When You’re Sunk You’re Sunk

Forbes.com reported bankrupt Chucky Cheese is spending $2.3 million dollars to destroy 7 billion prize tickets, which would fill 65 cargo-shipping containers. Why? Because it’s about 25% of the $9 million cost if they were redeemed for prizes. 

We all deal with sunk costs. Buy a new car, decide you don’t like it, you’re out the 20% they say is the immediate market discount. Invest in a new machine, it’s not what you really need, you’re out.

Things like above always remind me of a past client who bought a (what turned out to be) great business for next to nothing (and this is not a pitch like the books and courses on how to buy a good business with little to no money – which doesn’t happen). 

How did this happen? The company expanded from Seattle into Portland, it wasn’t going well, and they got stubborn, as in, “We’ll sell our way out of this.” They didn’t. And, at a peak of the real estate market they bought a building. The buyer got the Seattle operation by paying off the State Department of Revenue, the phone company, and the top supplier. He later told me, “I knew it was a good business, I just didn’t know it would be this lucrative.”

About 8-10 years ago I came up with what I thought was a compelling idea for a line of service to potential clients. It wasn’t as compelling to them as it was to me, so I dropped it. The costs (mostly time and energy) were sunk, gone, and that was okay. I learned a lesson, picked up one client (five projects, none for this idea), a few good marketing tactics.

I mention these things because in the buy-sell world I see all the time owners (and their intermediaries) trying to convince buyers the failed advertising campaign is really profit because it didn’t work. Or, the ops manager who wasn’t as good as he or she claimed is really profit because it was a bad hire.

No. That’s business. That’s life. If you don’t try things you won’t learn what doesn’t work. Not every decision is a good decision (meaning didn’t live up to its potential). The good businesses often just have made more good decisions than not-so-good ones.

“It is inhumane, in my opinion, to force people who have a genuine medical need for coffee to wait in line behind people who apparently view it as some kind of recreational activity.” Dave Barry

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

Passion and Emotions Win the Battle

I’ve been really into the Murder Book Podcast by Michael Connelly, author of over 30 mysteries and executive producer of the great series, “Bosch.” The podcast is about a 30-year-old murder that’s finally brought to trial, is filled with interviews with key people, wiretap recordings, and courtroom recordings.

Listening to the closing arguments, I was struck by three things and how those things can benefit all of us:

  • Passion was oozing from both the defense attorney and the prosecutor. There was no doubt about what they wanted, how much they wanted it, and what they would do to convince the jury, even if it meant stepping over the line and getting admonished by the judge. In business it should be obvious to everybody how much we like (love) helping our customers/clients.
  • This wasn’t TV where all the actors are good. This was real life and the defense attorney was a soooooo much better presenter than the prosecutor it was ridiculous. The defense attorney  sounded like a high-quality professional speaker. When listening to the prosecutor you hear a lot of “ah,” “um,” and “like.” It reinforces why we should know what we’re saying so we sound like an expert not someone making it up on the fly.
  • The emotional tug at the jury was based on facts. They both pulled facts from the case, added influence to them, and strove towards a compelling argument. In other words, they were like a good salesperson pointing out why what they have solves the customer’s problem (after asking questions to determine what is the actual problem).

To summarize, passion, presentation skills, and fact-based emotion will help all of us.

“Inviting people to laugh at your while you are laughing at yourself is a good thing to do. You may be the fool, but you are the fool in charge.” Carl Reiner

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

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

The Phone Doesn’t Right Just Because You Want it To

A good friend of ours told me his sales team made their first sale ever to a non-affiliated customer. He was hired earlier this year to build a sales team and plan a sales effort because for the last 20 years the only sales were to other firms under the same ownership umbrella.

The salespeople at this company were order takers. And I’m guessing lazy order takers at that. When I taught a class at the local SBA/SCORE office on growing a consulting business I always told a story about a fairly new consultant who loved the computer and felt because he sent out a newsletter once a month the phone would ring. Yeah, sure it would, from telemarketers. 

“It’s amazing what happens when you actually pick up the phone and call your customers” was said to me by Keith Jackson with Industrial Revolution, www.industrialrev.com, in response to my question about how his marketing was going about six months after buying the company. I’ve used this statement before and it’s such a good line I can’t help using it again (I know it verbatim because I wrote it down when I heard it and I use it regularly). And, I know Keith is reading this. 

Some tips:

  • Want to increase sales? Have your people (and/or you) reach out to prospective customers and referral sources. As you grow it increases your chances of exiting with style, grace, and more money.
  • Want to buy a business? It’s contact sport; the more contacts you make (who get to know you) the better your chances. It’s hard to find a mature, profitable, and fairly priced business so be active.
  • Want to sell your business? You and/or your intermediary had better be active with the marketing (not just the advertising). Calls to your/their network, their database of buyers, and others will accelerate the process.

In this day and age of text, email, LinkedIn, and Facebook personal, one-on-one contact is still the best for B2B, advisory, and many other businesses.

“If the phone doesn’t ring it’s me.” Jimmy Buffett

Coasting – Downhill

A business owner told me his sales were X dollars – put in whatever figure you want, $100,000, $1,000,000 or $10,000,000. His actual sales were:

  • 2017 – 90% of X
  • 2018 – 75% of X
  • 2019 – 65% of X
  • 2020 – on track for 50% of X 

The abovementioned owner is coasting and the business is going downhill. And once on the slope it’s tough to recover. I’m sure there’s not a lot of calling to customers, much less prospective customers. I can’t imagine there’s much marketing at all.

What’s compounding this is he has no idea of what’s really going on. Yet all it takes is paying attention to the financial statements. He doesn’t need to have management reports, although they would add a lot of value and clarity.

Business buyers want one of two things:

  • A well-oiled machine with room to grow.
  • An underperforming business in a solid industry (coasting).

What they rarely want is a damaged beyond-repair business. Whether you’re an owner or advise owners, keep these points in mind. Coasting (downhill) doesn’t let you exit with style, grace, and more money.

“If liberty means anything at all it means the right to tell people what they do not what to hear.” George Orwell