The Game Has to End at Some Point

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Sean busy Paul DS and Jay goz talk about their evolving succession plans there are lots of options selling the business turning it over to a family member selling it to an employee stock ownership plan holding a going out of business sale just walking away and they all come with advantages and disadvantages Sean Paul and Jay take us through their current thinking and also tell us whether they've prepared their businesses for the possibility that they could be incapacitated plus would any of them consider instituting a 4-day work week and we can report that this podcast now has its first B Corp who knows what a bcorp is even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which highlights the most important news of the day for business owners and which you can subscribe to at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are Sean busy CEO of Kinesis which is based in Portland Oregan and works with small businesses on marketing culture and strategy Paul DS who is CEO of Paul DS cabinet makers which is based outside of Philadelphia where it makes custom conference tables and Jay gz whose company's in in Chicago include a picture frame business artist frame service and a home furnishing store Jason home the episode is titled the game has to end at some point welcome Sean Paul and Jay great to have you all here I want to revisit a topic we've Hit Upon a few times which is succession uh both in terms of what your longer range plans are uh but also the inevitable what if a truck hit you tomorrow question um in part I'm wondering if uh Paul and Jay have made any progress since we last talked about this but but I'd like to start with you Sean uh you and I talked a bit in the fall and I know you were kind of thinking about pulling back a bit from the dayto day uh can you tell us what you were thinking yeah thanks for putting me on the spot um anytime that's what I'm here for you probably should lay down for this part like you know the shrink yeah well you know I uh I got started early in this business uh I've been doing it 22 years and done some great things with with it and have seen others rise into leadership positions and gotten a lot of joy out of seeing their success and just started to think about creating opportunities for other people to move into positions of more and more leadership and then also my long-term plan of you know what do you do with the business you know the options are you know typically you sell it um you walk away from it that often happens um and it just sort of dissolves or uh you can ESOP it is another option you all have talked about in the past and I just started thinking about those different ideas I turned 50 this year so that was kind of meaningful in terms of thinking about what lies ahead so yeah you could probably hear some of the ambivalence or or uncertainty in my voice cuz it's it's sort of these are big decisions and complex um so I'm in the I'm I'm still in the early stage of of thinking about that and putting it putting in place the pieces to make it possible to be less of a Lynch pin to the business have you taken any steps in that direction yeah I mean I I got started probably 10 years ago when you know I was introduced to the idea that you know there's there's a difference between a business and a job and I think a lot of business owners have jobs that they've created for themselves and you know for for me I started to think about the success of a business was one in which you could step away and it would be it would continue to operate without you the first stage of that was really getting out of doing the day-to-day work with clients and you know I've been pretty successful at that and now the primary role I have in the business is sales um as well as you know kind of organizing the CEO and strategy stuff so I've been on the I've been on the journey but this this next phase which is getting out of sales is is super hard um and then building a leadership team to um step in behind me and eventually allow it so that I make fewer of the decisions that's where I'm at today have you figured out what the long range goal is do you know which one of those options you would prefer if you can make it happen yeah I I think the one that's most intriguing to me is um finding a way to uh pass it on to employees and allow for a transition to uh the employee base I think selling a business is applauded a lot in our society but the outcomes I see are often not as optimal um from a culture standpoint from a purpose of the business um so I'm looking for an internal transition um if that's possible on a practical basis the smaller companies eight they've done I've seen numerous studies 80% of businesses don't get to the second generation so so you're right they're applauded when they sell the reality is most businesses just go away the smaller ones so I think trying to sell your business is probably the least likely try to transition to your employees sure that why wouldn't you do that that sounds like a good you know plan which then layers into that do you consider an ESOP which is not necessary a leadership thing but it's it's interesting because I've gone to numerous seminars lately and I never even knew anything about them and it's interesting so I think the word you're looking for because I'm 15 years ahead of you is you're looking for some potential Solutions because I don't think you can get to a conclusion like I have a potent I have a couple of potential conclusions but I'm not I don't have it knocked down yet but at least I've got some possibilities you're looking for the possibilities I think yeah that's actually thanks for framing it that way Jay that's really helpful you know I feel like I'm starting early I think a lot of owners wait until like they're in their 60s or even in their 70s and and then the the door starts to close and the options are fewer and fewer because they haven't put things in place so I I don't want it to be like we're driving and then we go off a cliff of you know here you go team here's the business good luck you know I want to I want folks to have time to prepare and and grow into the roles that are necessary to be successful so I just went to another sem i' I've really I sat through three or four ESOP seminars for an hour each it wasn't that but with the last one the guy said something really smart he said if you're thinking about an ESOP you should plan it years in advance I mean this isn't something you think next year I'm going to do it it's not too early to say I think in five years I'm going to do it or 10 years so I think you're smart for thinking about it because uh yeah the game has to come to an end at some point Sean I have a question for you what's the average length of employment in your industry do you want me to answer that industry or or per my business industry and the reason I'm asking that is because I've watched my son progress through the software industry sort of the Doom blah blah blah and it's astonishing to me that he expects to be in a new position every 18 months to two years and that's just totally normal there and uh there's no such thing as loyalty it's all transactional and I just wonder one of the things about an ESOP is it sort of assumes that a your employees sort of want to stay at this company for the rest of their lives or for some significant period of time and uh is that a good fit how many employees want to do that how many bosses think of their employees that way there's something about the model which I'm I'm deeply uncomfortable with and uh and part of it would be why would you expect people to think that your little company is is the best place for them for the rest of time well you don't have to I mean there no one's putting a gun to their head they're doing ESOP if the people leave they leave so there's no there's no obligation on the employee part in this whole thing you're asking them basically to make some kind of significant financial investment no no I'm telling you I've sat through these it's not what you that's what I used to say no there's no commitment no they're not doing a thing they're sitting back and you're taking you're taking stock and you're putting it into a trust for them and they're not putting a dime into it which was quite shocking so then you leave the you leave the company to be run by people who have no skin in the game like how does that work no no no it's not it has nothing to do with who's running you're you could still be running the company they're not M Mutual exclusive it's not this isn't a this isn't a leadership transition it's a way of hooking some people in having them participate getting a little more you know hopefully a little more uh performance out of people helping people that have been with you for years it's it's a little complicated but it's not it's not a matter of they're not putting anything into it and then if you do it for five years and you think this really stink you could just buy it back it it's it is reversible so it is I'm not I'm not selling esops I'm half half I I I think I could totally see where this could be a great solution and I could totally see where for some people it makes no sense Paul just to answer your question I I think Jay's got it right correct me if I'm wrong Jay but uh their big tax advantages to this the portion of the company that's owned by the ESOP doesn't pay any federal taxes yet the money that the company generates goes into the fund to buy the shares for the employees they end up increasing the the share of the company that they own uh over time but also as Jay says that doesn't mean that they're in a leadership position no the government put this together with some people who who had this idea and I think these people are still actually run organization to do ecept and it's a way of spreading it around and yeah when you first told me about this Lauren if you recall I go Lauren that can't be true it's true it's hard to believe it's true instead of paying federal income tax of let's say you were going to pay 300 Grand this year that money for that portion goes into their trust and they end up buying the company and then when they cash out they have to pay the tax on it but it's not too good to be true it's true um it doesn't mean it's it doesn't mean that it it makes sense for everybody because in my case I'm thinking well why do I need to do that I could just take the profit myself and pay the tax on it so I don't know it's I'm I'm I'm definitely not GE it's this good or bad I absolutely can understand where for some places this is just incredibly good and I'm sure there's cases where it makes no sense whatsoever well how many what percentage of businesses do it zero no I have an answer to that because you know I thought that a year ago and I've been playing around with this for a year and and I asked one of the guys I said less than 1% of companies in America there's only I for I don't want to say the wrong number it was a very small number when you consider how many businesses there are and I said to this one big shot I said why are there so few companies do esops he goes because they go to their accountant and their accountant rols their eyes goes oh it's too complicated and that's the end of the conversation I'm going to give you the other part that I figured out over the last year these people are horrible at selling themselves horrible I've sat through seminars I said to myself you couldn't have done a better job repelling me from this idea than if you tried one of them I just remember at the end he said it's really important The Firm you hire to help you do this so get the firm that get get the best you can afford oh well I can afford about 300 bucks so I'm going to use the guy on the corner that sells Insurance he's a notary public and he does esops like what a stupid thing instead of saying this is very important who you use you should really pick them carefully and don't be as consumed with the price because they'll more than pay for themselves I mean they're not I don't want to slam accountants and lawyers but accountants and lawyers generally don't make good marketers so I've I've realized if they were better at this Paul you would know a lot about this I would have known a lot about this they're not even out there I mean I only know about it because Lauren told me about it and put me on a podcast with these guys Jay's right Jay's right about that it it's a it's kind of a boutique space that um is not well communicated in terms of the value proposition and the opportunity you know kind of getting back to Paul's question about turnover and tenure and are people committed you know I'm I'm really fortunate I have incredible tenure and I think the majority of folks there really see Kinesis as something special um I know every owner likes to think that about themselves but you know I mean what you know we just celebrated a 17year anniversary of one employee a 10 year of another a four year of another so we we really don't match the industry quote unquote industry in that regard um why I'm interested in esops is that I I feel like small business is such an incredible for wealth creation that to be able to share that with the folks who've helped build the business is just a really compelling idea part of it is which I don't need part of it is you can take a big check out because you can go to banks have special divisions in the bank to do esops they love doing this the bank will lend the company the money to pay the owner if you the owner wants to get some money out of the company and the owner can stay around in my case I don't really need the cash so that's one reason why I'm not running to do it um but I could totally see where somebody could go hey if I can pull a million bucks out of my company still go to work every day still run it and take that money and go stick it into something more liquid I'm sure that's an incredible uh tool to use there is one other factor in why there aren't more of these uh I believe and that is that if you have a business that can be sold it's very unlikely that you're going to get the best price through an ESOP wait I don't think that's true that's debatable I think that that's depends what business you're in you have a iic buyer there's a really good chance that somebody else will pay you'd have to add on a strategic buyer in a very hot space for instance this's one that I sat through the guys in the the the Pet Care industry and this is interesting news Mars candy is put a gazillion dollars into the Pet Care industry and no one knows it but they're they're buying these gigantic veterinarian practices for big multiples so I ask the question I go could you have gotten more money from a strategic buyer and he said well actually I think I could have gotten twice as much money but I got enough okay so the guy running the seminar then says well there's other things that can make up for that Delta and he never finishes it like really I would have said okay that's true in this case but that's very unusual that you can get twice as much money from it and that and I think that's the case so if you're in a hot space where they're buying up a bunch of companies yes that that might be an issue but there's lots of companies there from what I've seen uh they wouldn't get more money from the outside well and and the important thing like like if if you have a really well-run business the return on that investment outperforms a ton of other things you could put that money into absolutely so the value proposition of an ESOP is if you have a stable well-run business that's producing good profits over time the actual money you're going to get over time has the potential to be more than an acquisition cuz right you do an acquisition you pay a bunch of taxes on it and then you're done like you're you know you're not getting any more money so then you've got to take that money and invest it in something else you know I I think you can make the argument that if you have a really well-run business and it's producing great returns and this is something you have control over right you you have control over this investment versus stock markets real estate speculative stuff let's take a quick break to hear from our sponsor work better now I'm here with Rob Lev co-founder of work better now which provides businesses with highly talented virtual assistance Rob I've noticed that owners tend to have certain questions about virtual assistance for example what exactly can they do yeah Lauren we get this question all the time uh because people really know deep down that they need an assistant but they're not exactly sure how it works and what they can do for them I would say that our clients use our assistance in one of two ways they will either use them much like I've been using my assistant for the past eight years as an executive assistant handling my calendar which takes up so much time email management database file management personal tasks creating documents for me and then a lot of our clients basically operationalize our assistance so we have assistance with titles like project manager marketing associate operations manager and customer service representative I think some owners worry they'll spend more time managing their assistant than it would have taken them just to do the test themselves how do you respond to that right right right this is a deadly trap not only with assistance but really with any employees which is oh I can do it faster myself and the reality is you might be able to do it faster yourself of course it's impossible to grow your business if you're doing everything yourself I was very much uh of a similar mindset and what I did with my assistant is I basically told him what needs to be done and had them document it I hate documenting tasks but I know the processes are so important now we have a manual full of my uh tasks I only had to tell him once that he can follow time and time again and if he's out somebody else can follow and also think about it this way if you're a business owner making something like let's say $200,000 a year which is about $100 an hour you're basically paying somebody to do administrative work at $100 an hour if you're doing these tasks yourself that makes a lot of sense what does it cost the cost is $1900 a month and as you know Lauren we are offering 21 hats readers and listeners $150 off per month for 3 months just by mentioning the word Lauren there are no contracts also very important for people to know can you promise a return on that investment if you're not getting a return something's not going right all of our clients are not only getting a return with the first assistant they've hired but many of our clients are now on their second third and fourth assistant where can we learn more work better now.com and again when you sign up for a 15minute consult just mention the word Lauren we'll make sure to give that $150 off for each of the first three months thanks Rob we're back getting back to succession uh Paul I think the last time we discussed this with you uh correct me if I'm wrong but I think your succession plan was kind of not to think about it too much do I have that right and have you thought about it anymore since then that's a solid foundation for my my planning process excellent yeah I've thought about it more because because I'm I'm about to turn 60 as Jay observed that when you hit 60 you start worrying about these things and I am starting my 37th year in the business and when I get to 65 I would like the option to do not this even though I enjoy it every day and I'm not sure what what would be as much fun but I would still like to to have less encumbrance and so I'm thinking about it my goal is actually to sell the company um to somebody I think that we could find a strategic buyer particularly 5 years from now and I've seen in my vistage group we've had four sellouts this year two strategic buyers for ranging from 20 to 120 million and these are guys who started off with small companies and just really worked them well any of them small manufacturing companies one one yeah uh one Sam Saxon uh who I talked about in my book He's started about the same time I did in vistage in 2012 and he had a company that was doing I think 3 million he pumped it up to 22 million over the course of the next 9 years and sold it for 20 some plus million and they made custom spiral stairs so he was just really a good businessman and he had a very interesting marketing uh scheme and he was able to attract a group of of in investors who specialize in taking companies from that size to sort of The Next Step Up and one thing that's become apparent is uh talking to people who've sold and talking to the others in my group is that the ability to sell a business starts at maybe 5 million a year it gets more more of a more of an easy step at 10 million a year and uh and that there are different kinds of investors who specialize in different size steps so the 10 to 50 people are one group of investors the 50 to whatever group or the next group of investors and it's a whole process to run the value of a company up I believe that's true what you just said I also believe that the multiple go not believe this is what I've been told the multiple goes up the bigger you get the multiple on a $10 million compan is much bigger than a 3 million and 20er it defitely is driven as far as we can tell by sector so the the two most mindboggling deals that I'm aware of one was in the Pharma space uh the owner went to went to Market with a company expecting to get 9 million I believe and ended up with a 45 million all cash offer closed it within 90 days and then there's another guy who's also in a financial services space he does backend servicing for hedge funds and other and Banks and he has a company valuation of over a hundred million so none of these guys I want to be clear none of these guys were in the picture framing industry yeah that's where they're going next Jay that's what I thought I'm just ahead of it yeah look out here they come Paul I'm kind of curious um I mean I've listened to you for a long time my sense is you're in that kind of sub5 million range yeah we we may we may hit five this year we were about 4.2 last year and so it's just getting to the point where where it's starting to be viable and so my focus on the next five years is to is to optimize and expand and hit that 10 million Mark and then see what happens now what happens if I get hit by a truck maybe that's the next question go for it it would be bad it would be bad and I'm not sure what the solution is Right today I have a solution and I when I say this people think I'm making a joke and I'm not making a joke at all if you're in this situation I bought a big life insurance policy and I got to tell you I sleep better at night no matter what happens if the whole thing if I did get run over by a truck my wife's fine there's plenty of life insurance here so I do believe that life insurance could be part of one's strategy as a backup plan yeah I mean obviously I have some some life insurance but just the thought of I'm hit by a truck someone needs to come in and just make sense of it now I'm trying to document that to the extent I can I don't think that I'm anywhere near like what William vanderbloom is doing it's at least in my mind and I have information arranged in a way that it would be possible to to get into the accounts and what have you if necessary and that information is shared with my my son actually and my wife I think my son would be the one who's confident enough to get through the issues of just accessing all of the things and getting past the you know how do you how do you get two- Factor authentication to work if the phone is at the bottom of the ocean or something like that he could manage that so just out of curiosity the guy with the staircase company that you said went from 3 to over 20 did he start the company no he acquired it he he was he's an interesting case I'll just briefly tell the story uh came from resources and his father was very successful entrepreneur and this gentleman the younger the son was always motivated to kind of match where his father had been so he started his first business right when he got out of college he went to South Dakota and put up 50 houses apparently did well enough with that to come back and buy the manufacturing company that he purchased and then he drove it hard he was a hard guy to work for not a bad guy but just had very very clear vision and really worked on executing it and did a great job so good for him Paul have you thought about what exactly you need to do over the next five years if you do want to sell the business yeah a lot of it is the I'm at the moment acting as the general manager and for 24 employees and 4 million that works fine so a lot of it is just getting the the overall volume high enough so that we can have a layer of management below me like actual general manager that's not me and we have a a very well documented set of practices in other words how the business operates it doesn't need me holding the steering wheel every minute of the day the the people who work here know what to do and and we have all of our processes worked out so I think it's it's something that could be scaled up and could be operated by an outside investor and I just want to make sure that our financial performance meets the standards required to sell it to that kind of investor I have to believe there's a wood furniture custom builder in the United States who would see this as an incredible plugin to their business to get into a whole new market so yeah I do think that's sellable even at the stage it's at now I mean particularly we also operate differently and we we're the Google people in our industry and right nobody else is so anybody who wanted to acquire that that kind of channel would want to buy us and I think that that's really what I'm aiming for has anybody ever approached you I me you get the usual garbage emails and what have you but serious strategic buyers no not yet I think we're under their radar at the moment Sean have you thought about the uh hit by a truck question yeah I mean I've kind of operated the business like that for the last half of it of you know how do we make sure that it it can sustain if if I'm not there um and I've thought about that for every role in the company too making sure that there's nobody who's so important that if they don't show up you know things just really fall apart um yeah I mean if I were to not show up tomorrow I think the business would do great was that your goal did you set out to get to this point yeah I think so I mean I we work with small businesses right so you you often see what I call the the benevolent dictator model which is you know where the owner of the business is the Lynch pinned everything that goes on in the business um and you know that makes you that can make you feel really important and needed um it's efficient it's a really efficient way to run a business um but it's hard to take vacations well it's constraining you can't do $10 million like that maybe you can do $4 million like that I I think it would be even hard to do 4 million successfully honestly I mean it depends on the business but in my case I no I don't want to be in the middle of everything that's going on there's no way Paul you said something that I just want to note you said well obviously I have life insurance I can tell you for a fact because my good friend owns a big Insurance Agency most people at 60 years old do not have life insurance that's the real reality so that's why most most absolutely you I get you some statistics the kids get out of the house they're done they don't have any more life insurance well I have a special needs child so I know okay so for you right that makes sense but I'm just saying insurance is still pretty cheap I mean even at my age at 65 I could still buy a $2 million 10year policy for like seven Grand a year it's it's not it's still doable I mean even when you get older and if you own a business I think it might make sense because in my case a lot of my assets are tied up in the business versus I was squirreling away my 401k plan my whole life cuz you know I'm a lawyer and I just built up this big balance it did take the pressure off of me considerably that I don't have to worry about it as much so I'm just telling people that's actually really good advice I I had to buy life insurance when I bought out my business partner um that was part of the deal so that she knew she would be made whole if I were to die um and I've kept it even though it's not necessary anymore more and I'll probably continue to keep it because that way there's there's a way there's resources to replace me absolutely to change the beneficiary the beneficiary is the company so you know I there's basically there's money there and things would be able to work itself out Jay you talked a lot about esops but you've considered quite a few different options um I think it's evolved a little bit since we first started talking about this are you leaning toward an ESOP now or no I wouldn't say that it's out there it's a maybe I have no reason to rush into it I now have my 32-year-old son working here and I've got a 37y old son working here who's made it very clear though he doesn't really want to run the company but the 32-year-old seems engaged and he so I'll see what happens I I it's it's only been a year I tell you what I'm not doing I don't see myself selling the company it just doesn't make any sense um even you know when I opened up a popup store in New York for my Jason Home Store I don't know was probably in three or four years already and I thought gee if I got the platform bigger and my numers up I could prove I've got two successful stores now I could probably sell it and it took me a while to figure out I'm in such a heavy inventory business there's a reason why some businesses just closed and I never understood this there are some businesses like mine that if I had a going out of business sale I could probably generate just as much money as if I sold aany which isn't always the case if you have no inventory that's probably not the case but you see these going out there's companies that make a ton of money on they're going out of business sales and that's why they don't bother selling because if you can free up your inventory and and still get a good markup on it it it's it might be just as good so I'm planning on running it for quite a while and there's just nothing more I can do at this stage other than see how that's going with you know my son so far so good if you did go the ESOP route that would solve the ownership question but not necessarily the leadership question what are you thinking for that well you know what my first thought was oh I could do an ESOP and pull some money out and I now realize I really don't need to pull the money out that's it's okay why would I think about doing it okay a I think I would love to be able to have something for my employees when they retire and if it's coming out of the federal taxes instead of paying federal taxes I can give them some of it hey that's that's certainly something that is that is uh sounds good two I get some cash out okay not a major deal at this point but all right that'd be okay three do I think most people would work a little bit harder knowing that you know there there it's an ESOP maybe I assume that that's probably the case and lastly being a retailer do I think that would be a good marketing thing to be able to say oh an ESOP company yeah sure I think people I think I think people like buying from ESOP companies so with all that being said why aren't I doing it there's just a lot of administrative time and cost to it and I'm not sure it's easily 75,000 a year just for the administration part but um I just have to figure out whether it's worthwhile or not but I'm definitely keeping it as an option and I continue to go to these webinars because they're interesting and I I think I've got most of the info now but um I'm still looking into it that was all interesting Jay it didn't answer my question but which is what which is have you thought about what you would do as far as leadership if you went the ESOP route well no my son's here I would expect to hold on to the majority interest and my kid would run it I have very capable managers but I don't know that any of them have the skill set to to be the CEO plus they're all getting older I mean they're in their 40s if I plan on I could easily I hope to be working in 15 years so they're going to be at retirement age so even the people that are working for me now are not really the people that would be taking it over whereas my kid's 32 he'd be all of 47 so maybe the person that could run this company I just hired and they're working in the showroom now you know what I mean Paul you referred to uh Williams plans previously he's been in on these discussions and he's the one who has clearly given this the most thought and taken the most active steps to try to prepare either for the truck or for uh succession um and the other big difference is that he has uh he's had somebody he's kind of considered a clear number two at his business I don't think any of the three of you do are any of you concerned about this would any of you like to have a number two right now I don't know why you think I don't have a I mean I have I have multiple number twos but maybe that's why I didn't think you added number two yeah I mean my my goal is to build a leadership team you know of which there are you know multiple roles and responsibilities in that and we're making great Headway on there so that's why feel like if if I were to get hit by a bus tomorrow I know that the people on the leadership team either one person could step into my CEO position or all of them could work together to make things happen I have great confidence in them for sure Paul or J well first of all I'm confused he just went from a truck to a bus and I'm trying to figure out whether he's trying to be more socially minded with bus runs over us but um I I think that the number two thing is much easier when you're a $50 million company and you can go pay some one big money I think when you're smaller it's difficult to have a number two is exactly what he just said I have a bunch of people that are running the company there's no one person who's you know waiting to take over I don't have anybody who has the skill set and I've asked would you like to well not today since I'm doing it but um why would they be just is the problem why would they be working for him if they had that skill set why would they be there my my point is they probably wouldn't that's the problem with a smaller business at any smaller any smaller no any any $4 million business I don't know I think it's it's not necessarily that there isn't a person who would want to do it it's more that I don't want anybody to do it while I'm doing it I I'm pretty sure I could find someone to run to do my job and given what I what I make doing it uh I could offer a market wage and it's certainly an interesting job it's just that it's not it's not worth it to me at the moment because I it only takes me about 4 hours a day to run this company and the rest of the time I do other things I mean I'm here but I I wouldn't want to pay someone to to do that but that's the point it's not worth paying that person you'd have to pay a good amount of money it would cut your salary dramatically than nobody than nobody wanting to work in my company no I'm suggesting that that person that would be working in a company would want to make more money and they probably would have left to go do that because you're not going to want to pay it because there not enough to go around and a smaller company that's the inherent problem yeah well I agree with I agree with that I don't have that problem I don't I guess I'm confused by the premise the premise is okay so so let let me let me explain it shorter than Jay's going to do this company kicks off $300,000 a year in uh basically it gets split between profit and and in my salary and if I have to hire someone at $150,000 a year to do my job there's just not enough left over for me to sit around well done there we go and when we can get to another six s million you know whatever then there'll be plenty of money for that because I don't have infinite desire for income is that part of your plan Paul to try and grow that additional get get to 10 million yes absolutely because that's that's part of what makes the company more attractive as a sales proposition is the idea that it's not the owner personally managing it with all the all the inside knowledge that I have that it could successfully be handed off to a management team and then the owner demonstrates that and that's very valuable to the next owner it's like okay he was able to do that and it's still working I think that that in itself is the big transition is whether you can demonstrate to an outside investor that you've already done that handoff once and it's worked out it's a difference between a profession in a business are you trying to sell your barber shop where you're the only Barber there that's not a business that's a profession so you'd have to have people working for you to do the work I'm just ch Jay I'm just I'm challenging you a little bit on your your Prem the fundamental premise I understand Paul's situation and and the financials behind that but I I can say for my business for other businesses we work with that are small 20 people 25 people 15 people that that it is n a that there are folks ready to step in and lead the company if the CEO were to step down 4 million in revenue is doesn't necessarily mean you only make what I make too I mean I know a guy in my vistage group who's got just a different business 4 million in Revenue kicks out a million dollars in his pocket and he could easily he could easily hire somebody if he wanted to it depends what your margins are depends whether you got like I'm in the product business like Paul is if you're if you got high paid people working there cuz are doing the work well that's a different animal and you don't have it cost of good sold and all that so in your business that's probably not true but in a lot of businesses where you're selling a product or something there's it's not about the people as much you're almost in a you're in a professional kind of business where the people Law Firm accounting firm same kind of thing you're selling you've got high paid people working there because that is your product so I yes in that case I'm sure that's not true but in other cases where that's not the case I think it's very true Paul's a very good example when I'm talking about you cut take a 50% pay cut Paul this is probably a topic for another day but can you just give us a a quick sense of what do you think it would take to get to $10 million do you think you'd have to make big changes to double your Revenue um well yeah I mean we'd have to have twice as many customers okay there you go now now work work back from that and what we need to change well we we basically need to expand the entire operation but I I think that what's holding us back is that we have we're in a particular way of approaching the market and most of the people who are buying and selling the product I make do it a different way and we need to make some inroads into that half of the market that's the fundamental problem other than that the scaling of it is where I have one skilled cabinet maker now I need two skill cabinet makers where it's just like that's just math in terms of the ratios of how many people for a particular amount of Revenue you would have to grow 14% a year for the next five years to double your sales and that's not easy I don't think that that's out of line I mean in the last for the last 12 years we've grown at 10% a year so it's not a huge difference well it's 40% more it's that's it's a pretty big difference I'm just I'm not saying you can't do it it's just that's a that's an ambitious number 14% a year well let me let me let me say that it's probably harder to get from Z to 1 million than it is from from to 4 to 5 million and so that you're in we're in a different place in the journey we're just way more capable than we were a few years ago and I'm confident that we can do that and 14% is this maybe a stretch for manufacturing where you actually have to build it but it's not an unusual growth rate there's nothing scary about that Paul you made an assumption like hey to double our income we need to double our customers is there any way for you to offer something different that has better margin increase your prices are you constrained by the market what's the situation there if I actually knew the answer of that question then maybe I wouldn't have the problem but my sense is that it's not much more complicated than that that our biggest problem is that people don't know about us that at the moment they're finding us by just doing a Google Search and then they find us but that doesn't we don't really have a brand presence and in the in the other half of the market having a brand presence is pretty important and we're in a good position to communicate our value to that half of the market now we're a wellestablished player with an incredible Client List and a long track of being able to do the job so that's what I'm focusing on for the next few years is thinking about marketing a different way all right I want to hit a couple more points before uh we go and we're running short of time the next thing I want to talk about uh involves you Sean I believe you're the first owner of a b Corp to join this podcast which prompts an interesting question what's a bcorp yeah so I mean the short answer is it's a commitment to sort triple Bottom Line Community environment stakeholder employees rather than shareholder Primacy you're really factoring in other other elements to the business besides just uh how much is the bottom line you go to a third party who assesses your practices and gives you a score and you have to meet a certain threshold in order to become a certified BC Corp and what does it take to do that you know we we did it back in 2016 in the beginning and it's gotten harder and harder every year so the process has becoming become more uh rigorous um it's it's a lot of documentation and a lot of uh policy around how you behave you know do you have for example open book management do you have um clear paths for advancement do you know there's what do you do about Recycling and you know the the things you you throw away you know so there's all these different dimensions then you actually operationalize to illustrate your commitment to um more than just the bottom line has this paid off for you was it worthwhile yeah I mean gosh you know I can I can draw lots of lines to becoming a b Corp that have been pretty powerful um my director of strategy her job search started with looking at B Corps and she found us through the the uh listing of B Corps in Portland so she's been incredibly impactful in the organization and then she helped bring in our director of people and operations so if you just like start to connect the dominoes here between becoming a be Corp and the human capital that we have in the company it's it's undeniable um when we when we go out to the market and try to hire for positions we get so many candidates it's it's incredible um and they're great candidates so a lot of that is your your your brand position so just as like Paul was talking about his brand position for his customers I I think B Corp is really powerful for employees and recruiting so I see that as the primary Val one of the primary values of it that's very interesting because I didn't think I thought your answer was going to be well I kind of think no that's very tangible that's very impressive and that makes sense I didn't know that thank you that was interesting yeah I mean that I don't really know what industry to put us in because we're sort of bridging this gap between Consulting and marketing um the turnover rate in in those spaces is you know two years three years is pretty average and we have remarkable tenure we've had no voluntary turnover in the last 2 and A2 years it's really power and I think a lot of folks are just now discovering the need to commit to recruiting um because they've done it so poorly uh for the over the years and and so there this is this is part of that strategy Sean I can see uh your point with um potential employees finding you through the borp list how do you think it's affected your existing employees and why do you think it's kept them uh there well I mean a big component of of being a certified borp is your employee welfare the policies you have the the way you operate how you treat your employees is measured and so you know fundamentally B Corps are going to be better employers uh just hands down um because they're they have to actually kind of walk the walk walk how's that go walk the talk talk to walk I don't know anyway uh you're basically you're driving your company to be a more employee Centric organization um if you become a borp I I think that's just almost inevitable and maybe or in my case my average person's been here 11 years I have many people been here more than 20 I'm running a company that I believe has many of those same things but I don't I I can't imagine I would go through all the efforts to do the borp thing from what you're telling me I don't think in my case it would change the hiring process but I don't think it necessar means if you're not a b Corp all you're doing is worrying about the bottom line and not taking care of your employees oh yeah no no no they're not mutually exclusive that's the point so one of the values we have from a from a customer facing standpoint is we have more and more clients now who are asking us to help them with this process so they're like hey we want to we want to realize the value of this we believe in this this is our this matches our values and belief system how do we do it so you know we're able to help them on path I would say Jay the there is an advantage in that you're now part of a peer group and so your ability to learn from others who care care like you do like like that's pretty powerful I'm sure that's incredibly valuable my question is do you think being in Oregon has anything to do with you think I don't think it's a coincidence you're in Oregon versus you're in New York I there's they we're everywhere Jay really yeah it just fits so well it just fits so well the organ you know stereotyp you have a secret handshake or anything where you like you're walking down the street you see the guy you give him a little uh it's more of a wink they don't actually touch each other it's a wink yeah we have tattoos lots of tattoos I thought be stood for birken stocks I didn't know I mean there there are some very famous B Corps Patagonia is a good example wow Ben and Jerry's ice cream is a good example uh there's a there's a grocery store chain that's pretty pretty significant here in Oregon the New Seasons Market um so it's it's kind of like a classic um like some big Marquee companies that have done it and then a whole bunch of small small folks let me hit you with one more topic before we go uh I've been reading a lot uh lately about companies that are interested in switching to a 4-day work week uh best I can tell there's a lot more press notice going on about this than actual con verts to it but there have been a number of studies that suggest that companies feel they get more productive doing this and that it could be uh an interesting benefit to be able to offer employees during the Great resignation have any of the three of you thought about it at all no I want to implement a six day work week yeah no well well that's going to bring the employee applications if you're doing six why not go seven what you know you're already there why don't you just do seven we have a policy of flex time and I have a number of employees who just they've arranged the schedule where they're not doing a full 40 or they're they're doing it in four days it so it can it can I don't think it's it necessarily needs to be a companywide policy in order to implement it but we've we've had so you've done a version of it people can work four days at your shop and most prefer not to and as far as I can tell a lot will do F will do five just no problem interesting and it's harder to get them to do more and it's harder to get them to do less and I think that in our case a lot of it has to do with the job is just hard it's fatiguing and we offer unlimited overtime and uh we have few takers because uh it's just hard work and after the end of 8 and a half hours you're worn out and you want to go home so that's my take on it anyone else we're sticking with the five days five days works customers actually expect service you know I I'm open seven days a week so I it'd be very difficult to be doing 4day there's no way that a factory runs 4 days so you could have staggered 4 day work weeks but the transition would be an issue but to your point it's fatiguing to stand there or sit there in a factory for eight hours now it's 10 hours that's that's that's not easy in most companies Sean you're not a factory have you thought about it at all yeah I mean those studies are really interesting I mean usually of knowledge workers you know that's our Jam I love a 3-day weekend it's everybody does um you know CU it's like you have time to get the personal stuff done and relax but I don't know I it would be it would be tough um I think the the compromise we've made is just fle lots of flexibility just tremendous flexibility where we work so you know I've got employees on the East Coast now and on the west coast and so the time zone difference so you know folks with children so when they get their work done giving them maximum flexibility on that and then also a very generous PTO program that's how we kind of thread that needle um I don't know it formalizing it I don't know I have to think about it I think the the basic thought behind it is that it doesn't really matter uh in a knowledge economy shop uh like yours when the work gets done much of the time it's just a question of whether the gets done and that flexibility can be attractive to a lot of potential employees the one challenge though that I see if you're let's say you're a shop like ours we do a lot of collaboration so it just as important as this to have flexibility so too is it that there are times when people can connect with each other so that's a that's a different tension that I think different knowledge workers have to worry about especially as people are starting to spread out where they work from in our different time zones Lauren are you thinking of going to four days because uh if you talked to your staff about that well I'd have to cut down to six first um but I but I am thinking about it uh my thanks to Shan busy Paul DS and Jay goz as always guys thanks for sharing I appreciate it wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's L ren21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess thubron founder of blank word Productions okay okay now you can leave thanks for listening everyone [Music]