Holiday Terminations: It’s Not “Just Business.”

Posted on December 7, 2014 by John F. Dini

Yesterday, I received a comment from a woman on my column from 2012, “Holiday Terminations: Scrooge or Chicken?”. She had been unexpectedly terminated from her position, and said in part “Employee termination during the holidays is an act of spiritual robbery that has a devastating impact which is farther reaching and longer lasting than termination at any other time of year.”

My response included the following caveat: “If the termination is because an employee didn’t respond to progressive discipline or a performance improvement plan, then I don’t see an obligation to carry someone in the “spirit of the season.” You say that you didn’t see it coming, so I assume either it was due to overall business performance, or your former employer didn’t follow fair and equitable HR practices.”

If you read the original post, I strongly recommended that termination due to business conditions be accompanied by severance that will carry the employee through until the hiring doldrums subside in January. On the other hand, I don’t think an employee who has earned termination by documented poor performance has any vested right to the extra paid holidays and bonuses that typically come with the season.

IOU SantaPre-holiday termination can save an employee from incurring excess credit card debt. It puts them in job-search mode at a time when they have the most social connections and support from their family and friends. These factors certainly seem insignificant to someone who is newly unemployed, but they are in fact substantial.

I’ve often said in this space that downsizing due to business conditions is always tough, but an owner’s obligation to the remaining employees and other stakeholders (the owner’s family, customers and vendors) trumps the discomfort of an unpopular decision. Waiting an extra six weeks will never cause an employee to say “Gee, I’m glad he didn’t fire me during the holidays. What a swell guy!”

On the other hand, being unemployed during the holiday season carries a special burden, and obviously puts a damper on customary celebration. It’s not  “just business.” If it is necessitated by financial problems, it should come with compassion and consideration. If it was earned by poor performance, it should never be a surprise. The spiritual robbery referred to by the reader comes from the lack of warning and preparation time as much as the act of termination itself.

We run our businesses all fifty-two weeks of the year. Making the Thanksgiving to New Year’s period (about 12% of the entire working year) an automatic moratorium on necessary personnel changes isn’t “just business.” It’s bad business.

Posted in Management | Tagged , , , , , | 1 Comment

One Response to Holiday Terminations: It’s Not “Just Business.”

  1. Curtis Price says:
    December 9, 2014 at 2:42 pm

    If the termination was a documented performance termination, the Holiday can be looked upon as a bad time, but then when is a good time, there is holidays in January, February. What this means is there is no good time for the employee. What if the termination was for thief, sexual harassment, do you wait until after the holidays.

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The Secret to Growing a $1 million company by 5X

Posted on November 30, 2014 by John F. Dini

In my work with hundreds of small business owners, I’ve noticed that there are two “danger zones” where an owner may, consciously or unconsciously, prevent his or her company from growing any further.

The first zone lies at about $1 million a year in sales. Many owners reach a level of satisfaction with their personal income. The work is hard, but a single owner can do most of the skill-based tasks and still closely oversee what’s done by employees. Income and benefits reach a level that permits a reasonably secure lifestyle. The work week may be long, but the owner has sufficient discretionary funds to spend his or her time off on activities that feel successful (recreational vehicles, a second home, exotic vacations.) After struggling to build a business with meager resources, there is enough cash flow to cover operating expenses and leave a bit for “extras.”

The second zone is between $5 million and $10 million annually, depending on the industry. At that level the owner has at least a few trusted employees who can execute much of the day-to-day functions of the business. Personal income is comfortable. The time requirements of the business have usually fallen to a sustainable number of hours. The company develops a reputation of its own, and the owner begins to be recognized in business and community associations.

Growth PlantsI’ve studied the owners of $5+ million companies to see what was different from those who run businesses a fifth that size. I’ve seen both with creative, big-picture owners and both with micromanager technicians. They represented companies in product and service-based  industries. Some owners have a laissez-faire approach to managing people, and others insist on strong systems and processes that are followed diligently. For almost every industry, I can point to a company that has stayed at $1 million for a long time, and another with strikingly similar offerings, management style and markets that has grown much larger.

I’m convinced that the difference is an owner’s ability to set and achieve goals. In a word, it is implementation. The owner of a continually smaller company has many goals, but they are seldom achieved, or at least achieved on schedule. Everyone is too busy. The daily firefighting of customer and vendor problems pushes other objectives aside. Goals are redirected, excused, or ignored when they interfere with an employee’s “regular” tasks.

The more successful owner approaches goal-accomplishment as a normal part of daily operations. Achieving objectives on a timetable is an expected part of ongoing activity. Small crises and unexpected events are inevitable, but they aren’t allowed to create ever-extending deadlines for the important-but-not-urgent things that move the company forward.

Growing a business beyond the second zone requires a shift from an owner-centric culture to one built around management and systems. It isn’t for everybody, and many owners really don’t want to go there. Taking a business from a million dollars to several times that much, however, really doesn’t demand a complete change in culture. It just requires an owner who makes implementation of growth and improvement goals a core activity of the business, not merely a lucky outcome of its regular activities.

 

 

Posted in Entrepreneurship, Leadership, Management | Tagged , , , , , , , , , , | 3 Comments

3 Responses to The Secret to Growing a $1 million company by 5X

  1. Larry Amon says:
    December 1, 2014 at 2:17 pm

    John, Very true. Setting and achieving growth goals as part of every day business is what it takes to grow from a $1 Million a year company to one 5 times larger. This was a practice that we used to grow my company from $100K to $5 Million in less than 5 years and be on the INC 500 list as one of the fastest growing privately held companies in the U.S.
    Larry Amon

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  2. John H. says:
    December 8, 2014 at 7:56 am

    Although occasionally I have run into a business owner with a personal bias with regard to anything perceived as “corporate”. So implementing processes, or giving up tight control, is avoided. But for many SMB’s the observations shared in your post should are exactly what is needed.

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How Can You Sell a Business to a Buyer Who’s Broke?

Posted on November 23, 2014 by John F. Dini

According to a recent report from the Federal  Reserve Bank, over half (52%) of Americans could not pay for a $400 car repair without borrowing. We can assume that most of these folks would not be legitimate prospects to purchase your business, but what do your qualified prospects actually look like?

I use this space frequently to examine the impact of Boomer retirement, the transition of 60% of the privately held businesses in the US. If you are a regular reader, you’re at least passingly familiar with the demographic, psychographic and sociographic trends that combine to create a seismic shift in the small business landscape between now and 2025.

Overlapping birth charts(If you are not up to speed on this, download my free EBook collection of blogs, Beating the Boomer Bust. You will be shocked by the numbers.)

Another facet of the challenges facing Boomer business sellers is the lack of liquidity in the buyer population. It can’t be shrugged off as “Those kids just don’t save like we did.” As the Fed survey shows, the problem is deeper and wider than that.

Look at the change in household finances since most Boomers were starting out. The average debt for a newly minted college graduate today is $29,400. They’ve likely had multiple credit cards since they were eighteen. They were raised on a brainwashing media diet of instant gratification. Why should you go without something while you save to buy it, when you can buy it now? You have to budget the money anyway, sacrificing  by not enjoying a nice car or big-screen television while you pay for it seems stupid. Personal budgets are built around the ability to make payments.

On the other side of the transaction is a business that has been developed over decades. It has assets and cash flow. Not unreasonably, most Boomer owners expect at least a few hundred thousand dollars for the smallest business, and many are worth millions. How are these already-indebted buyers going to pay for a company when most can’t even muster a substantial down payment?

Yet, most small business owners still say the same things they’ve been saying for the last 20 years.  “When I sell my company, I’ll only accept all cash,” or  “I will never hold a note for my business.” That simply doesn’t jibe with reality. Buyers will expect financing. It is how they’ve purchased everything in their lives. If they don’t have sufficient net worth to attract a third party lender, the seller is the only remaining source.

The numbers don’t lie. Two-thirds of Boomer owners are 55 or older. The remaining third will reach that age by 2019. One alternative to competing with the throngs of sellers is to transfer your business on what is essentially a “layaway plan.” That method allows your buyer to work in the company while he or she purchases equity in small amounts, eventually building enough ownership to qualify for a third-party loan. It takes time and planning, but so does building a valuable entity in the first place.

Most of those who continue to wait for an individual with the financial resources for an all-cash sale are going to be disappointed.

Posted in Exit Planning, Thoughts and Opinions | Tagged , , , , , , , , , | 3 Comments

3 Responses to How Can You Sell a Business to a Buyer Who’s Broke?

  1. Neil Arthur says:
    November 24, 2014 at 7:41 am

    can you identify the source of the chart stats? thanks, N

    Reply
  2. Ted Leverette says:
    January 12, 2015 at 10:26 am

    What John Dini writes is so true. Seller financing sells businesses. Savvy buyers expect the seller to have some skin in the game post-acquisition.

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Smart Metrics and Dumb Metrics

Posted on November 16, 2014 by John F. Dini

“We doubled our profit over this month last year!” When I visit a coaching client, that’s a pretty exciting opener. Of course I want to know how and why. Too often the answer is “Well, last year this month had three payrolls,” or “We had two more working days than last year.”

If you have to explain the circumstances of a measurement, it’s a dumb metric. “Manage what you measure” is a pointless axiom when the thing being measured isn’t consistent. If your results vary because of circumstances beyond your control, how can you manage them?

In my most recent book Hunting in a Farmer’s World, I discuss the problems created when we stick to a farming calendar created centuries ago. Few industries (other than agriculture) actually function according to a twelve month cycle, but most continue to measure their results that way.

In the hospitality industry, a thirteen month year makes far more sense. Business volume is higher on weekends, and having a consistent number of weekends (four) in each cycle simplifies comparisons. Other companies in manufacturing and distribution pay attention only to quarterly results, because 13 week periods are far more consistent than 19 to 22 day months, which vary depending only on when the first day falls.

In a cyclical industry, such as those related to capital goods, an even longer cycle makes sense. Comparing numbers over a rolling three or even five-year period permits better analysis of trends and market share.

Fractioned appleThe whole concept of Key Performance Indicators (KPIs) requires that you compare between like things. The availability of big data allows it to be easily confused with actionable information. If 12% of my customers purchase a side order of Brussels Sprouts, and 23% order a Tiramisu, what does that tell me? Nothing. If 12% order the sprouts and 40% want the French fries, I may have information on which to base my menu design.

Useful business ratios don’t begin with the numerator (how many, how much), but with the denominator (of what?). Profit dollars, number of orders and labor costs are pretty useless data by themselves for comparative purposes . Margin percentage, closings per lead, sales per day and output per hour are critical management information.

If you are still reviewing your monthly P&L by mentally adjusting each month’s variables, you are wasting precious time. A twelve month cycle is required by the IRS, but that doesn’t mean you need to run your business by it. Choose ratios and periods that allow real comparison. Only those are smart metrics.

Posted in Uncategorized | 1 Comment

One Response to Smart Metrics and Dumb Metrics

  1. Steven Bankler says:
    November 16, 2014 at 9:57 am

    >>A twelve month cycle is required by the IRS, but that doesn’t mean you need to run your business by it.<<

    While technically correct, IRS does allow 52/53 week years, which includes 13 – 4 week months!

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The Luxury of No Resources

Posted on November 9, 2014 by John F. Dini

Among the Baby Boomer business owners who are beginning to plan their retirement, there are millions who founded the companies they plan to sell. Many of these were technicians when they started. They began as employees, and then used their skills to start a small business.

When you are bootstrapping a new business, there really isn’t much opportunity to make big mistakes. You can’t afford it. The “luxury” of no resources can be described in two ways. You don’t dare take the risk of betting everything on one course of action (because a wrong decision kills the business) and you simply lack the wherewithal to try anything, no matter how enticing, in a really big way.

No MoneyFor most startups, that means the owner undergoes a process of trial and error through low-risk experiments.  Advertising is limited. Hiring is cautious. The first option for any new skill required by the company is usually the owner. He or she learns how to do everything in the business, because it’s too expensive to pay someone else to do it.

Of course, most small businesses fail in their first few years. The business school explanation is that they are “undercapitalized.” The practical translation is “They have no money.” They lack the resources to hire highly skilled employees, or for aggressive marketing. For many that shut down, “undercapitalization” means simply that the business failed to generate enough money to provide the founder with a living wage.

Owners with sufficient creativity, tenacity and vision make it and grow an enterprise. Their experience in low-cost, trial and error experimentation becomes part of their skill set.  “Good decisions come from experience; experience comes from bad decisions.”

Thus, many technicians grow gradually into the role of business owner. A few bad hires at low wages prepare them for better decisions when taking on more skilled, higher wage employees. They can oversee all aspects of the operation, because personal experience with sales, marketing, and accounting gives them a broader knowledge base than just the operational skills they started with.

For any subsequent owner, this “Trial by (small) fire” approach to learning the business isn’t feasible. A successful business has too many moving parts to permit a gradual, start-from-scratch approach to building an ownership skill set.

Whether a retirement strategy involves transition to employees, family, or a third party, the first step is documenting the owner’s knowledge base. Expecting new ownership to simply “know” what to do isn’t reasonable.

My 48 page eBook, Beating the Boomer Bust, How Baby Boomers Changed the Face of Small Business in America, and Why it isn’t Over Yet, is available as a free download here. The password is “Woodstock.”

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