A Few Changes
About four years ago I nodded off in my recliner, and when I awoke, I discovered I was now enrolled in Amazon Prime. A similar thing happened today. I checked emails and learned that somehow Paid Subscriptions had been turned on, and two people had subscribed. Effective immediately there will be a paid option, monthly $5, annual $50.
In celebration, new posts will be on a green background. Let me know what you think of the new look. Most of the content will remain free. Paid-only posts will likely be series, beginning with one on how to start a new business and make it work for you. Others will be on buying and selling businesses and Change Management. I worked a great many twenty-hour days learning how to do those things, and don’t want to give away the whole cow, when the economy is stumbling.
It isn’t easy being green
I shall begin one of the series in this post, on buying and selling businesses. I’ve started a number of businesses and given most of them away. I’ve been engaged several times to help sell a business, and for the most part had little success. Typical of how it went was trying to buy a business on behalf of my employer, a Fortune 500 company. I arrived in Ottawa, Canada, on a crisp afternoon coming straight from Toronto where I had spent the entire previous day trying, unsuccessfully, to dissuade my employer (unsuccessfully) from buying Swiss Air’s book of IT business. We were already too heavily invested in airline support. In Ottawa I spoke with the senior management of the company and retired to my hotel that night. The next day I was headed back to the company when I got a phone call from my wife. The date was September 11, 2001.
I also tried to buy Jeppesen the previous year, only to learn that Boeing was ready to outbid me by $1B. I’ve taken on helping others to sell their businesses. There are various ways to go about the task, but they all begin with “Why?” The first such engagement I accepted was the sale of a business in a U.S. overseas territory. I asked the owner why he was selling and got a surprise. It seems he had purchased the business from someone with payments over time, finishing with a large balloon payment. He didn’t have the money to make the balloon payment. Otherwise, I asked, did he want to keep the business? Yes.
Why?
The solution was simple. I called a fellow consultant whom I trusted who could do what needed to be done quicker and cheaper than I could. Within two weeks the other consultant had found money for a bridge loan to the owner, the previous owner was paid off, and the owner was happy. The other consultant pocketed about $15K for his efforts, while I was happy with making $200 for an accurate diagnosis of the problem.
Since then, I have turned down far more offers to hire me to help sell a business than I have accepted. Typically, it involves a small services business whose assets all went out the door at closing time. It was still owned by its founder, who had made all the sales. I was introduced to one such business owner by a client who was trying to sell his friend a sales management piece of business. I talked to Larry, found out he could see the horizon from where he was, and wanted to sell the business and have all correspondence forwarded to his fishing tackle box. His business was about 20 years old, and he was in his late 40s. I advised him to start immediately. Five years later my client called and asked me to call Larry and explain that my client wasn’t going to buy the business, which was worth far less than the $3M he was asking. Larry had had a heart attack, was in ill health, and the business was circling the drain. Only Larry had a reason to fight to keep the business alive. He needed to start an employee ownership program five to ten years earlier. Now, the employees knew the business was going to fail and were headed out the door. This is a problem with every founder-owned services company in which the founder has made all the sales. Unless the clients are under long-term contracts, there is no value in the client list.
I advised one client who owned a chip fab company to contact his clients about forming a consortium and buying him out. He knew more than I did about selling a business – his father had been Mike Millken’s (the Junk Bond King) partner who didn’t go to jail. I successfully facilitated one partner in an IT services company buying out the other. Most others were failures. Some had already committed to a business broker, a bad deal all around. Business brokers don’t do much that the owner can do on his own. I advised one owner to advertise on bizbuysell.com; another wanted to retire so that he and his wife could open an ashram (they were both devout Sikhs). He had talked to a large M&A firm, which wanted $450 per hour to write the “Deal Book” (a level-set of what conveys with the sale and what does not) and the same hourly rate to do the valuation. I didn’t need the money, so I charged him $90/hour for the same services.
Selling a small services business isn’t easy. There’s no manufacturing plant, there’s no inventory, there’s no land or building. One client was in the background investigation business. What made his company different from all others were two things: he had cracked the state and local government business, and he had near-zero turnover. Small services businesses typically have very high turnover rates in clients, as much as 20-30%. His was less than 1%. Gaining initial entry to the state and local government market is very difficult because every client wants the firm to have at least two years’ experience in the state and local government market.
The most common reason for services businesses to lose clients to their competitors is that the clients no longer felt loved. It’s true. Usually, the sales representative comes in all friendly and smiling, assuring the client that he/she is interested in a long-term relationship. The closest analogy is “Of course, I’ll still love you in the morning.” I have successfully convinced one (1) client to invest in relationship management staff to represent the interests of the client to his own firm. With services businesses in which the founder is the relationship manager for all clients, that’s worse than pulling teeth to accomplish. So, the founder can never retire. There’s a way to fix this.
This has been a short introduction to M&A, as an example of what the first article in a paid series would look like. I’ll be turning on paid subscriptions shortly. One final question for readers: I can take this beyond functionality to specific industries. I began doing that last year with manufacturing, supply chain and energy. I’ve worked in or with most legal industries some time, somewhere, in my life.
I've been noticing this post-script in all of the Substacks for the past month:
X is free today. But if you enjoyed this post, you can tell X that their writing is valuable by pledging a future subscription. You won't be charged unless they enable payments.
That has mystified me. I wonder who made the executive decision to do this. I wish you well, Bill, and I wish I could afford to be a paid subscriber. I wonder if Substack posted that to the tail on my latest Carlton the Pig story. If so, I'd hate to have paid subscribers. That would put pressure on me to write more often and would likely add me to the list of unexpected deaths in the USA.
We live in a material world.
Hate the new look. Glad some posts will remain free. Think your expertise would be well-worth paying for if I was gonna do anything business-related.