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.

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.

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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!

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

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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.

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.

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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!

 

Posted in John's Opinions, Leadership | Tagged , , , , , , , , , , , , , , , , | 4 Comments

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:

    John:
    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 , , , , , , , , , , , , , , , , , , , | 1 Comment

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

  1. This is one of the most realistic articles I’ve read on the topic. Sellers would be wise to listen to their advisors, and be advised earlier than they think they should.

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