Is Your Business Making as Much Money as You Think It Should?

[Music] hello everyone welcome to the 21 hats podcast I'm Lauren Feldman your host every week I sit down with three business owners to talk about the challenges they're facing it's the kind of conversation you don't often hear in public our panelists address difficult topics like why their business isn't making as much money as they think it should why their digital marketing isn't working or why exactly they hired their brother-in-law owning a business can be a lonely and isolating Pursuit but at least you'll know that you're not the only one facing these issues got a question you'd like us to address send it to us and follow us on Twitter at 21h hats or on our website 21h hats.com welcome to episode one let's meet our 21 hats podcast team um I'm not sure this name is going to stick but internally we've been referring to them as our Mad Hatters that's a play of course uh off our company name 21 hats uh and it also acknowledges is that the people who have agreed to do this with me are are a little bit crazy uh both for living the entrepreneurial life and uh and for signing up for this project in particular uh but they're all smart and successful and willing to acknowledge and share the challenges that they faced along the way I think you're going to like them as much as I do so uh Laura Xander is CEO of Jimmy beans wool a digital version of a neighborhood yarn shop that is based in Reno Nevada how's it going Laura pretty well thank you especially now that you just called me mad great to have you here Laura give us a some sense of how big a company Jimmy beans is uh employees revenues sure um we are pretty small we've got about 40 people um our revenues have been floating between like seven and 8 and a half million for the last couple years um so just one big building um couple office people a lot of Warehouse people retail people marketing um not a huge operation compared to the other people on the call uh well Everything's Relative Karen Clark Cole is CEO of blink ux a digital research and design firm that's based in Seattle how's it going Karen good thank you can you give us some sense of uh how big blink is sure we're about 140 people um we've got five offices across the country uh Austin Boston San Diego San Francisco and Seattle and we're roughly about 30 million in Revenue um and we have grown fairly quickly in the last uh five even 10 years uh so we've been around for 20 years um so that's getting to 30 million over that period of time there's been some fast growth years and some slower ones William Vander blumen is CEO of Vander blumen a recruiting firm that specializes in conducting searches for church churches oh I like that searches for churches do you use that William we do from time to time yeah how's it going William it's going great man really appreciate you including me in this group uh lot to learn from everybody on the on the call uh I think we're all going to learn some things here William Tell us give us some sense of how big uh Vander blumin is I don't know how to answer that Lauren we we uh I mean we're a microniche business we help churches find their pastor and and we were an idea that didn't even exist uh the idea of executive Search in a church vertical is uh was unheard of and you know I don't know how much listeners know about the church but but church and new ideas are not exactly roommates uh so you know it takes a little while for churches to take on to a new idea so um we have about 40 full-time employees we're here in Houston we'll probably run $7.5 million in Revenue this year uh and we've we've made some pretty intentional decisions to grow slower uh and do things what we perceive to be right and are choosing what we think uh we value over uh super fast bottom line growth having said that we've grown every year and some years faster than others and uh we're we're about to expand into five new office locations over the next 12 months great to get started and to to show show our listeners that this isn't the kind of Happy Talk public relations driven conversation that we so often uh he I I want to ask the three of you a question that I I don't often hear discussed um Laura Xander I'm going to put you on the hot seat first if you don't mind um tell us are you making as much money as you think you should wow hot seat question Lauren geeez um I think the business should be making more and we're working on on increasing our profitability um I think personally I am an unbelievably lucky and an unbelievably lucky spot and no I don't think I should be making any more than I'm making what's holding you back in terms of profitability for the business uh that I'm a really bad CFO and that I need some more expertise and I haven't been watching the numbers as well as I have I I say that um my skills as a leader are not as refined I guess or mature as perhaps they should be at this size um and so I haven't managed the budgets very well that's all changing this year is kind of the Watershed year for us and I am growing up as as a owner I suppose um and have a really great leadership team which I had not had in the past for the past 17 years um the other part though I guess is I'm not judging myself very fairly and that we've done a couple of of Acquisitions in the last 14 months or so and so we've put a lot of money into um put a lot of capital into inventory and Manufacturing and we're changing our business model uh significantly so that's making the bottom line not look as great as it has in the past when we were able to just float through you know we're a retail business and Retail has shifted and so we are now trying to shift with it which is it was it which is expensive you know and we've made some taken some risks and some of them have paid off and some of them have not so we've lost some money in some different places this is the 21 hats podcast which acknowledges that to to be a business owner you have to wear a lot of hats uh you you made reference to not being as good a CFO as you think you should be have you thought about hiring a CFO sure yeah and I had somebody that we has helped us for the last couple years um on a part-time basis but we're just honestly we're not at the size I don't think still don't believe that we are at a size that it makes sense to have a full-time CFO and I haven't been able to find a part-time CFO that we see eye to eye with that has the same kind of vision that we do that said I did find somebody um about a year ago who has helped me tremendously and mentored me tremendously and set up a lot of processes and systems um that I have been able to make great progress with so um the last 18 months or so has been phenomenally different in terms of my CFO skills so I'm getting there it's getting better it just took a while William or Karen before I put each of you on the hot seat do have you experienced the same thing that that Laura's going through I can tell you one thing is the best sleep I have ever had is the night after we hired our CFO so and we were about 40 to 50 people at that size and we had found somebody who worked on contract at first and then uh took some equity and uh and a low salary and came on board full-time and that was the the best investment we have ever made in the company so I'd really encourage you Laura to find one was it difficult for you given your size at that time um to to figure out how to afford a CFO yeah well he took like I said he's he started on contract and then took um equity and a low salary so he had to believe in the vision of the company and how he could help us and where we were going which was really important yeah we we uh Lauren don't have a CFO um and I mean we've had one in title before but not in function and uh that's the job I want right you get the title but you don't have to function Lauren you'd have to be married to me because it was Adrian it was Adrian and me and my brother-in-law and one other their employee and we were just kind of handing out titles when we started I mean that was it and we were so stupid what did you do when you decided it wasn't work working it help I have a rather close relationship with the then CFO so uh we were able to work through it and we're still married and it's great no she she did a great job but in terms of like true CFO forecasting and that sort of thing we we have thought for a long time we need one I we work one of our clients it's not just churches but but all faith-driven organizations mostly churches but uh one group is uh this guy I don't know if you all know Dave Ramsey so he's on the radio a lot talks about money and not spending money that you don't have and paying off your credit cards and all and he's probably got I don't know 800 employees now but he told me not to spend money on a CFO till I had 200 employees um but but find other people that had some forecasting ability and and that's kind of the route we've gone our coo who is a true coo has enough uh forecasting capacity that we can get by with a finance director in in lie of a true CFO for now Karen uh you're next um are you making as much money as you think you should be I'm a similar boat to Laura so I I make a nice salary that I absolutely can't complain about so we're in a tight margin business and we're Consultants um we charge by the hour essentially not not really by the hour but we need to be billing our time in order to make money that's how we run the business so it's pretty straightforward in that sense um so so the company as a whole I would like like us to be much more profitable and that's actually a big focus of ours right now so over the last three years at least we've been well three to five years we've been heavily investing in the company for growth and so what happens there is it comes right out of the bottom line um we have also done some Acquisitions lately uh which really uh mostly they eat into our cash flow but they also cost a lot of money just sort of overall and it's a long-term play it's a long-term investment for sure so the you know it we have good systems in place and we're working to become more efficient as we get bigger we're sort of at a a hard place right now 140 people seems to be breaking a lot of our systems that we've had in place for many years and so what do you mean by that our resourcing for example so we resourcing is a key it's sort of the the pivot of everything here and it really affects profitability is if we have somebody what we call on the bench in between Project work so all of our work for clients is Project based and we work really hard to not have gaps between projects because if there's a gap then somebody is what we call on the bench and that means we can't bill for their time so so the company is just paying for their salary which is very high for us and so um we can we can sustain that for a short period of time but not for very long and if you the if you multiply that by 140 people all of a sudden that's a lot of hours on the bench if if anybody's down for a couple of days and so we could manage that pretty tightly when we were smaller but at 140 people there's you know we have 50 projects going on at once and a lot of people to be juggling to get the right fit for the right project and the right expertise and the right cultural fit for the client and that there's so many factors that all of a sudden um what what used to work where there was some trial knowledge involved it just doesn't anymore and so that that's really a big focus of ours for trying to improve our profitability is have a different resourcing model so we're trying out a bunch of different models right now to see which one we think will fly great well William how about you are you making as much money as you think you should yes um but it is my uh my good attorney friend says everything before the butt doesn't count um so so I you know I didn't get in this for the money Lauren I'm I'm a a recovering uh preacher and uh which probably means I Babble but uh I you know if I wanted to do the money thing we' have a search firm for oil and gas cuz you know our fees are scaled based on the salary of the person we're finding and it turns out CEOs of oil and gas companies make slightly more than pastors do that's why I asked if you're making as much money as you think you should there are two answers I got in this for a cause and I cannot believe the life that I get to Live While working for a cause I really believe in having said that um we have been very careful we have no investors we've taken no Venture Capital we have no credit at all uh we we we're totally cash-based business which slows growth and we've known that going in uh but and it also means that anything we quote make uh we need to pour back into the business to grow so so our margins we keep a pretty close eye on our goal is to be healthy and so that anybody would look at us that an investment bank or whoever and would say oh they're healthy they're not greedy and they're not stingy how do you define healthy uh well I have some very smart friends that are really great management Consultants that have told me this this is the Fairway for your net profitability and so we'll we'll stay pretty close to where we should be um I I would like to see us grow more and see that growth happen more organically but that'll come with time I I I think our commitment to being cash-based and debt-free has been more important to to me than what the big number at the end of the year is I you know to me the point of earning however much money I need to earn is for me to have peace and to sleep well and I think I sleep better making what I make now without carrying a debt load or having investors or stockholders to please than if it were the other way around William you just nailed you just hit the nail on the head um it's the same with us we're debt-free Doug and I um actually kind of share the CFO role Doug's your husband Doug is my husband yes um and he looks at the cash flow I look at you know the highle macro view of the p&l and the balance sheet um and it has been really important to us to not take outside funding and to not have a loan and to you know it's kind of that Midwestern Dougs from Wisconsin so it's that Midwestern method of if we can't pay cash for it we don't buy it so if can't afford somebody you know we don't hire them and we have to figure out how to be Scrappy and make it work until we can um and that has meant and we're we are also very lucky and that or we were very lucky until recently but um and that we're in a business that doesn't see a lot of funding and a lot of Technology um you know the yarn retail business is a very Niche kind of business to be in and so we can afford to do that um and still kind of be one of the market leaders if you will so yeah I hear you high five do you William we also don't have investors and so over 20 years we've never taken any outside investment uh we do however have debt in the form of line of credit at the bank so we have to operate with a couple of million dollar line of credit and that's based on our receivables so it really is it's not true debt in that sense and so every time we can invoice a client then we can borrow that receivable money from the bank so that we can operate with cash flow um because for us it's invoicing it's it's paying our employees those are the sort of the two main In-N-Out functions of our cash so um yeah so it is possible we did recently try to get some outside investment and it was very difficult to find the right match um and so now we're back to um doing it ourselves which is can be difficult for sure I mean particularly for us we we look really carefully at not hiring ahead of the curve so we want to make sure that we have work um in the pipeline and that we have people to do that work again because of our bench time and our resourcing um concerns and for us we use contractors to help with that EB and flow if we're not sure if this is a onetime spike in our in our busy cycle um so in that case we want to use a contractor to help with that load um but or if this is the new normal then we start turning them into employees or we start hiring people for that work I'm I'm curious Karen it sounds like you use your line of credit to to manage cash flow um would would you consider taking uh taking out a loan to finance growth or uh for some other purpose that's what I was talking about where we were trying to find an outside investor an equity investor uh so that we could grow more quickly and that's largely to to take the market opportunity that we see right now in our field so the ux field is growing very quickly right now and the way I see it is somebody's got to be the nation and the world's leading ux firm so why not us um we're perfectly positioned for it we've been doing this for a long time so the what's happening right now there's a lot of consolidation with smaller ux firms and so you know we get calls regularly from from companies trying to buy us so that that we can roll up and they can be bigger um so my strategy is hey we're going to do that so that requires uh serious Capital so we've done we've done some Acquisitions with our own money and using our line of credit at the bank um but that that has a limit because then you got to replenish it before we can get going again so there's a lot of pros and cons was that an obvious decision for you uh in terms of looking at the opportunity out there and deciding somebody's going to do this I want to be the one to to roll up and grow and uh and seize this opportunity or or or did you give that a lot of thought not really I I mean maybe for a second it's that's sort of my style though I mean I I think you know why not us that we really are the work we do is so phenomenal that um you know I just for me it's it's about reaching potential and so I think wow if we can reach our potential as a as the you know the best company doing this work with the greatest talent in the country then uh then we should we should try Laura what's your attitude toward growth how do you look at it oh that's a great question um I'm I have a really bipolar I guess attitude um a Dr Jackal and Mr Hyde attitude towards growth like there's part of me that just wants to grow grow grow and conquer the world and I've got all these ideas of how to be a household name and um just grow this this thing as much as I possibly can but then there's also the side of me that has a 10-year-old son and a husband and two dogs and wants to have a lifestyle where I get to exercise and you know be outside which is why we moved to this area in the first place was to go ski and mountain bike so I'm really conflicted you know I go back and forth I guess I have this idea that to have really really fast growth you have to sacrifice you know and you have to there's only so much time during the day and you know as I read a lot of business books and I read business Memoirs the thing that always sticks with me is as these guys are laying you know and typically they're guys based on the books that I've been reading that were written 50 years ago but these guys are laying on their deathbed and they're like my only regret is that I didn't spend enough time with my family you know and that I didn't watch my kids grow up and so I've been very very conscious of that with our 10-year-old son and I figure you know what in 10 years if I want to work you know the way that I worked before he was born then I can do that um for now why don't we just do sustainable growth you know I won't work more I mean I still work seven days a week but uh you know I have to leave in an hour because he has a cross country meet 10 years from now you're going to go to eight days a week or days well 10 years from now I can work seven days a week 12 hours a day right now I'm only working seven days a week maybe six to eight hours a day you know so I spread it out um but yeah I should be able to double and still work out you know and still exercise and do all those things so hey so I want to say that I work less than you and um I have a 10-year-old daughter and I ski a lot and I run and I exercise and I get lots of sleep so I think it is possible and it requires a lot of help oh my God so you're like oh God you're one of those perfect people um can I get off of this podcast now just I tell you the only thing that I don't do is I don't watch TV and I and I'm I a little bit remiss in even listening to the news um because it's uh for me it's just focused really focused priorities um and I I tell you it's my daughter it's it's sleep it's exercise and then it's work yep and because of that I'm able to work more focused and I think I'm more efficient so and I have a lot of help yeah that's part of it but yeah I know I'm with you I I agree I don't I think if you're not balanced you're going to die you know going to burn out William I think you gave us some sense of you're thinking about growth but listening to this has has it changed your thinking at all we have seven children so the whole work life balance thing is yeah I know I know I know you would think like every Mormon church would hire us but they haven't so um the Catholics you're right no kidding I mean maybe we should think about that um no so for us work life balance is huge but at the same time you Adrian and I started this together and it's kind of what we do so I I hope we're not all at Family Day in therapy in 10 20 years about why we were always working and that but I feel like we've got a pretty good handle on it and for us the whole work life balance in the name of growth I I think that this work life balance thing is a total myth I mean there are times where we just have to drop what we're doing and Sprint for the finish and that's just the way it is and there are other times where we got to unplug you know I I do try Lauren to say let's let's do two things and I'm going to give them in reverse order for for annual review one did we grow this year okay that's not the top priority that's second two did I make myself less essential to the growth and running of the firm and that's the first and most important question in my annual review so so you know we only named it Vander blumin because the name is literally so screwed up that you can mistype it into Google a hundred different ways and you'll you'll end up at our at our place but but for me it doesn't need to rise and fall on my name y'all laugh but like I bought oh my gosh I I went a little OCD I think I bought 300 domain names through I have lifetime Platinum Status on GoDaddy it's it's kind of ridiculous and all for names that you considered for the business yes and I told the SEO guys that the studi that I'm like one rule you can't name it after me you've got that doesn't work so you here three 300 you want a different one I'm sure I can get a freebie out of them and they came back and they said well good news bad news good news we we found the name bad news it is your name and they said and it's because your last name is so screwed up uh in fact the only other William vandero on the planet Laura is in Wisconsin uh he's he's a security guard and every time he arrests somebody I get a ghog alert so I kind of got half a mind this is a rabbit Trail but I kind of want to go to Wisconsin and have him arrest me so that can be the Google alert but that would be awesome so anybody listening to this podcast who wants to improve their SEO should change the name of their business to Vander bloomen is that what you're telling us something like that exactly finally I want to talk about an item that's been in the news fairly recently uh California has passed a law aimed at companies like uber and Lyft that try to walk that fine line between hiring employees and hiring contractors we're talking about the gig economy of obviously uh this is a state law that only applies to California for now but there's widespread expectation that it'll have implications across the country in fact New Jersey recently hit Uber with a $640 million bill for allegedly misclassifying its employees meaning it's drivers uh people Uber does not consider to be employees um and I'm curious uh what you all think of this and whether you uh think the law is going to have an impact uh on your businesses um Laura you are are right on the California border right we are yeah just a couple miles down the road let's start with you um do you think this is going to have an impact on you no um but we don't use contractors I mean everybody is an employee for the most part I mean the only contractors that we really use are Professional Services so you know accounting legal uh and some kind of high level strategic help so I don't really know how it's going to impact us to be honest is there a philosophical reason why you don't use uh contractors yeah no we want people to have benefits we want them to be part of the team you know we do hire temp employees during the high season but most of the time if they're good employees or they do a good job we end up hiring them fulltime as well so um yeah ours is more of a long-term approach when we have surge is we figure out internally how to handle that so either overtime or those of us that are on salary you know put in a few extra hours um and we just kind of go with the flow that way how about you Karen do you think this is going to have an impact on you yeah in fact it already has our philosophy is similar to Laura except that um because of the we are a professional services company and the nature of the cycle of our work is that we have high periods and low periods throughout the year and and we don't if we hire for the high periods then we have we have an you know an issue where when we hit a low period we need to lay people off and so that causes all kinds of problems with employee morale um it it's just a lot of churn and it causes um it causes all kinds of issues sort of beyond the obvious um wanting to have people as employees and so what we do is we use contractors for those hot periods and these are people that we interview and we vet just like as if they were regular employees they have to be a cultural fit they have to obviously have very high quality work standards and so we interview them ahead of time and then we talk about keeping them warm what does that mean that means that we have to know their availabilities because they're contractors they're free agents so they're going to go out and likely get a job um or you know a project somewhere else and so we need to know okay they're busy on a job they can't work for us or uh they're available so it's it's really a lot of work to manage that contractor pool um so but the good side of it is that we get high quality people who can come in and work with our teams we know them ideally there people who have chosen to become or be independent contractors they don't actually want a full-time job um they want to have flexibility between projects um they want to choose their projects all the things that you don't get to do if you're an actual employee so for them there's some real benefits so what kind of Premium do you pay them we pay um the rate is higher but they don't don't get benefits because they're contractors so for them they have to pay you know they have to pay their own income tax they have to pay their own health care so it it really comes out as a wash at the end of the day for them because they're getting a higher rate per hour that we're paying them but in the end they also have to cover their own expenses so do they get you know like let's say a 20% bump above what somebody else would get to cover so security and all the taxes and stuff but then do they get another 40% because it's not stable no that we don't pay extra for that and they don't demand it either oh interesting you do get people though who are extremely highly qualified because they it kind of goes hand inand is somebody's confident enough to go out on their own um and and feel like they can get enough work to have a great living they're generally very good and so you they can demand a higher rate because of the quality of their work not because they're a contractor you know when I was in the software world back in the early 2000s and I know this was the height so things you know this is not a great standard um to judge you know the current economy with but I mean I remember the company that I worked for I made I think I made I made $75,000 a year let's say and then we switched I switched over to contractor status to be more flexible and they paid me $75 an hour so I'm like okay I can either make 75 a years an employee or I can make $150,000 a year as a contractor like to me it was a no-brainer uh I think your taxes and your healthare eat up a fair portion of that more than than you might think yeah that's a yeah good point and I was 23 so I just rolled the dice back then I think so this law then is affecting our ability to to to run our business the way we need to which is ebbing and flowing because if we kept if we hired a bunch of people for our hot times and then we kept them which we would love to do we would go to business we need income from our clients to pay for our employees and it's a very straightforward business money comes in money goes out and there's very little at the end of the day actually you know very low profit margin really so as a result we know our patterns we know when our Cycles are we watch them carefully we want we make sure that you know we're hiring after we've been at a new elevated state so let's say we have our average goal is sort of 2080 contractor to employee balance and if we're running at 25% contractors for several months then we know okay we've hit a new level of our Baseline is higher now so we can hire now and know and feel confident that we can keep those people busy year-over-year so is the law affecting you just because you have an office in California or is there another reason it's because we have two offices in California and so normally we hire locally and so we would want to have um local contractors for some of the work we're doing in San Diego and some of the work we're doing in San Francisco although we do have people working across all of our offices across the whole company on projects that's pretty common for us to have just distributed teams um so as a result that's how we're going to handle it is we're going to have whenever we need a contractor we're just going to pull them from another state our biggest office is in Seattle if Washington follows suit then we'll need to pull our contractors from Texas and Massachusetts can you have those contractors report to somebody in California yeah I think so yeah and and when they're a contractor they're not technically reporting to anybody either they're working on a project team they're part of the team there's a Project Lead but there's no um managerial reporting structure when they're a contractor that's a really interesting line uh to walk uh obviously you're giving them assignments how do you define reporting and not reporting in a situation like yours it's in the project basis so um well okay so to back up so reporting technically for me means you have a manager they're they're guiding your career path they're helping you with professional develop M they're basically taking care of your professional career in the company how we actually manage people on a daily basis is within a project and so somebody would be on a project for two to six months to a year at sometimes and that there will be a project team which is specific to that project and that client and there'll be a lead on that project and that lead is the person who who everybody um listens to that they own the success of that project and so essentially that team is reporting to that lead although it's not a direct report situation and if that project doesn't go well that person is on the witness stand explaining why and so in that sense that's how our contractors fall underneath that so they would be essentially reporting to the Project Lead um who determines how that project's going to go and what what are the decisions along the way Karen can you explain the mechanics to us what does it do to you that makes it impossible for you to to hire contractors out of your California offices well I I actually can't explain the logistics of it but I can tell you that it it they have to have a certain number of hours all I know is that they have to be an employee in order to do our work and so that that's the that's the limiting factor and for us to Define an employee they are on the payroll they get benefits they get health care you know all of that stuff they we pay their employee ta employment taxes I I think that I don't know but I'm guessing the Genesis of part of it is um you know when somebody's a contractor you don't play employment taxes on them and so that's lost revenue for the government sure it's it's also intended to protect people from um from not getting benefits even though they're doing all the things uh that an employee does I'm not saying that's the case uh with your situation Karen but there are obviously there have been abuses oh I think there's loads of them I'm sure yeah and I don't think it's it's a bad law honestly I I'm not I think it's I think there's probably a lot of really good um cases and examples where it's going to help a lot of people and I'm fine with it honestly we're just you know it's going to be different for us I don't know how often uh the two of you take Uber or lift but every time I do and see how inexpensive it is uh I can't help but think about it do You' think they would have been able to figure out a business model um that would allow those uh drivers whether they're employees or contractors uh to get paid a little bit more you also look at it though on the flip side and there's a whole lot of people who now can live the lives that they want you know especially you drive around in a lift in La it's awesome you've got you know writers and producers and there you know they can they can live their dream now because they can have this side job that allows them to pay the bills while they continue to you know pursue Hollywood and it's it's pretty incredible they would not have been able to do that you know they would have been working in a restaurant or other places where their hours are more limited um I had a long conversation with someone the other day about his writing career and how it allowed him to you know he had an idea he could pull over on the side of the road and write for a couple of hours so I think there's a lot of upside to it as well well that's a great point I mean do you think you are you are losing the opportunity to work with contractors who like the system the way it was absolutely in California yep for sure I mean there's a lot of people that choose like I said they've they've chosen to be contractors so that they can be in charge of their Destiny they don't they want to pick and choose their projects they want to take six months off and do something else they they can't do that if they're an employee all right um that concludes the very first episode of the 21 hats podcast uh thank you all for joining us Laura Xander Karen Clark call and William Vander blumen we'll be back next week thanks for listening everybody this episode was produced by Jess thubron found of blank word Productions remember if you liked what you heard tell your friends tell your enemies subscribe like us and best of all connect with us follow us on Twitter at 21h hats and visit us at 21h hats.com let us know what questions or issues you'd like to hear our panel of fearless business owners address see you next time [Music]