History Begets Attitudes

History begets attitudes.

I’m back from my biannual depressurization trip. This time it was to Central Europe. As always, I assess new and different things through a business owner’s eye.

Central Europe Map History Begets AttitudesWe visited five countries (Germany, Austria, Czech Republic, Slovakia and Hungary), each sharing a border with at least two of the others. Each spent part of its history (willingly or not) under a common government with at least one or two of its neighbors.

Coincidentally, in three of the countries (Austria, Slovakia and Hungary) we were present around national independence holidays. I know my impression of their attitudes is from a small sampling of discussion and the overall feel of admittedly tourist-centric locations. It serves, however, for my business analogy.

In Germany, we were in two cities occupied in the American zone after WWII, but which looked across the Danube to the Russian zone. They seemed pretty happy about that, and knew they had gotten the better end of the deal. Otherwise they had similar attitudes to other 21st century economic powers. The are successful in the world as it exists today. There are major issues, especially immigration, but they will be settled in due course.

The Czechs will never forget the Munich Agreement, where their treaty allies handed over much of their country to Hitler (without the Czech government being in the room.) They’ve joined NATO, but will never again be confident of someone else defending them. Nor do they plan to defend themselves, with a small army based on 6-month mandatory conscription. They are very proud of their cultural heritage, but realistic about their dependence on others to maintain it.

Austria too, is proud of their heritage, but Vienna especially still pines for the empire of 100 years ago. They are quick to mention that WWI shrunk the Hapsburg’s rule from 54 million to 8 million people overnight. They point to their palaces and say “Yes, we are a small country now, but look at who we were.”

Slovakia is just so damn happy to be a country. Their public art and advertising is full of wacky humor. They are proud to have qualified financially for the Euro where their EU admission contemporaries (The Czech Republic and Hungary) have not yet reached the threshold. They have virtually no history as a nation-state, and I got the impression that they were enthusiastic about working with a clean slate.

Hungary is interesting. Occupied in succession over the last 1,000 years by the Mongols, Turks, Austrians, Germans and Russians, they still focus on the glory of the independent Hungarian Kingdom prior to the early 1500s. This seems to be a PR point for the right wing nationalists who are now in power; although liberals have the moral support of the 1956 Hungarian Revolution, which remains huge in the national consciousness.

History in your business.

What does this have to do with business ownership? History begets attitudes. Your culture is based on the legends and beliefs you hold as an organization.

Some businesses are like the Czech Republic. They know that they are subject to the vagaries of larger customers or suppliers, but try to make themselves too desirable a partner to ignore.

Some are like Germany. They acknowledge the past, but have learned to compete in the current environment on their own terms.

Some are like Austria. They seek recognition for who they used to be. They are successful enough today, but feel that their partners in commerce should show some extra level of consideration for their past achievements.

Some are like Hungary; angry that they can’t influence their surroundings as they once did. They spend too much time complaining about what is holding them back (regulation, competition, customer demands) and not enough working to overcome those obstacles.

And some are like Slovakia, just happy to be in business and making the most of it.

What is your attitude regarding your company’s history and position in the marketplace? You can be sure that it permeates through your organization, and “tourists” (vendors, customers, prospective employees) get a sense of it.

Please share Awake at 2 o’clock with another business owner. Thank you!


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4 Responses to History Begets Attitudes

  1. Doug Roof says:

    Using the analogy between a handful of European countries and the population of small businesses is a great vehicle for driving home your argument for the importance of history in forming the attitude of a business, John. In so doing, you’ve offered a real thought-provoker to business owners/leaders. You’ve also given them an approach to open a conversation about company history and attitude with their employees. Thank you.

  2. Kelly Hall says:

    As usual – the master at work with your observations! Happy you are scheduling some depressurization time! Will use this nugget of wisdom on a client today!
    Kelly H.

  3. Kelly Hall says:

    Nice article!

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Business Buyers: The “Buy Now, Pay Later” Generation

If you are preparing to sell your business, your buyers will likely be members of the “buy now, pay later” generation. Generation X is the first demographic group to be raised in a culture that put little emphasis on savings.

Diner’s Club was introduced as the first “charge card” in 1960. By the end of that decade competition from member cards (American Express and Carte Blanche) and bank-owned revolving finance cards (MasterCard and Visa) began placing millions of cards in consumers’ hands.

credit-cardIn a competitive credit environment, advertising for the revolving charge cards was directed to the pleasures of paying for something after you already enjoyed the use of it. The struggle of saving for a long time before purchasing was portrayed as foolish and unnecessary. In the 1980s and ’90s Baby Boomers on the quest for material success embraced the concept wholeheartedly.

This is the environment that today’s prime business buyers between the ages of 35 and 50 grew up in. Americans reached the height of “buy now, pay later” just after the turn of the century. In the early 2000s, when Generation Xers were between 28 and 45 (the prime consumption age range) Americans spent about 2% more than they earned annually.

That was a great formula for boosting an economy, but a lousy way to amass capital for investment. That credit-fueled boom died a gruesome death in 2008, and many debt-laden Xers haven’t yet recovered.

These are the buyers for your business. Many have grown up believing that personal financial management consists of parsing a paycheck to allow enough for food after their installment payments. The US savings rate has since recovered to a more normal 5%; much of it fueled by Boomers belatedly preparing for retirement.

If you’ve spent the last 30 years or more building a business worth a million dollars, you need to find one of these folks who has put aside at least $300,000 or so to buy it outright (a down payment to qualify for financing plus initial working capital.) There are such buyers, including escapees from corporate life with substantial retirement plans and those who will be inheriting their parents’ savings.

Most buyers, however, don’t have that kind of money. If you want to realize full value for your business, you may want to think about how to accommodate a “buy now, pay later” approach. A buyer who writes a check is more appealing, but good business logic seldom results in complete dependence on a long-shot strategy.

There are four ways to sell a successful business to folks who have no money. The more time you have to implement a plan, the better its chances of success. In order of my preference they are:

  • Best – Sell to Employees. A five to ten year period is usually sufficient to get a “down payment” (25-35%) into employees’ hands via stock incentives. The best scenario is earning the awards by growing the value of the business. In a strong company, the owner can leave with the full proceeds in his or her pocket, and remain in control until retirement.
  • Better – Hire Your Buyer. This is similar to a sale to employees, but you use the equity plan to recruit a more highly qualified individual than you could otherwise attract. It is better in the sense that the buyer may be stronger, but the time up front to make sure he/she is a good fit represents a risk.
  • Good – Finance the Down Payment. For many lenders, including the SBA, stock sold via a subordinated note can qualify as a down payment. It means you walk away with 65-75% of your money, and leave the rest in the business until the first-position lender is comfortable with the stability of their risk.
  • Worst – Finance the Purchase. This is often the scenario for an owner who waits too long to consider the options. Whether the buyer is an employee or a third-party, you sell the company for a promissory note and hope for the best.

You have options, but they disappear one by one as you get closer to your exit. That’s why we encourage planning. Having a plan in place doesn’t require immediate implementation, but it does help when evaluating opportunities.

For more on Boomers and Buyers, you can download my free eBook Beating the Boomer Bust.

Following my own advice, I am leaving on my biannual sabbatical. Awake at 2 o’clock will resume on November 6th. In the meantime, please share it with another business owner. Thank you.

Posted in Economic Trends, Exit Options, Exit Planning, Exit Strategies, Selling a business, Strategy and Planning | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

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Time Bankruptcy and Communications Technology

A friend says that she hasn’t been able to tackle any new projects because she is in “time bankruptcy.” It expresses very well how she feels about her ability to control her schedule, but she has been claiming bankruptcy for over a year now. Even Chapter 11 reorganizations end sooner or later.

Colleague and time management maven Steve Davies in New York tells this story:

A man is transported back to 1991. Upon telling someone that he is from 2016 he is asked “What is the biggest change over the next 25 years?”

He takes out his smartphone. “We all carry these.” He says. “It is a telephone that can make video calls and a camera, but it also has all my contacts, sends and receives both email and instant messages, holds my entire music library, receives TV shows and movies, updates the news constantly, tracks my exercise and diet, and keeps my calendar. It tells me when I have a meeting, gives me directions to get there, and routes me around traffic.”

“Wow!” his acquaintance responds. “What do you do with all the time you save?”

The story is best told with a wry smirk at the end. Of course, our incredible time-saving technology doesn’t save any time at all.

Washing machines were going to free housewives for days of leisure. Automobiles would zip us from place to place, cutting travel time to almost nothing. Email would save the effort and drudgery of typing and circulating memos.

But we choose to utilize each advance in technology to do more. Washing machines allowed us to wear clean clothes every day (or in the case of teenage boys, multiple times daily.) Automobiles extended our tolerance for travel to the point where each of us now averages over 100 minutes in the car daily. (But at least we can make phone calls.) Email for most business people is over 100 “real” messages a day, without even considering the time spent erasing spam.

Time isn’t flexible. You can’t store it or make it up. A minute gone is a minute gone. Time-saving technology is only useful if you use it to do exactly what you were doing before, only faster. When you employ it for added work rather than enhanced productivity, it becomes just another demand on your time.

time-bankruptcyI think more of us are facing time bankruptcy as a permanent condition. The curse of communications technology is that we can start so many things, and take forever to finish them. Why settle for a couple of words that are “close” to what we want in a conversation when we can correct it one more time. Of course, the recipient has to acknowledge the final change (if he doesn’t make another himself) and you have to acknowledge the acknowledgement. Hey, it only takes a minute.

We feel guilty when we aren’t communicating. Have you watched a business audience waiting for a speaker, people on line at the DMV or even at the supermarket? No opportunity to pull out a smartphone and “catch up” is missed. Of course, when you do that, another person is put in the position of not being caught up.

I’d like to offer a solution, but I think it will take some time before we can develop acceptable socials mores that control the flood of communications in our lives. Until then, most of us will struggle with time bankruptcy.

Enjoy Awake at 2 o’clock? Please share it with another business owner.

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4 Responses to Time Bankruptcy and Communications Technology

  1. Does calendaring every minute of the day help?

  2. Mike Wright says:

    To solution may come in the difference between management and leadership. “Management is doing things right. Leadership is doing the right things.”Management’s purpose is to accomplish work efficiently. The phone can help this, but it also makes us spend more time ‘reacting’ to greatly increased stimuli. Leadership is responsible for setting direction and getting the things done that are most important to success. If we can get back more time to spend thinking, planning and acting strategically in a changing world we could accomplish more important things.

  3. Time bankruptcy – I lovge it. So true. Technology is one thing our behaviours another. Someone said to me once “What about if Bill Gates came before Alexander Bell. We are sending everything through email and Bell comes along and says; Don’t worry I’ve got this! I have invented a phone, you can get through to people straight away” Yeah right!

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Trust in Business and the Law

Every day, in almost every transaction, we rely on trust in business. We believe that a customer will pay us according to the terms of a sale. Our employees have access to money, goods and confidential information because we trust them.

We order goods from far away, perhaps in another country, and trust that when we open the boxes what is inside is what we ordered. We present credit cards to retail clerks or waiters and trust that they aren’t selling our information to thieves.

In the last thirty years we’ve had a flood of new laws. According to some reports, almost 80% of them are now enacted by bureaucratic fiat. A government agency issues a rule, including the penalties for non-compliance. Regardless of where it comes from, a rule that carries punishment is a law.

The US Chamber of Commerce estimates the cost of business complying with new regulations. It is over $10 billion in added expense every year. In 2015, we added over 3,000 new laws to the book, although Congress only passed about 200 of those.

But has this made us more honest? Why are we even more suspicious and protective than ever before? I think we’ve come to depend on laws over trust, and that is a mistake.

We have a candidate for President who admits that she endangered national secrets in an attempt to keep her emails from the eyes of the very government she worked for, but points out that she broke no laws.

She met with representatives of foreign governments who simultaneously petitioned her office for benefits while they paid her husband millions of dollars for an hour’s work, but they broke no laws.

The other candidate admits that he siphoned large sums from companies that he then put into bankruptcy, ruining hundreds of vendors and contractors, but he broke no laws. He calls it “smart business.”

This man acknowledges serial philandering on his serial wives, but wears it as a badge of pride. He makes outrageous claims that he could easily substantiate, but refuses to do so because the law doesn’t require it.

broken-trustWhatever the outcome of this election, it’s plain that we will have a President whom the majority of the country doesn’t trust. If they’ve shown us anything, it is that laws alone can’t coerce honest behavior.

Yet we are expected to rely on trust in business every day while complying with regulations designed with the worst players in mind. How many business owners pay employees less than the law allows? Whom do you deal with that you know defrauds their customers?

None the less, the government cranks out 15 new laws every working day, and even the most honest and upright among us have to share the burden of compliance.

No volume of laws can replace trust in business. It’s sad that we are about to elect a President who makes that plain.

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

Posted in Customer Relations, John's Opinions, Leadership, Politics and Regulation, Strategy and Planning | Tagged , , , , , , , , , , , , , | 4 Comments

4 Responses to Trust in Business and the Law

  1. Don’t forget the cost of hiring CPAs and attorneys to help comply with the law.

  2. John Hyman says:

    Almost everyone knows the axiom “For every action, there is an equal and opposite reaction” but have you considered this when writing a politically biased and provocative article?

    Point #1- when in our lives have we ever had a body of Congressman that we actually trusted? And recent changes to the campaign laws they enacted only serve to promote their ability to retain office and the agendas of a select few with deep pockets to donate.

    Point #2- Why are laws enacted in the first place? Are you so naive as to believe there is an anti-small business cabal operating within the government? All you have to do is look at the recent Wells Fargo fiasco to see why government regulations are necessary. Greed and ego are almost usually at the heart of a scandal and when left unbridled there is an ugly side to capitalism.

    Government exists to protect its citizenry. Yes, it is easy to cite examples of overreach, and yes, it is often burdensome to small business owners. But imagine what our society would resemble with little to no oversight?

    Yes, I have become more reliant on laws, because trust is hard to find in corporate and political culture today.

    • John F. Dini says:

      Well John, I don’t see how you could say I’m biased unless you believe everything about one candidate and nothing about the other. And sorry, but I don’t agree that “They are all like that” is an acceptable justification. My “majority don’t trust” comment is the result of dozens of reputable polls. It is a fact, not an opinion. I have little respect for either “right wing attack journalism” or “the liberal media.”

      As to part 2- you are treading close to trolling territory. Who said anything remotely about a conspiracy, and why would I be naïve? Of course the government has a role in protecting it’s citizens. Another fact. Since the 1970s we’ve seen an explosion of new laws. My point is that they take the least common denominator and apply it to everyone. (How many of us really need a warning that hot coffee is hot?)

      I don’t often take on political issues in my column, but I also find it tough to ignore a topic that is brought up daily in my conversations with owners, which is a broad lack of enthusiasm for either one of the people who will be the next President. Last fact: a total of 9% of eligible voters cast their ballot for either Clinton or Trump in the primaries. A democracy gets the government it deserves.

  3. Mike Wright says:

    The stated purpose of Government is “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence (sic), promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…” I don’t see that the points made are politically biased. I believe we should ask of all politicians, whether their actions are honestly motivated by this purpose or for their own personal interests. It is strongly held that the foundation of our uniquely American form of capitalistic system was made possible by trust that sprung from religious beliefs of our founders. We have moved away from spirituality, but it cannot move away from morality and its stated purpose. How can politician revise morality and redefine life, liberty and the pursuit of happiness every two, four or six years based upon the convenience of a simple majority of less that 70% of the people.

    As a business person with some financial understanding, it seems that every new citizen of the US (born or immigrating) is now assuming a debt of $ 60,000. This is to pay what our government has spent and continues to spend to insure they are reelected. My limited understanding is that this can only be paid back through business activity or spoils of war. The later is not currently palatable.
    Under the current political leadership our Gross National Product is not sufficient to sustain this in the future. I haven’t heard anything during this campaign that causes me to trust that the candidates can understand let alone solve the problems. How can we trust that the laws and regulations that they create will correct them. I want to trust! I want something better for my grandchildren and yours! We seem to be going further in the wrong direction!

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Ownership Transfer and Employee Security

employee-group-bwWhen we start planning for the sale of a company, many owners ask me about sharing information with employees. They are naturally concerned that an ownership transfer will cause their workers to seek more secure positions elsewhere.

This is true whether you anticipate an external sale to a third party, or an internal sale to employees and/or family. It usually isn’t the new owner who is feared, it’s the absence of the old. If you are the founder of your business, the problem is especially acute.

Most owners don’t harbor delusions of grandeur. They know that building a business is mostly hard work. You have to be smart, but not necessarily a genius. A reasonably intelligent person with the proper skills could likely do your job, especially if you’ve developed management talent throughout your organization.

Selling the business is also something of a self-fulfilling prophesy. If it really can’t survive without you, it isn’t saleable anyway.

Any ownership transfer takes some time. Marketing for and negotiating with a third-party buyer may encompass a year or more. Transitioning to internal buyers is usually a multi-year process. The timing of announcements to employees is driven by both external and internal considerations.

The external forces are defined as those that require cooperation from key personnel. If your managers are to be the buyers, the need is obvious. When you are selling to a third party, the cooperation of key management is usually needed to prepare listing and due diligence information.

If you are informing key personnel early in the process, it is also a good time to discuss “stay bonuses;” incentives for working through a post-closing period. We’ll discuss structuring those in another column.

In most cases, I recommend making a general announcement to employees as soon as a deal is certain. For an internal sale, that is usually when all the ownership acquisition documents are signed, even if the final transfer is several years away.

In an external sale, “certain” is a less definable concept. It is not certain when you sign a Letter of Intent (LOI). It probably isn’t certain when you sign the purchase agreement. After any necessary financing is in place, and the buyer has cleared all the contingencies to purchase, it is usually  time to make the announcement.

There are three “internal considerations” that drive the timing of a general announcement to employees.

  • Clarity: Presenting them with a fait accompli, including details regarding the new owners and timeframes, avoids unnecessary speculation about what might happen.
  • Control: As you disseminate the news to customers, vendors, bankers and other professionals, it will get out. You want the employees to hear the real story from you, not second- or third-hand.
  • Inertia: The longer the time frame between your announcement and the actual event, the more likely the employees are to settle in and take a “wait and see” attitude.

Handled correctly, an ownership transfer offers your staff more security, not less. Ask them if they thought you were immortal. Unless they are deluded, logic dictates that some arrangement was needed to keep their jobs after you moved on. As a caring owner, you’ve taken steps to secure their future.

Do you know a business owner who would enjoy Awake at 2 o’clock? Please share!



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