a high reward.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” (Statistician) Nassim Nicholas

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

Priority: Make Customers Feel Special

It’s common knowledge cable and satellite TV companies have been losing customers to cord cutting, i.e., people using only online streaming services for their in-house viewing entertainment. So it has to have been a balancing act for these firms on how to keep customers, advertisers, and content providers happy.

For years it seemed customers were at the bottom of the list with an example being watching recorded shows on a DVR. Yes, you could fast forward but it’s a game. Watching On-Demand often didn’t allow you to fast forward through commercials (although we figured out you could jump forward and rewind back a little). 

But now, at least on Xfinity, many shows have “smart resume.” There’s a colored bar showing where the commercials end. I’m not sure how the advertisers or content providers (who often charge advertisers) like it, but we sure do.

So, how do you make customers feel special?

  • Sometimes it’s saying, “no.” If you’re not the best option, refer a potential customer to someone better suited to help them. We do this at least once a month.
  • Solve their problem! This is really sales 101. No band-aid solutions, no one size fits all, provide a solid, long-term solution.
  • Communicate, regularly. When things are going well, be in touch because when there’s a hiccup (maybe not even your fault) it will benefit you tremendously.

And by the way, the above philosophy applies doubly to your employees.

“Children see magic because they look for it.” (Author) Christopher Moore

Vaping and other Naïve Actions

There was a recent news story about a Seattle area law enforcement officer suing for about $11 million because of a health condition caused by vaping (a CBD product and something else to relieve his stress and pain). Am I missing something?

He heated a chemical concoction, inhaled it, and figured all was good? He couldn’t imagine burning chemicals could cause bodily damage. 

I also see a lot of naivety in business and in the buy-sell world. A lot of it reminds me of some old sayings like:

  • “Build a better mousetrap” (and the world will come to you).
  • “If we build it, they will come” (Field of Dreams).
  • “Our product is the best on the market” (but the competition markets better).

In the buy-sell world what I see the most is:

  • It’s easy to find a good buyer (they’ll all be standing in line for my business).
  • Finding a mature, profitable, and fairly priced business is easy (it’s the mature, profitable, and fairly priced part that adds the complication as there’s no shortage of lousy and/or overpriced businesses).
  • I (buyer) can fix this business (turnarounds make headlines for a reason, they’re rare).
  • There’s a lot of discretionary cash to cover my debt (are your mortgage, car, tuition, utility payments discretionary? To cover debt you need “real” cash flow after a fair market salary).
  • Our competitive advantage is we’re the cheapest so pay us a lot for the business (someone will figure out a way to undercut you; value is when people pay more for a great product and service).

Don’t vape yourself into trouble in your business, the one you buy, or the deal you want when you sell.

“They always say time changes things, but you actually have to change them yourself.” Andy Warhol

Three Important Buy-Sell Lessons

This is something I sent to our clients recently and realized it has good lessons for all.

I’ve been involved in a real estate buy-sell transaction as over the last 18 months we’ve been trying to sell our family cabin in the Midwest. In this part of the country it is not a red-hot real estate market, with only one exception and the exception is places on a chain of lakes, which our place is not. 

Bottom line, it’s been slow. About one year ago we had a verbal “offer” about 25% below the asking price. Our agent told them not to even bother writing it up, which was the right decision. 

All of a sudden, this fall, after no serious interest all summer, we got two offers. One was another lowball offer, which definitely hurts one’s feelings. The other was in the negotiable range, so we negotiated, and reached agreement.

Lesson one: lowball offers destroy all faith and trust. You don’t even want to deal with the person.

After hundreds if not thousands of online views, scores of people looking at the place in-person, two lowball offers, and one negotiable offer, we came to realize the following, which business sellers often don’t want to accept:

Lesson two: the market was speaking to us about what the value really is.

At the same time, we realized, and this applies to business buyers:

Lesson three: no buyer (maybe a very naïve one) makes an offer they expect to be accepted. 

In fact, if a seller accepts the first offer a buyer makes the buyer should wonder what’s wrong. Because rarely is the asking price what a seller really wants and rarely is the first offer the limit of what a buyer is willing to pay.

Summary, in business deals it’s very much about relationship. In business and real estate, emotion and feelings play a big part.

“Promises only bind those who believe them.” Jacques Chirac

Fantasyland

I was recently talking to a business buyer about what he was looking for in a business. What he said all made sense; a B2B business, logical size range, wide geographic area, etc. 

Then he said he needed a business on which he could pay off the debt (SBA, 10-year term loan) in half the time. That’s 25% annual growth, from day one. And yes, 25% can be achieved. A recent client grew 25% the first year. But over five years? If it takes one year to figure things out, all of a sudden, it’s about a 33% growth rate. But then came the kicker:

“And I don’t want to have to make any investment in the business (to achieve the growth).”

No new (additional) equipment, vehicles, marketing, or people. All the earnings go to debt reduction. This is fantasy land. And it makes me wonder what other fantasies are out there. Some that come to mind are:

  • A business seller believing his or her business is so special traditional valuation methodologies don’t apply to their business.
  • Owners thinking it’s easy to find good salespeople.
  • Advisors (and salespeople) figuring because they know what they’re doing the phone will ring.
  • Business buyers thinking an owner with no family in the business has no good options, other than selling to them with a low down payment (actually this owner has all the options).
  • Company founders believing a bank will lend them money based on their great idea.

I’m sure you’ve seen many more fantasies. 

“We are living in a world today where lemonade is made from artificial flavors and furniture polish is made from real lemons.” Alfred E. Neuman