When Football, Covid, Protocols, and Systems Collide

The NFL is down to the final four teams. On at least one of the games this past weekend the announcers talked about how successful the season has been. They said, and I paraphrase, back in July when training camps started nobody knew if they’d get the season in, but they did, with no cancelled games and only a few rescheduled games. They did much better than college football, which was a mess.

This newsletter is not about Covid, but it’s Covid that sets the tone for the business message below. The NFL did it by implementing some protocols we all can follow. They state high-risk close contact as:

  • Less than six feet of proximity.
  • For five minutes or longer in duration.
  • Indoors.
  • Unmasked.

Things we all can’t do are:

  • Daily testing.
  • Having players wear trackers and then investigating any potential close contacts.
  • Using surveillance video.

What it shows to me is diligence can suppress Covid. And before you think I’m in agreement with the Governor of Washington (New York, California, and others) on all the shutdowns, I’m not. My friend Pete McDowell sent me a University of Oregon study saying people don’t catch Covid in (reduced capacity) gyms (I agree based on my going to the gym last fall). I’ve followed contact tracing results a bit and there’s no way people get the virus in (reduced capacity) restaurants.

It makes me think that following the right protocols and having proper systems works, with Covid and other areas in our lives, including:

  • Business buyers who have a plan, set up systems, and follow their protocols will do better at locating, analyzing, and closing a deal on the right business at the right price.
  • Business sellers who take the time to think about what they’ll do if they sell and also get professional input on if the net price of the business is enough for their next great adventure in life will have less seller remorse.
  • Employees who follow the proven plan will advance quicker and be more productive. And if they show how to add value to the current plan all the better (instead of thinking they know more than anybody else and get disengaged).
  • Owners who are willing to listen, act, and delegate have better businesses with more value. It’s not how important the owner is to the day-to-day, it’s how little are they needed in the day-to-day.

It really is pretty simple. If you have a plan that works, and you follow the plan, you’ll be successful. In business, health, and life.

“We are pathetically eager to believe that, if human affairs are managed right, nothing unpleasant need befall anyone.” (Journalist) Max Hastings

Business Buy-Sell and 2021

It’s 2021 and I sense a lot of optimism, or at least hoped-for optimism. Of course the vaccines are a huge factor in this and there’s good and bad news on this subject.

Good news: Reports are while two doses give 95% protection one dose gives protection in the 80-85% range (and arguing about it among experts takes off), meaning the same amount of vaccine can treat a lot more people. And the hospitalization rate of those vaccinated is near zero and the AstraZeneca product was at zero for the first 30,000 recipients.

Bad news: The government is in charge of the distribution and it’s another case of the left hand not knowing what the right hand is doing. Bottom line, both Democrats and Republicans are really good at self-promotion and really ineffective at getting anything done.

So what do I see in the buy-sell world? Here are three thoughts:

I expect it to be busy at all levels. From micro-businesses like deli’s, dry cleaners, and other small retail to businesses where the owner can actually work “on” the business versus “in” the business to middle market firms.  

Why? It’s still a demographic thing. There’s still a disproportionate share of (non-tech) companies owned by people 55-75 (as regular readers know, I believe most owners still working at 80 or close to it want to die at their desk). Things happen as we get older, health issues, burnout, death, etc.

I’m interested in seeing the deal stats for 2020 from bizbuysell.com, Pitchbook, and others. I don’t know what to expect but guess the numbers will be a bit lower than in 2019. That’s one reason I think 2021 will be busy. And that leads me to two sub-points. 

First, buyers are going to be fussy (fussier than before) and really digging deep (or at least should be). Banks will be more inquisitive than ever, and both should be concerned with the Covid non-financial factors as much as the standard non-financial factors.

To put up with the increased scrutiny sellers really need to be prepared. I wrote recently about one client who said he realized his firm was not ready for the diligence requirements demanded by the buyer. It starts with the financial systems and statements (get an outsourced CFO if you need to up your game in this area) and move on to all aspects of the business, especially the people.

Bottom line, while it will overall be busy it will be busier for those who are pro-active.

“I feel that it is healthier to look out at the world through a window than through a mirror. Otherwise, all you see is yourself and whatever is behind you.” Bill Withers

Happiness, Dogs, and Culture

Let’s start 2021 on a happy note. On January 2 in the Wall Street Journal there was a column by Susan Pinker titled, “Dogs Really Do Make Us Happier.” Ms. Pinker did research to see if she could prove the “rumors” about dogs making people happier, especially during the pandemic. The results: yes, dogs make people happier and she quotes Lauren Powell, a postdoctoral researcher at the University of Pennsylvania, “Basically we found that the loneliness in the group that got a dog decreased by 40% and stayed at that lower level at eight months.”

What does that have to do with business? Well, if you’re happier you’ll be more productive, creative, and enthusiastic (and for business owners’ enthusiasm is one of the four things I believe an owner needs to be good at managing and/or leading, along with people, processes, and money). 

If your employees are happy, they will be better employees. But you can’t get them a dog or mandate they get one. You can create an atmosphere of happiness, which is called culture. I’m not a culture expert, there are plenty of good ones around, but do know if you cover the basics, you’re 80% there. The basics, to me, include:

  • Respect
  • Listening 
  • Delegating (so they can grow professionally)
  • Fair compensation
  • A great environment

Are you and your company 40% happier, as those people who have a dog are?

“Chance favors the prepared mind.” Louis Pasteur

“Another belief of mine: that everyone else my age is an adult, whereas I am merely in disguise.” Margaret Atwood [Ed: and dogs help you maintain your disguise]

Dependents Save on Taxes; Dependencies Reduce Value

Here’s an exchange I recently had with a supposedly seasoned businessperson, growth consultant, and business broker:

Me: “There are a couple issues with this business, one in particular seems serious.”

Him: “Oh, what are they?”

Me: “The main issue is the top two customers are 60% of sales.”

Him: “I don’t see why that’s an issue.”

Really? He doesn’t see it’s an issue? Two customers dominating, the top one at 37%. And this in an industry with larger players, low barriers to entry, and the number two customer moved over from a competitor three years prior (and probably would move again to save a few bucks).

It reminds me of a story in my books about a call from a desperate owner who wanted a buyer for his business. He had helped his 80% (of sales) customer get started (as a contract manufacturer), the customer’s owner brought in a new management team, the new CEO had a friend whose company made the same products, and the rug was pulled out with no notice. Bye-bye big customer, bye-bye business.

Ours advice to one and all (especially owners planning to exit at any time):

Get rid of your dependencies.

  • No dominant customers.
  • No key employees (who would be hard to replace).
  • No major supplier (with limited options other than this supplier).
  • No owner dependency. The less the owner does day-to-day the better. It might be tough on the ego but it sure builds value. Strategy, vision, and growth (including by acquisition) should fill the owner’s calendar.

“I guess a man is the only kind of varmint who sets his own trap, baits it, and then steps in it.” John Steinbeck

Knowing Your Customers

The recent meeting of Seattle U Family Business Exchange (companies with multiple generations in the business) two of the presenters showed there are multiple ways to please your customer base and keep them loyal.

Aakanksha Sinha and her husband are the owners of Spice Waala, a fairly new Indian restaurant in Seattle featuring Indian Street food. They have an everchanging menu, with new items daily. It is their way of showing off the different types of Indian food.

On the flip side, Jasmine Donovan, president of Dick’s Drive-In, has a menu that has barely changed in decades. When she asked us to put our favorite Dick’s menu items in the Zoom chat the overwhelming favorite was the Dick’s Deluxe, which Jasmine said is a relative newcomer to the menu having been introduced in 1974. Dick’s customers love what Dick’s has and love the familiarity.

Being new, refreshing, and innovative is great, and highly popular. But being steady and knowing what your customers want is equally important. It would be business suicide for Spice Waala to keep the same menu for extended time periods as their customers want to try different things. It would be even faster business suicide if Dick’s started introducing new (and short-term) menu items like the fast-food chains do.

It’s knowing what your customers want, and don’t want, that matters. And what your customers, employees, suppliers, and all others want is, among other things an end to Covid (and a Happy Holiday season).

“God bless us, everyone.” Tiny Tim (a great story)

“Santa, I know him.” Buddy the Elf (one of the best and funniest Christmas movies ever)

Check out our new podcast series by clicking here https://www.buzzsprout.com/1546882

Hangout with Smart People

I was watching some football over the weekend and some post-game interviews. One question to a quarterback was about why a certain player has made such a big jump this year. The answer, “His intelligence.”

One of my friends and client is Fred Barkman, owner of Spectra Labs. If I’ve heard Fred say it once I’ve heard him say it a dozen times (the old standard), “A people hire A people, B people hire C people.” It’s the same as a boss saying they want to hire people smarter than they are. Or a sales manager stating they want all their salespeople making more than they do.

I’ve been on numerous boards, both for for-profit and nonprofit organizations. There are always a lot of smart people, which is needed because none of us have all the answers (and it’s tough getting through to people who think they have all the answers). I know firsthand as my dad figured there were two ways to do just about anything, the wrong way and his way.

Most importantly, it’s utilizing the smart people you know. For example:

  • In a recent online presentation, a person who recently sold his business advised the audience to use their advisors to help drive the deal.
  • Your team. They often have the answers and need to be encouraged to contribute.
  • Friends and family can add value, as long as you give parameters versus getting unsolicited input on any and every subject.

Bottom line, there’s a reason collaboration works. It turns 2+2=4 to 2+2=22 (or more).

“I love playing with smart players.” Aaron Rodgers

“Intelligence is quickly seeing things as they are.” George Santayana

It’s Yours – Think Long Term

I recently got a newsletter from my friend Lisa Nirell with Energize Growth. She works primarily with middle market CMOs. The newsletter shared the following:

“An obsession with short term results continues to haunt CMOs and undermine their ability to prove value. With an 82% spike in IPOs this year (compared to 2019), this systemic problem persists. (source: stockanalysis.com)”

When your bonus is tied to short term growth or you want to sell shares at a high price you focus on this month not next year. When you own the business, you want to do well now and make sure the future is rosy, because that’s your equity. And other than avoiding taxes by making December purchases of vehicles and equipment not really needed most owners think long term. When you think long term, you do things like the following, which are especially important during the current virus crisis and recession:

  • Find and retain the best people possible even if they get paid more than others. A client recently said the business’ financial performance was down because he’s kept everybody working during Covid. He doesn’t want to lose any good people (for when his business is fully recovered).
  • Invest in marketing even when business is slow (like during Covid). We’ve done more than ever during Covid and it will pay off (and is already).
  • Take care of your customers, especially your best ones. Even if they aren’t buying as much as normal, having their own issues, etc. Be there for them.
  • Implement growth strategies when others are hunkering down. This could mean buying a competitor or complementary firm, hiring great people even if not needed right now, or accelerating your growth plan.

It just makes sense when you are the one you answer to.

“Through others we become ourselves.” (Psychologist) Lev Vygotsky

Random Holiday Season Thoughts and Information

Here are some thoughts and information as we head into a weird Christmas and New Year’s season.

Have you noticed the low winter produce prices? I saw a supermarket ad insert and realized while the supply chain has adapted there are still demand changes. With limited restaurant dining, there’s less produce being sold to restaurants, meaning there’s more supply for shoppers. Take-out meals usually doesn’t mean breakfast so that means suppliers sell less fruit to restaurants. I’m also guessing many people don’t order salads for take-out as often as they would if dining in. 

I haven’t worn a watch since mid-March. Really nice.

I know people whose businesses are thriving, others who are getting by, and some who’ve been decimated. One client had her customer base shut down by the closures, all over the country and internationally. Can’t sell product if your customers are closed.

Over the weekend I read two complementary articles on the virus and it’s spread. First, in the New York Times “The Morning” email the journalist gave three tips based on a survey of 700 epidemiologists plus conversations with other experts. The three tips are:

The top behavior to eliminate is: Spending time in a confined space (outside your household) where anyone is unmasked.

The behavior to minimize is: Spending extended time in indoor spaces, even with universal masking. Because masks aren’t perfect.And what’s less risky (the good news)? You don’t need a mask to go for a walk, a run, or a bike ride. Great advice on how to judge all of this: “If I had a birthday candle in my hand and you’re too far away to blow it out, I can’t inhale whatever you exhale.” Ninety percent of the epidemiologists had recently visited a grocery store, pharmacy, or another store.

On the opposite end of the political spectrum, Holman Jenkins, Jr. gave some similar advice in the Wall Street Journal. He summarized recent virus occurrences by noting all the hubbub about mask wearing has got us away from paying attention to safe distancing. Two of his best statements:

“it doesn’t matter how many of us wear masks if the young, who have the least to fear from Covid and are most likely to spread it unwittingly, aren’t wearing them.” 

“If you need to wear a mask to participate in an activity, consider not participating in that activity. Much of life and business can proceed normally while keeping 6 feet apart from those we love and those we don’t.”

I hope teachers are right behind health care workers when it comes to the virus. Kids need to be in school, they miss the interactions, many are falling behind, and it’s hurting families if a parent has to reduce hours or quit their job.

Online meetings are here to stay, especially for routine type meetings, but won’t replace in-person meetings where relationships need to be forged. I can see organizations like Rotary having a hybrid of in-person and online meetings. Not so sure about it for networking groups that thrive on getting to know each other.

Christmas will be strange (as will other seasonal celebrations). No big dinner with wrapping paper all over the floor. No post-dinner game sessions. No going from one house to another for morning presents.

I’m sure we’ll survive.

“One thing a person cannot do, no matter how rigorous his analysis or heroic his imagination, is to draw up a list of things that would never occur to him.” (Economist) Thomas Schelling

Covid Entrepreneurs

The November 19, 2020 Wall Street Journal had a front-page article titled, “New Entrepreneurs Emerge From Wreck of Covid Economy.” Some of the highlights from the article are:

  • A lot of people are turning their skills into a business and it’s their job “in” the business. Skills like personal training, hair styling, freelance chefs, and more.
  • New business licenses are up 32% over the first nine months of the year compared to 2019.
  • Between 10% and 11.2% of workers are self-employed.
  • People are realizing the new normal will be much different than the old normal.

But what about those people who don’t have a “job” skill? These are the people who know how to manage people, processes, money, and enthusiasm. For them, it’s buying a mature, profitable, and fairly priced business.

Why? The most common answers audiences have given me on this include:

  • To take control of their life, career, and finances.
  • To benefit themselves not shareholders from their smart and hard work.
  • Having fun!
  • Letting their creativity shine.
  • Flexibility – if they want to go to their kid’s game or recital they can.

But it’s more than the above. There’s an inner satisfaction to not be beholding to a corporation, a boss, or a boss’ boss. Yes, you have to take care of customers and employees, which is important, and that brings us back to the reasons – to do it your way. Whether it’s a job or your own business happiness and having fun is crucial. It’s like the character Michael Burnham on Star Trek Discovery who states how much she loves what she does and doesn’t want to anything else.

We’re going to see more and more of this. And, for owners whose companies have been hurt by Covid, these buyers aren’t your answer because they want a non-distressed company, but other firms looking to grow by acquisition are your exit. 

“Reality is that which, when you stop believing in it, doesn’t go away.” Phillip K. Dick

Lingering On

I’m writing this on November 16. The headlines and stories over the last two days are filled with President Trump tweeting, “I concede NOTHING,” how his administration is not cooperating with the Biden administration on a transition, and his people are saying they expect to be in their same jobs after January 20. Not the graceful transition from one party to the other we’ve had every other time  this has happened, is it?

What does this have to do with small business and business in general? When “uninvited guests” overstay their welcome it leads to stress, a deteriorating culture, and less productivity.

Every, and I mean every, time a business owner brings up the subject of a problem employee and wonders what to do the answer from those who have “been there; done that” is, get rid of them ASAP and you won’t regret it. I have one client who sat on it for five months. Not too bad compared to another who took four to five years. The result is usually a breath of fresh air.

There’s some logic to the SBA rule requiring business sellers to not (officially) be part of the business (as an employee or consultant) for more than one year. I’ve seen instances where the seller staying on worked great, because the seller loved the job and/or the project but hated running the business. I’ve also seen instances where the seller said they wanted to stay and do sales or design products and absolutely couldn’t stand working for someone else. A couple times the seller sabotaged the business by creating conflict within the employee ranks. In one case it was constantly making snide comments about how he (the seller) wouldn’t do things the way the buyer was doing them (implying the buyer didn’t know what he was doing).

A change of ownership requires cooperation. Bringing in a new employee, especially replacing the bad apple, means teamwork. My advice is to have a plan, make the decision, and take action. Don’t stew over it, do it.

“Television is an invention that permits you to be entertained in your living room by people you wouldn’t have in your home.” David Frost