Downfalls

Family businesses tend to have short life cycles.  According to an article in American Express’ Open Forum, only thirty percent of family-owned businesses make it to the second generation and only thirteen percent make it three generations. The likelihood of survival shrinks with each generation. 

I used to consult with a number of small businesses and ran into a huge number of examples involving second, third and fourth generation owners and managers who really had no clue how to guide their companies and quite often bled the businesses dry of money or just ran them into the ground.   Today, you get my opinion on this cycle. 

Here’s how it goes.  Dad or Mom open a business.  They work so very hard to get it off the ground, spend evenings and weekends doing the work.  If the business survives and grows, it eventually can pay off by providing a decent lifestyle.  Entrepreneurs become very attached to their businesses and develop a strong ownership tie.  The business grows and adapts.  It takes on a life of its own.

If that business succeeds, the owner eventually may hand it off to the next generation.  That generation has come to know the benefits that the business generated and if the children are smart and humble enough to handle success, they will continue to grow and manage the family business. 

Their children, though, would be raised in a much more privileged environment.  They would have all the fruits of success and most likely would not grasp the connection between the work in the family business and the benefits derived.

By the fourth generation, trust funds are available.  Those children will be happy to enjoy their inheritance and most are not inclined to work in the family business.  In fact, there is a sense of entitlement held by the majority of the children and this is where the business begins to suffer.  If the family is large, the trust funds can dwindle at an alarming rate.  Management becomes a lot less capable.  The company falters, slides and stands a greater chance of failure.  Each successive generation will drain the assets further until there really is no company left at all.

At some point, past the peak of success, the family will tout its greatness and talk about how much better they are than the rest of the competition.  A few may say, “We were once great and we need to get back to it again.”  Few will actually know what it would take to build or rebuild at that point.  There are answers, though.  One of the best solutions is to bring in new builders who can take a look from the outside.  They take the risks that entrepreneurs might take.  The company can grow again.

The problem with bringing in outsiders, though, is that the great family of descendants who have had ownership are not going to want anyone to take the company away.  It is impossible for inheritors and entrepreneurs to get along.  The inheritors depend on what is generated while the entrepreneurs want to use what is generated to create growth.  The values clash.  Usually the inheritors win and the company dies. 

The United States is going through this cycle right now.  The current ‘inheritors’ are fighting to keep everything from the hands of ‘outsiders’.  We want to stop immigration because it forces us to spread the wealth on which we depend.

The problem is, we need immigration.  The people who are willing to be entrepreneurs, who can bring new growth and who can help us to build are the very people we are trying to keep from entering our country.  It is foolish and will lead to stagnation and eventually the complete loss of our own country.  That is an underlying truth and will not change. 

No, I am not ‘going all liberal’.  I am, however, completely against closing our borders.  The fences that we build will do nothing more than keep us from working with the rest of the world.  No one outside will suffer any more than they do now.  Those of us inside will wind up cannibalizing our own inherited resources.

Done with my rant.  On to less relevancy and a little bit of entrepreneurship.  

Respectability and the economy

Making things with your hands is not respectable.  People who manufacture are looked upon as lower middle class at best.  If you truly want to be part of the cool crowd, go to college, get a degree in engineering and work for a research company or maybe an architectural firm.  You could even design cars for an automotive company as long as you wear a suit and tie to work.  Have fun paying off the school debt.

The United States middle class is considered to be a shrinking segment of the population who are, as defined by Google, “the social group between the upper and working classes, including professional and business workers and their families.”

Stan Shih, founder of Acer, had a concept called the Stan Shih Smile Curve.  He evaluated the various components of a product cycle in terms of economic value and put together a curve to show the highest and lowest values added to a particular event.  For instance, the romantic virtues including Conceptualization, Research and Development and Branding all have high added value.  Sales and marketing also have high value.  The lowest added value events are primarily in manufacturing.  Here’s a reference to a picture of Stan’s smiling curve. 

Basically, the curve tells us that manufacturing a product adds very little value to it.  We’re all about the branding and the marketing these days.  The trouble is, we seem to have forgotten that if we don’t produce anything, all that grand inventing and marketing leaves us with nothing to actually sell.  Sometimes Gofundme accounts look a lot like that.

 

The United States has seen tremendous invention and some of the greatest marketing programs in the world.  We buy stuff.  We create more stuff to buy.  We are innovators.  And we make less of it all every single day.  Making it is not just at the lowest point in the Stan Shih Smile Curve.  Making stuff is not glamorous or cool or even respectable. Since it doesn’t come up to Middle Class,  we send the manufacturing job overseas to the poor countries where they can pay a worker a dollar a day to make stuff that we can buy.

The problem is, if you cut off the manufacturing part of the curve, you are left with a pair of parentheses ( ) with nothing between them.  The cost of manufacturing goes away and comes back as a wholesale price.  The money to pay for the product left with the manufacturing.  There are less people building and making an income and so less people have money to spend on the fabulous products promoted by incredible sales campaigns. 

We are creating a closed economy.  We’re sending money overseas to maintain the factories and then we’re paying an overseas company to sell our produced inventions back to us.  The money that would have stayed in our own economy and been used to buy the products now has to be borrowed from somewhere, usually through credit cards.  The parentheses are actually more like a drain hole.  The money doesn’t come back to us ever.  It gets used in other economies.

For most factory production, it is too late to make a change.  We won’t be moving anything back home in the near future.  It certainly would be a good idea, though, to reconsider exporting any more of our factory work.  Of course, that’s another topic.  I owe another blog this month anyway.  

Message from a conservative

Yes, that’s me.  Conservative.  Let’s play with that little word today.

I went to college at U.C. Berkeley.  I graduated with a student loan of $500.00.  My tuition was $312.00 a quarter and my room-and-board was $1,750 for six months.  I worked part time for most of the four years I was there.  I worked nearly full time my last quarter.  Part of the extra loan was for my second ski vacation to Utah with the Cal Ski Club.  When I went back to graduate school at Cal State Hayward, I paid my tuition and finished school free of any loans.  At the time, I was working as an accountant and was the sole earner for my wife and child.

The other day, my very liberal son-in-law stated that he wants Bernie for President because he thinks that college tuition should be free.  I respect that belief.  In fact, I support it.  Only forty years ago, I went to school practically for free.  I think that some of it should be paid for, but any person who graduates college owing more money than they can possibly earn in the coming two or three years has my absolute sympathy.  I got a nearly free education.  Every kid who wants one should have one too.

The fact that this is a political issue makes me a conservative.  Google’s definition of conservative states that it is ‘a person who is averse to change and holds to traditional values and attitudes, typically in relation to politics.’  Of course, the internet adds synonyms like ‘Reactionary’, ‘Right-Winger’ and my favorite, ‘Diehard’.  In other words, my conservatism puts me in opposition with my son-in-law. 

Take a moment and reconcile this.  Bernie Sanders wants free tuition.  I want the same thing for my grandchildren that I had.  Bernie is seen as the angel of change.  I am a Diehard Right-Winger.  Our disagreement is in how it is paid for.  He thinks that we should add taxes to the rich in order to pay for it.  I think that we should go back and find out how it was done before.  Maybe we could gain a little knowledge from the past.  Yes, it is a conservative point of view.

My health insurance was nearly free back in the ‘olden days’.  I managed to make a salary of $32,000 a year, own a house, two cars and, at the time, had three children.  Once again, I was the sole income earner.  Oh, and thinking back, the house I owned was a duplex which cost $119,000 and came with a 30-year interest rate of 8%.  One of the cars was a brand new Subaru that cost $20,000.  Just so you have perspective.  This was during the early 1980’s in the Bay Area of California.

Now we have established a perspective.  A few things cost less.  Insurance was one of them.  Kaiser Permanente had just begun offering inexpensive HMO’s and we pretty much had our pick of doctors and facilities.  The whole plan cost me around $150.00 a month with around a $200.00 deductible.  That was it.

Today, I want the same thing.  After all, it doesn’t cost any more for a doctor than it did back then.  Not really.  Of course, they owe a ton more on their student loans so they have to charge for that.  So why do we pay so much more?  Again, remember, I am the ‘Die-Hard Right-Winger’.  The people who have provided us with the jump to our current HMO plans have given me a plan costing $790/month as an individual and my personal deductible before ANYTHING is paid is $6,000.00. 

All of our more progressive presidential candidates offer up affordable health care (although I hear the whispered ‘for the low income earners’ quite often attached to the affordable part).  Their offers are all viewed as great changes.  My conservative point of view says, “Hey, let’s go back and figure out why it costs so much today when we paid so much less only 40 years ago.  Maybe we can learn something.”

Get where I am going with this? 

Once upon a time, long ago, George Santayana said “Those who cannot remember the past are condemned to repeat it.”  He didn’t have a very good outlook on the past.  What if we remembered history and saw some of the good in it.  Could we not repeat it voluntarily?  Perhaps that is the ultimate in Conservatism.    

Dream on, MacDuff.   And lead on, Diehard Right-Wing fool.

Uh oh, A Horse Story!

Reader Beware:  Another Horse Story

 

Not long ago, the temperature dropped well below zero for a few days.  The wind blew, too.  It was cold.   During that period, I would feed the horses twice a day and that was the extent of our contact.  The barn was so cold that the cats got a heating blanket.  The horses weren’t happy and I didn’t enjoy it at all.

My horse, Sam, loves routine.  He meets me at the barn gate each day and we talk for a minute before I head inside to get his hay bags.  A couple of days after the cold front hit, he stopped meeting me.  Instead he stood watching me from about a hundred feet away, while I walked up to the gate.  No amount of calling or coaxing would bring him up to me.

Horse people will tell you that this is a sign of disrespect, that a horse starts to get dangerous when he makes up his mind that he is in charge.  That was how Sam acted.  He would not move or come to me at all.  In fact, I started to get a little bit upset about his behavior.  We, I thought, had a deal.  A big part of the deal was that Sam meet me each morning and we talk.  Simple.

One afternoon, I had enough.  I opened the paddock gate and stomped in, ready to give Sam a large piece of my mind.  I was going to back him up, move him forward and get him back to ‘obeying’ our agreement.  He stood watching as I walked closer and something stopped me from getting active with him.  I stood, about 20 feet away, and pretended that I had no idea he was there.  Normally, this elicits the proper response of Sam walking to me.  This time, nothing happened.

I moved farther down the paddock and away from him.  I stopped and looked off into the distance.  After a short time, I looked back.  He had quietly turned in place and was facing me.  I walked farther, turned to look at him and he had turned yet again.  He would wait until I was not looking and then change his direction.  He always remained exactly where he was, though, and never moved an inch closer to me.

I walked quickly down to the pasture.  Normally he follows me down.  When I disappeared behind the trees and could no longer see Sam, I stopped again.  No sound, no sign of movement came from the paddock.  I inched around a tree that was hiding me and there he was, still in the same spot but facing directly at me. 

Thoroughly frustrated by this point, I very quickly strode up the paddock right at him.  He watched, unmoving, until I got to within a couple of feet of him and then turned with me as I passed him.  I kept walking, so did he.  After a few feet, his head was at my shoulder and I could feel his warm breath on my face.  We kept moving, then stopped, turned, and walked again.  Each time, Sam moved right along with me.  We walked around the paddock a little bit and he never once left my side.  In the grand scheme of things, this was a ‘moment’.  I had tears in my eyes.

All it took was a little bit of attention.  Sam wasn’t being disrespectful and he certainly didn’t try to push me around.  He just wanted attention.  As soon as he got it, he was fine again.  It was a good lesson.  It applies to all sorts of moments in life.  We think about our children acting out and see it as a cry for attention.  I look at an employee’s chronic mistake issue and try to find out whether they are lacking in attention, feeling underappreciated, or have just stopped thinking. 

Everything boils down to attention at some point, most likely.  I am so glad that the days are getting longer.  It gives me a chance to go see Sam for a few extra minutes during the daylight hours.  

Sam enjoys being led by his friend Max.

Supplies with Demands

I receive at least two order status requests every day from one of our customers.  The process is automated.   Every email reply or request that we make goes unanswered.  We asked the customer to stop or at least cut down on the number of times they send these.  The customer has ignored us. 

One status inquiry proved to be for an order we have never received.  The customer was notified.  The requests for that order continue to arrive.  I wrote a rather direct note to the customer to let them know that we are absolutely tired of receiving the requests and we no longer have time to respond to them. 

The customer failed to respond and the emails continue to arrive.

This year, I raised my prices to that customer.  Call it an Attitude Adjustment. 

Another customer sent a request that we begin processing their payments on a credit card.  They still wanted net 30 terms.  They just wanted to put the net 30 terms on a credit card.  Otherwise, they told us, they would be paying in 45 days. 

We responded to the customer by giving them a choice.  We would be happy to process their payments via credit card with a 3% surcharge to their payments to cover the cost of credit card processing.  Or, they could continue paying us in net 30 days by check or by direct deposit since that is our payment term. 

The customer was horrified at the thought of adding a service charge to their payments.  Their whole goal was to accumulate air miles at our expense.  Paying a premium to do so really wasn’t worth their while I guess.  We still receive a check and the terms are still net 30.

Getting caught in an automated system isn’t new.  Using it to be an electronic squeaky wheel is pretty darned novel.  Tossing credit cards and ‘delayed payment’ threats at suppliers is ridiculous.   Do our customers actually think that we are intellectually challenged?  Perhaps they believe that we owe those customers a huge debt of gratitude for actually paying us on time.  Or for giving us the opportunity to do their work.

We are in business for the very same reason that all other businesses are in business.  We all want a place to go that gives us money for things that we want.  Sometimes we are passionate about our products.  Sometimes the job is all we need to be happy.  Sometimes we even enjoy our work. 

I have never, though, heard of a person in any business saying that they are in business for their customers to take advantage.  I have never heard anyone say ‘wow, it’s so great that my customers treat me like crap, demand more than I offer, want to pay less than I charge.’  No one ever said that it makes their day when a customer expects them to grovel and beg for the work.

Conversely, I do occasionally hear the words, “it has been a pleasure to serve you.”  Those priceless words are earned, you know.  They indicate communication, graciousness, an involvement in the work, product and job and a relationship.  The phrase tells the customer that the transaction provided both supplier and buyer with what they wanted and that the supplier appreciates the customer’s attitude, request and ultimate purchase.

While I am a supplier during the course of my business, I also buy things.  When I do, I listen to what is offered, decide whether the offer suits me, purchase, request information and above all, treat the supplier with respect.  After all, it is nothing less than polite.  It is also likely to earn me a smile, better pricing, faster service and a better attitude.  And it is exactly the way I want to be treated. 

I spend a lot of time looking for reasons to tell someone that it has been a pleasure to work for them.   There aren’t a lot of opportunities these days.  There really should be more.

My Thoughts for 2015

This is necessarily a short blog post.  First, it is past my bedtime.  Second, it has been a long month and a half of very large amounts of work and problem-solving and we are very near the end, which leads me to desire nothing less than a rest.  Third, if I stay up too late, I will drink more wine, eat things that are not good for me and feel ill in the morning.

 Tonight I spent a little bit of time reading some posts on Facebook.  Some of the posters, okay most, are just there for laughs or are sharing the meal portion of their lives (why do people on Facebook always want to show us what they are eating tonight?).  Some are my children who share children pictures. 

Occasionally, I read a thought-provoking comment that causes me to wander into the philosophical or political arena.  Tonight, Mike Rowe posted a good commentary regarding a response he made to a Bernie Sanders ‘Tweet’. 

Okay, an aside.  Mike is absolutely right.  Any political, moral, opinion-based or supposed factual statement that is made in one hundred forty characters or less is not subject to anything less than straight interpretation.  If an ambitious politician and his or her staff want to use something like Twitter to further their campaign, the phrase ‘What I meant was…’ doesn’t count at all. 

Bernie’s tweet:  “At the end of the day, providing a path to go to college is a helluva lot cheaper than putting people on a path to jail.”

I’m going to refrain from making a comment on ol’ Bern’s twit.  Or Tweet.  Whatever. 

Mike Rowe responded.  He used Facebook because his response required more characters than Twitter would allow.  He was lambasted for it, apparently by Bern-folks.  They felt the need to do the ‘What I meant was…’ thing on the presidential hopeful’s behalf. 

I digress.

My own personal thought was this. 

After considering higher education and college degrees, neither of which are possessed by most of those who work with me (I have a tough time calling them my employees), it occurred to me that one thing, above all else, is important. 

If you encourage thought by providing an environment where all thought is rewarded, people will think.  They will, in fact, prove ingenious.  They will develop their own systems, their own methods for control of quality and their own standards.  They will improve.  They will better themselves.  They will become involved.  It is a fact as truly as is the statement that “you know it’s cold outside when you go outside and it’s cold.” 

I am proud and happy to work in an environment where people think.  My primary job is to encourage them.  I don’t consider myself a manager as much as a coach whose primary responsibility is to see that decisions are made, that people learn from those decisions and that they contribute to the growth of their company.  

This year we did well.  Sales grew.  People grew.  Those who showed initiative were rewarded.  Some made detrimental decisions and those choices were pointed out.  They were never derided, though.  They were always encouraged to try again.  And they made me very proud.

It is a tough thing to hold back from telling people what to do.  It is even harder to ask for advice, to voice a thought without telling someone how he or she should respond, especially as a manager or a leader.  There are some amazing rewards, though.   A smile or a conversation with a thoughtful employee is probably one of the biggest.

Merry Christmas and Happy Holidays.  Spend some thoughtful time.  

By the numbers

Business is a game.  Having a company involves passion and emotion at least until you run out of money.  Then you realize that you lost the game. 

A game like business is only slightly more complicated than Monopoly and the only major difference is that you don’t have to roll the dice or take a chance on Chance.  Essentially, though, the winner has the best bank account at the end.

Of COURSE I’m being simplistic.  After all, some people don’t care about money or share their money or give it all away.  The thing is, winning or losing in business all has to do with some form of currency.  Those who have more than they owe survive.  And those who owe more than they have eventually close.  There are no exceptions. 

I know that deep down in their soft hearts, entrepreneurs are aware that the game must be played out.  Bills have to be paid.  It does not matter one bit whether the entrepreneur cares about money or doesn’t.  The game of business doesn’t care any more than the sun cares whether it will rise or fall.  Personal greed has nothing to do with the game.  As long as there is more money than bills, you’re a winner. 

I am dismayed by the huge number of people, both individuals and entrepreneurs with any number of employees, who have no idea what their financial statements look like.  They don’t know how much cash they have in the banks.  One client told me that he had no idea what was being deposited to his bank account by one of his customers but that he trusted them to pay what he was billing.  Turned out they weren’t by the way.

Ask any couple about their bills or finances and at least one, if not both, will say that they ‘aren’t good with money/finances/bank accounts/credit cards’ so we should ask their partner.  And why?  ‘Aren’t GOOD?’  How hard do you have to study in order to remember that you carry a checkbook and that your bank balance is written on the ledger inside?  If you pay mortgage payments or rent, that’s probably a large sum of money each month.  How come you don’t know at least ABOUT how much it is? 

I’m a little bit nerdier than most when it comes to finances.  I measure my current ratio, my quick ratio and my D-E.  I manage my business through a combination of financial projections and cash flow reports.  I balance the bank accounts daily and pay payables the same, right when they hit thirty days for the most part.  I have receivables on a short leash and spend time reviewing delinquents at least once a week.  Really, it’s all kind of fun, at least for me.

To avoid doing any of this is to begin traveling the short road to an out-of-business sign.  Anyone who has a business has to know the difference between ‘cleared balance’ and ‘checkbook balance’ in their checking account.  I imagine at least one of my pair of followers is shaking your head right now.  “Who doesn’t know that?” you are asking.  How about the difference between profit and revenue?  I have a close friend who has a business and who doesn’t know the difference.  He struggles along, by the way, only because he is an expert of the highest degree in his trade. 

 Yes, this is a rant.  I spent time this past week ranting about the very same thing to my management staff.  I called it “A Learning Moment” and told them to all balance their checking accounts.  I think they giggled at me behind my back. 

And I don’t care.  Time to start closing the month of October.  It is the 30^th and I need to be done by November 3^rd.  Yup, just bragging.