How Much Does that Gorilla Weigh?

How much does that (fill in your preferred number here) pound gorilla weigh?

I always refer to an 800 pound gorilla, but I’ve heard others use everything from a 400 pound gorilla (which is pretty close to their real size) to a 1,000 pound, 1,200 pound, and even a 10,000 pound gorilla (some folks will always think bigger is better). Regardless of the zoological accuracy of the metaphor, we all understand it. It refers to a person or organization who commands compliance by their size or authority alone.

Despite their fearsome demeanor, gorillas are generally peaceful. Their strength commands respect because they are powerful enough to do massive damage without intent.

gorilla weighIn business, gorillas come in many forms. They are most often customers, but appear frequently as vendors or competitors. Some gorillas are universal. When purchasing, for example, the Federal Government is the gorilla. Regardless of your size, product or services, you bid and price according to their standards.

Other gorilla  customers and vendors use their size to bully smaller vendors. They announce unilateral changes in payment terms, restrictive or expensive conditions of sale, or threaten to end a relationship over any variance in their preferred process.

Some gorillas seem unaware of their power. Decisions made by middle managers in giant vendors or customers can wreck a small business without any deliberate intent.

Many private companies have a gorilla relationship. Customer concentration is one of the most frequent reasons for reduced valuation in a small business. Owners say that they are going to build the rest of their customer base to balance the influence of the gorilla. In reality, just keeping up may take the majority of their attention.

Speed and Agility

How do you deal with a gorilla in your business?

In the wild, gorillas have only two natural enemies. One is the leopard. Although successful attacks by leopards are rare, they do occur. In a very few cases, speed and agility can prevail over brute strength.

The other enemy is man. Humans are the undisputed top of the food chain. Their superior intelligence allows them to trap or kill gorillas almost at will.

Similarly, some small businesses can prevail in an uneven relationship using speed and agility. Like leopard attacks, those victories are rare. Although owners say “Our responsiveness and flexibility will keep us in the game,” one well-placed blow can break your back.

Dealing with gorillas takes intelligence.

  • Expand your contacts so that one decision maker isn’t your only relationship
  • Customize your offerings in a manner that is hard to duplicate
  • Maintain your marketing, even in the most solid relationships. It never hurts to tell someone about what you have done for them lately
  • Remind the customer or vendor of how important they are to you. (Unless, of course, it’s a bully.)

A really large customer can propel your business to the next level, as long as they don’t accidentally swat you.

 

We’ve published this column weekly since 2008. Please share it with another business owner! Thanks for Reading.

 

Share
Posted in Customer Relations, Entrepreneurship, Leadership, Marketing, Marketing and Sales, Sales, Strategy and Planning | Tagged , , , , , , , , , , , , , , , , | 2 Comments

2 Responses to How Much Does that Gorilla Weigh?

  1. Eric Taylor says:

    This is a great post John.

    I think it’s fair to say that most of us in the small business community have had to deal with gorillas in our respective industries. They are usually customers, but can also be competitors or vendors.

    In the past year, we have dealt with many issues in which we have been dictated to by gorilla customers. One very large pharma company changed their terms to Net 90, another required us to pay a $2000 fee to order to do business with them, and another required us to pay for a system that they implemented that tracks their/our safety program.

    In all three cases, the outcome could have hurt us as a small business. Net 90 terms could crush us on large projects, the $2000 fee was more than the profit we would have made on the project, and the safety program requires considerable time and effort on our part in order to maintain compliance.

    In all three examples, we prevailed. Our relationship with the customers in all three cases was so strong, that all it took was a conversation with the local decision makers. They were sympathetic to our situation, and worked with us to come up with solution. In one case, they agreed to allow us to invoice them for all of the parts at the start of the project, giving us an extra 30 days, ultimately reducing the net 90 terms to net 45. In the other two cases, our local contacts allowed us to add the costs we incurred to the project.

    In my experience, when you explain the hardship the gorillas policies place on our business; reason prevails and an acceptable solution is the result.

    Happy Holidays,
    Eric

Leave a Reply

Your email address will not be published. Required fields are marked *

Protecting Your Best Asset

If you are planning your exit from the business, what is the best asset that you have to sell? Unless you have patented product, exclusive rights, or long-term customer contracts, you answer was likely “Our people.”

employees-in-officeEven if you have strategic differentiation like the ones above, “our people” was still likely a top-three answer. Proponents of Human Resource Accounting correctly point out that few businesses have a bigger investment. Hiring, training and developing talent is at the center of most successful organizations.

But people aren’t chattels. How can someone rationally consider paying top dollar for your successful business when its best asset might disappear the day after closing the sale?

Securing a great price for your company means paying attention to its value drivers. Those include documentation of reproducible processes and quality controls. Customer diversity, long term relationships and a clear marketing strategy are also important. All those pale, however, against the ability to assure a transition of your key people.

The Last Minute Bonus

There are numerous stories in the planning world about owners who neglected to protect their best asset. Some are certainly apocryphal, but they all go something liked this.

Bob was straightening up his desk in preparation to move to his smaller, temporary office. He kept pulling out his phone to check if his bank balance reflected the proceeds from the closing wire transfer. He wasn’t thrilled about spending a few months as an employee, but it was well worth it.

There was a quick knock on the door and Jack, the Director of Sales walked right in. Bob thought of how much that irked him, but he wouldn’t have to deal with it much longer. As usual, Jack got right to the point.

“Congratulations Boss. I know that you put many years into building this company, and from what the buyers just told me, you received a great price. I’ll miss working with you.”

Jack didn’t wait for a response. “That new owner, Carl, seems like a nice enough guy. You know, he told me that I was one of the main reasons they bought this business, and they have big plans for me in the future.”

Bob knew the other shoe was about to drop. “So I was thinking. Considering how important I am to a successful transition, how much of that big check were you planning to share with me?”

Bob thought of the escrow fund in the agreement, and how it required transfer of the company without major changes in personnel. He took a deep breath, wondering how much of it he should use for an opening offer.

Sooner Rather than Later

The time to negotiate a stay bonus is before you start the sale process, not after there is money on the table. Securing your best asset adds value to the business, and greatly lessens the chance that an employee will derail any deal.

Many owners hesitate because they fear telling key employees that the business may be sold. That is a rational concern, but the sooner you bring it up, the more inertia will be  on your side. When things don’t change right away, people tend to go back to what they were doing.

Explain that transitioning is a logical step for every business, and that once you start the process, it could take years. You want to recognize the employee’s contribution, but you also want to make sure that he or she gives any new owners a fair chance.

Stay bonuses very widely, but an additional half-year’s salary is reasonable in return for two years of post-transition service. In some cases, the bonus can involve a percentage of the sale proceeds placed in escrow and paid after the transition period. The benefit can also vest over time, strengthening your short-term retention.

One thing is certain. Protecting your best asset before starting an exit process will be cheaper than being forced to do it afterwards.

Thanks for Reading! Please share Awake at 2 o’clock with another business owner.

Share
Posted in Building Value, Entrepreneurship, Exit Planning, Leadership, Selling a business, Strategy and Planning | Tagged , , , , , , , , , , , , , , , , | 3 Comments

3 Responses to Protecting Your Best Asset

  1. David Cunningham says:

    John, You are spot on about the importance of being able to get your staff to support the transition. The process starts by finding out as much as you can about the buyer’s intentions for your employees. With that information you can plan for incentives that give employees who you believe are likely to be retained, a reason to make the transition work,and offer reasonable compensation to those who are likely to be terminated. The retained employees have a better attitude if they believe that the seller cared about those who did not fit the new owner’s plans. In one acquisition situation we debated how much money was appropriate and how it should be distributed. Our decision was that the employees had exceeded normal commitments to the company, particularly in the early stages and they deserved financial reward. We voted and arrived at 5% of the capital gain on the sale. These funds were allocated on a pro-rata basis of the employee’s accumulated base salary without allowance for bonuses. On this basis a secretary who had worked for 5 years at $30,000 per year and earned a total of $150,000 received the same amount as a VP of Sales who had worked 1 year and earned $150,000. Those employees who were retained in the transition were subject to vesting requirements. Those who were released were paid a month after termination. We considered a longer delay after termination to discourage defection to get a quick cash bonus, but the conditions offered by the buyer made it unlikely that retained employees would quit. This arrangement resulted in a smooth transition.

  2. Larry Amon says:

    The easiest thing to do is to share the profits of the company with your employees and to give them ownership before the sale. I was not planning to sell my company, but when the right offer came in I sold and my employees shared over a half a million dollars among 35 employees. 25 years later most still remain with the company..

Leave a Reply

Your email address will not be published. Required fields are marked *

The Entrepreneurship Meritocracy

For those of us who compete in the entrepreneurship meritocracy, listening to the complaints of those who are employed can sometimes be irksome.

I recently sat at an open table for an event. One of the other guests there was a schoolteacher. A single compliment about the importance of her profession was enough to open the floodgates of compensation complaints. She immediately shifted into a well-practiced speech about how teachers aren’t paid enough, and why people should be happy to pay higher taxes to get better teachers.

I think people might be willing to make that trade, but with the protection of collective bargaining and tenure, increased salaries would only mean that we have the same teachers at higher pay. I don’t see how the outcome would change very much.

As a business owner, I always want to jump into those conversations by suggesting that the complainer go into business for himself or herself. Of course, there is no guarantee of retirement benefits, job security, paid time off or even a regular paycheck. Once you choose the entrepreneurship meritocracy, you are on your own.

super-businesswomanBeing a business owner carries the red badge of courage. Friends and family (unless they too are entrepreneurs) are in a little bit of awe. You hear the comments at large gathering; “That’s Martha’s daughter Amanda. She owns her own business, you know. Who would have predicted that?”

Of course, they have a slightly skewed vision of your role. You own the business, so you come and go as you please. You hold the checkbook, so you can pay yourself whatever wages you wish. Best of all, you can assign anything you don’t like to do to an employee. What could be better?

Choosing the Entrepreneurship Meritocracy.

You have control of your life. That is, unless a customer makes unreasonable demands, a vendor fails to supply as promised, or an employee doesn’t show up for a critical task. Other than that, it’s the life of Riley.

If a new business owner makes it through the gauntlet of competition, changing markets and plain old bad luck, he or she might wind up with an enviable lifestyle. That presumably compensates for any number of 16-hour days, 7-day weeks, years without a vacation and sleepless nights along the way.

I support better pay for good teachers. For that matter, I also think that policemen, firefighters, soldiers and sailors deserve more. However, they all picked careers with well defined benefits and compensation. They knew the game and all of the rules on the day they started.

I think I’ll try sitting at a table of strangers and saying, “I’m a business owner. You know, I don’t make nearly enough for the work I put in. There are a lot more challenges than I could have ever anticipated. Everyone should be willing to pay higher prices for my goods and services so that I can live a better lifestyle.”

I doubt I’d garner much in the way of sympathy. After all, every one of us chose the entrepreneurship meritocracy, and others rightfully expect us to live with the results.

Thanks for reading! If each subscriber shared Awake at 2 o’clock with one other business owner, we would run out of business owners in 17 weeks.

Share
Posted in Business Perspectives, Entrepreneurship, Leadership, Managing Employees | Tagged , , , , , , , , , , , | 5 Comments

5 Responses to The Entrepreneurship Meritocracy

  1. Ray Cha says:

    Thanks John … always thought provoking.

  2. Doug Roof says:

    John,
    You always stimulate my thinking about my own business and career, as well as about the business owner clients I’ve known over the years. In this case, you flushed out an idea that is not unique, but probably underutilized across this country. There is much to be gained in understanding by having a mechanism whereby the entreprenuer can spend a day in the classroom with the teacher and, less often offered, the opportunity for the teacher to spend a day in the business with the entrepreneur. A widespread use of this practice might result in creative ideas for incremental improvements to our education system, as well as creative ideas for incremental improvements to the cultures of small businesses.

  3. John,
    Well said and I share your views. Living here in California I hear the same conversations and sometimes want to jump up and scream. I appreciate the article.

  4. Ron B. says:

    Another excellent article, John. You should consider publishing a compilation of these articles, and perhaps a subscription that yearly would provide updates, like “pocket parts” for legal publications. They are indeed thought provoking and succinct with each one providing a memorable “take away.” Thank you.

Leave a Reply

Your email address will not be published. Required fields are marked *

Exit Timing and the Global Economy

How much will your exit timing be affected by the global economy? Most small businesses serve local markets. Their owners, if they have thought about it, plan to sell to a local individual. If the local market is healthy, why worry about the rest of the world?

A few weeks ago I attended a presentation by  Austan Goolsbee, former Chairman of President Obama’s Council of Economic Advisors and the youngest member of his cabinet. Dr. Goolsbee was also a college champion debater (he beat Ted Cruz in the national finals) and a member of an improv troupe. That makes him an anomaly in the “dismal science;” a funny economist.

“We are only doomed in the short run.”

Here is a partial list of why he feels the economy will continue on this slow-growth path for some time, and some of the logic (including laugh lines) he used for each.

  • Home prices have returned to their normal annual growth rate (.4%) of the 90 years prior to their run-up. (From the Onion: “Furious Nation Demands New Bubble to Invest In.”)
  • Oil doesn’t have the effect it once did. Fuel efficiency has dropped its impact to less than half the percentage of GDP of 20 years ago. Falling gas prices used to be a boost to the economy. Now that we are a major producer, not so much.
  • The administration is trying to boost consumer spending. The problem is that in the early 2000s Americans were spending more than they made. Now they have returned to their (fairly minimal) savings habits.
  • Europe is circling the event horizon of an economic black hole.
  • Epic job growth (4.5%) is being countered by shrinking productivity in the last few years, resulting in a “stagnant” economy.

For those that expect a stimulus from China’s growth, Goolsbee points out an interesting item.

man-with-head-in-boxThe USA publishes it’s GDP growth statistics one month after the end of a quarter, with adjustments over the next few months. China puts out the number on the last day of each quarter, and never updates it. As Goolsbee says, that causes economists to wonder, “Why do they wait so long?”

Does this affect small business?.

How does this big picture information impact the exit timing of a small business owner?

Exiting is a liquidity event. You are exchanging the equity value of your work for cash. The cost and availability of cash in the financial markets has a lot to do with who is able to buy your business and how much they will pay.

For the last ten years of Quantitative Easing, the markets have been awash with cash. Low deposit rates led many investors to seek higher returns. Private equity groups not only found plenty of investors, but could also leverage their purchases with debt at a relatively low cost.

As the PEGs push towards ever-smaller opportunities, a trickle-down effect has propped up pricing on the lowest (small business) end of the market. Professional investors are flocking to privately held companies. Perhaps they’ve found a new bubble to invest in.

I speak nationally about the coming of the Boomer Bust; the buyer’s market for small business. ( To receive free advance excerpts of my new book on this topic, go here.) According to the demographics, it should be starting already. It appears that the financial markets are hot enough to support prices for those who are exiting now, but demographics are like gravity. You may not like it, but you can’t change it. The flood of exits will come.

Your exit timing is a personal decision, but don’t make the mistake of thinking it’s only a personal decision. The domestic financial markets, which are influenced by the global economy, will have a material effect on your selling price.  Keep one eye on the bigger picture. It could make a material difference in your retirement funding.

Please share Awake at 2 o’clock with another business owner. Thanks for reading!

Share
Posted in Economic Trends, Entrepreneurship, Exit Planning, Exit Strategies, Politics and Regulation, Strategy and Planning | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Millennial Employees: Why Their Opinion Counts

A couple of months ago I followed Jabez Le Bret‘s presentation about Millennial Employees on a national meeting agenda. He is an entertaining speaker and an excellent story teller. As every speaker hopes, one of his stories stuck with me.

When Jabez (a Millennial himself) was eight years old, his parents decided to purchase a new house. They took him along when house hunting, and asked his opinion about every neighborhood and potential residence. As he says, it’s not that he actually had a vote in the decision. His parents just wanted him to know that they considered his opinion important. What he thought mattered to them.

I remember visiting relatives when I was young. I was usually left to my own devices in the back yard. Bored, I’d burst into the house to announce my latest discovery. My interruption of the adults sitting around the table was met with “Can’t you see that we are talking?” I could wait an insufferably long time to be invited into the conversation or (more often the case), I’d get the message (“We aren’t interested.”) and wander off again.

family-and-friends-at-dinnerI thought about how that contrasted with how we treated our sons. Under the same circumstances we would invariably stop the adult conversation and turn our attention to the child. We wanted to share their excitement. We wanted them to know that what they saw or did was important to us.

Extend that to the entire Soccer Mom culture. Days are arranged around children’s school commitments, sports, and other extracurricular activities. If I participated in an after-school activity, getting home was my problem, and dinner might or might not be available. Today, most parents wouldn’t dream of letting their child find their own way home, especially on a short winter day. The chariot awaits when they are done (if the parent wasn’t already watching the practice.) Dinner is served when they get home.

“Just listen to me.”

Do you still wonder why your Millennial employees feel entitled to offer an opinion on their job duties two weeks after their initial hire? They come into your office (expecting an immediate audience, of course), and opine on your operating methods, technology and perhaps your entire business strategy.

Our knee jerk reaction is some business version of “Can’t you see that we are talking?” We feel obliged to put them in their place. Perhaps not in so many words, but by pointing out that they don’t have the experience, training or tenure to make a real contribution.

But they’ve been raised knowing that their opinion counts. Adults all around them have reacted that way since birth. All their friends experienced the same behavior. Will they think their entire life to date was an aberration, or that you are the outlier? You become the one who doesn’t understand.

Opinions offered by Millennial employees aren’t a criticism of you or your company. They don’t have appropriate respect for your experience because they have little of their own to measure it against. It will come, but in the meantime take a few minutes to listen to them.

You may see it as pandering, but you aren’t going to unravel a lifetime of learning in one conversation. Hear them out. They are less concerned about changing things than they are about being acknowledged.

Thanks for reading Awake at 2 o’clock! Please share it with another business owner.

Share
Posted in Entrepreneurship, Leadership, Managing Employees | Tagged , , , , , , , , , , | 9 Comments

9 Responses to Millennial Employees: Why Their Opinion Counts

  1. Will Carter says:

    Two excellent blogs in consecutive weeks – wow – you are on a roll John!

    The motto for our drilling company is, “one team, one fight”. I have learned everyone can contribute in a positive way, if the culture is such in a company that encourages employees to think, no matter their season in life.

  2. Great message. Listening is one of several key ways to connect with Millennials. After working with about 10,000 of these early career employees, they definitely appreciate being heard.

  3. John Meetz says:

    Good one John and not even mention the Millennials are soon to be if not already the biggest segment of the workforce and along with that our biggest segment of customers and suppliers. I think we have no choice but to pay attention.

  4. Ray Champney says:

    Thought provoking John. It is important to keep in mind that while a millennial may be an employee they are also a reflection of what is trending in the marketplace. Opinions can result in exploring how a business might make adjustments to remain contemporary and position themselves as leaders in their field.

  5. Blair Koch says:

    Totally agree John. They want to participate and contribute.

  6. Mike Havel says:

    John, Totally agree. Listening is so important. We start all our meeting with a ” Good Things Report” and get a lot of good feed back from the new employees, that see our organization with an entirely new vision.

  7. Mike Wright says:

    John. It is interesting that the study of millennial is exposing truths that have always been there. For the last 50years, I have observed that you can build much stronger and better aligned teams if you listen to everyone. Some very great things come from observations of the new employee who sees things differently. If they are slightly off, then it provides you an opportunity to teach them something. They are more inclined to be open if they have initiated the conversation. Never miss a teaching opportunity or a learning opportunity.

  8. Mark Mehling says:

    Every group can contribute- but under the same rules as everyone else. The 2 ears/1 mouth rule of listen more than talking applies equally no matter your birthday. And every employee, no matter their hire date, should demonstrate the willingness to show up on time, work and contribute to a team, and work effectively without having to be babysat. That’s what builds up the respect that allows you to be critical. While millennials have issues, turns out we all do. Just don’t show up, knowing everything, not listening, performing poorly, and expect that you will get the other’s ear.

Leave a Reply

Your email address will not be published. Required fields are marked *