The Meritocracy of Ownership

A few weeks ago, we hosted the 17th annual awards dinner for our members in The Alternative Board of San Antonio. It’s fun to recognize people for their achievements. Each of our 14 Boards votes for the most valuable and the most interesting member from the previous year. The most valuable member is high praise indeed, considering that it comes from qualified peers. The most interesting member is usually met with laughter. :-)

We also recognize business owners for lifetime achievement, community service, comebacks from adversity, and those who implemented the greatest improvements in their companies. It is a fun and positive evening.

The people who seem to enjoy it the most are the spouses of the members. It’s an unusual night for them compared to typical business functions.

None of their employees are present. No one is trying to make friends with them in hopes of a nice comment to the boss. No one complains about being overworked. I still remember a nightmarish company party where I spent most of the evening trying to extricate from an inebriated wife haranguing me about how her husband (whom I was about to fire) was unrecognized for his massive contributions to the company.

It isn’t a customer or networking event. The spouses don’t have to worry about who is important, who spends a lot, or who should be spending a lot more.

Most of all, it is a place where there are only two kinds of people; hardworking entrepreneurs, and people who are in a relationship with hardworking entrepreneurs. They share a bond of sacrifice for a business dream. There is no spouse of a small  business owner who hasn’t been asked to sacrifice for the sake of the business.

A few years ago a member’s wife (although many of these spouses are husbands of entrepreneurs), attended her first function. She waded into a conversation among three or four other female spouses with enthusiasm. At the first opportunity, she spoke up.

female group listening“I don’t know about the rest of you, but I have to play second fiddle to my husband’s business all the time. We plan our vacations around the business, and he often doesn’t come home until after dinner. I’m sure no one has to deal with the demands of the business interfering with your personal life like I do.”

I’ll never forget the looks of incredulity from the other wives. One mumbled something about “pretty typical.” The others simply walked away. In another minute, she was standing alone. She never came again.

If you have a spouse or significant other working in your business, you share a bond in building the company. Even if he or she isn’t directly involved, however, you share in the challenges of ownership. Make sure you say “Thanks” on a regular basis.

Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.” (Read more reviews)

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You are Never too Busy to Make Money

Last week I was having lunch with a client who owns a substantial construction firm. His phone pinged during our conversation. He apologized for looking at it, but he was waiting to hear on a couple of large bids.

“Dammit!” he exclaimed when he looked at the screen. I assumed a big one had gotten away. He went on to explain. “This job is going to be a bear. The schedule is tough, and the type of work is filled with hidden traps. I estimated high on the work, higher on the labor, very high on the overhead, and then tacked on some more just to make sure I’d be out of the running. The competitors who bid the job loaded even more onto it than I did! Now I’ll have to do it.”

Before you feel too sorry for him <grin>, he lost another large contract that day to a competitor who’s estimate came in 30% lower than any other bidder’s. Clearly, not everyone feels they can be aggressive in their pricing yet.

new profitsSouth Texas may be growing faster than the nation as a whole, but we are seeing acceleration in many sectors across the nation, and especially in financing and acquisition activity. For some small business owners, the relief of being busy is enough. They think that they can worry about increasing margins later. They are happy just to have the phone ringing. It seems premature to risk the uncertainty of pushing returning customers for a price increase.

Small business owners thrive by reacting instantly to changes in their markets. Those who survived the last five years of moribund growth and high unemployment did so by getting lean and mean quickly. Most saw their reserves dwindle and their margins tighten.

If the warm winds of increasing activity are reaching your company, it is time to develop a plan to increase your profitability. Talk to vendors to find out what your competition is doing.  Determine whether new or resurrected customers are calling because they are busier, or merely because you are becoming their low-cost supplier.

The race goes to the swift in both rising and falling economic cycles.

Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.
(Read more reviews)

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The Migration from Service to Knowledge

As I have pointed out frequently in this space, the Baby Boomers’ entry into entrepreneurial business moved the core of the American economy from products to services. (see www.theboomerbust.com)

Multiple dynamics created the shift. Boomers were degreed at four times the rate of their parents, and not inclined to utilize their college educations doing physical labor. The rapidly expanding economy, ubiquitous automobiles, two income households and increasingly long work weeks provided both the disposable income and time compression that drove people to purchase services that their parents had once done for themselves. Service businesses had a low cost of entry and a short learning curve.

Now Boomer entrepreneurs are seeking to sell their service businesses, and finding few buyers. At the same time, the nation is waking up to the next surge of entrepreneurs, the Millennials. Slightly more numerous than the Boomers, they will be half of the workforce by 2020. Squeezed by a stagnant job market, they are going into business for themselves just like the Boomers before them.

Like the Boomers, they have skills that the previous generation lacked. In their case, it is based on technology. Like the weavers and carpenters of generations past, Millennials are starting businesses where they sell a skill that others don’t possess. The only difference is that the skill involves the knowledge of how to use information instead of building a tangible product.

bakeryA service business is driven by the needs of the customers. Few people will pay to have their lawn mowed at 3:00 AM. Boomer service businesses, many with long hours and demands that eclipse family life, don’t appeal to the Millennials. They are gravitating to businesses that are low investment, don’t require brick and mortar, and can generate revenue when they choose, wherever they are. They assemble staff virtually; usually with other Millennials who provide a complimentary skill, but only for as long as it is needed.

Boomers are distressed at the disappearance of the Mom and Pop store. They decry the loss of high-touch service to Internet competitors and big boxes. The Millennials don’t care. It’s not who you know, it’s what you know.

 Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.” (Read more reviews)

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Personal Morals and Business Ethics

A few weeks ago, I posted a column on employee empowerment that used the example of a Girl Scout selling cookies outside a medical marijuana dispensary in San Francisco. It generated vehement response in some forums, many excoriating the parents of the girl for exposing her to immoral activities.

Why? Use of marijuana for physical and behavioral issues requires a prescription, and is an accepted therapy in California. In Colorado, where recreational use is permitted, Girl Scouts are forbidden to sell in front of pot shops, just as they are from selling in front of bars, night clubs, adult video stores, or any other business whose patrons must be 21 or older. That makes sense, and is consistent. No scouting council (as far as I know) forbids them from selling in front of physician offices or hospitals, both of which dispense powerful, and legal, drugs.

Morality differs from place to place, and shifts over time. Smokable intoxicants have been legal in Holland for decades, just as nude bathing is in Germany. I don’t hear claims that the Dutch or Germans are immoral as nations.

On the other hand, few of us would defend stoning or amputation, forced marriage of pre-teen girls or honor rape as moral acts, yet they are legal and considered righteous in parts of the world. Some business owners claim a moral right to refuse service to gays and lesbians, but I’m personally not clear on how that differs from the not-so-far-gone practice of denying service based on skin color, when some people claimed that allowing races to fraternize was immoral. We can agree to disagree.

Business ethics, on the other hand, are pretty close to universal (although perhaps not universally observed). I know of no jurisdictions where it is permissible to sell poisonous or dangerous products labeled as safe. Nowhere can you legally contract for goods and services with no intention of paying, or collect payment with no intention of delivering. Honesty and integrity are the underlying assumptions in every business transaction, from the smallest to the biggest.

The dictionary says that ethics are the application of moral principals. That is true, but in business, my moral compass doesn’t have to agree with yours as long as my ethics do.

 

 Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.” (Read more reviews)

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One Response to Personal Morals and Business Ethics

  1. Peter Hirst says:

    I agree, morals are personal and ethics a code of behaviour and both require defending.

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Who’s Picking Up the Tab?

When a small business is sold, the total price of the business includes not only the cash paid, but any obligations assumed by the buyer on behalf of the seller. Transfer of a loan balance, accrued vacation pay for employees or continued employment for the former owner are all considered part of the purchase price.

The calculation of Earnings Before Interest and Taxes (EBIT) presumes that debt financing is a choice. An owner can reinvest profits, or share the risks of the business with a financial institution in return for an interest rate. No sane buyer would merely assume debt without considering it in the cost of acquisition.

In a long essay on government last week, The Economist said “Many democracies now face a fight between past and future, between inherited entitlements and future investment.” In my posts on the issues surrounding Baby Boomer retirement, I frequently receive angry comments from the succeeding generations about the debt and entitlement burdens that they are inheriting from the Boomers.

The Greatest Generation and the Silent Generation used the voting booth to develop a social safety net for Americans. The Boomers’ first President was Bill Clinton; elected long after these Great Society programs were entrenched. For the last 40 years, the taxes collected from the largest and most productive generation in history paid benefits for those who preceded them.

A business can fund growth by reinvesting profits or borrowing more. Increasing debt is easy if revenue and profits are expanding. Only when the growth curve levels off does rising debt become a threat.

Piggy bank timeGrowth in the US GDP is leveling off, just as the country needs to find massive amounts of working capital to meet its rising social obligations to the Boomers. Political candidates who put it on the front burner are guaranteed to be unelectable. Nonetheless,  a bill is coming due that will easily consume the nation’s cash flow, and which could eclipse all other spending needs.

When a business struggles to pay its debts, it has to either raise revenues or reduce expenses. As new generations become the majority, they will have to choose between taxing themselves or reducing their obligations to the Boomers.

 

 Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is an ownership book, not a management book. “John Dini’s writing is crisp, peppered with good data and concise, pointed stories, revealing how deeply he knows the head, heart and guts of entrepreneurs.” (Read more reviews)

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Posted in Economic Trends, Exit Planning, John's Opinions, Politics and Regulation, Selling a business, Strategy and Planning | Tagged , , , , , , , , , | Leave a comment

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