This Is What It Takes to Build a Business, Vol. 3, Part 1

[Music] hello everyone welcome to part one of our special 21 hats podcast year- end review I'm your host Lauren Feldman this week and next week we take a look back at the conversations we had over the past year highlighting some of our happiest smartest funniest and most difficult exchanges we discuss topics such as whether the great resignation prompted business owners to overreact and overpay employees whether the anxiety of owning a business ever subsides what young couples should ask themselves before one of them starts a business why owners find marketing so difficult how owners can sell a business that just won't sell and what keeps entrepreneurs going when the going gets really tough 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 in fact that's the whole idea behind the 21 hats Community engaging with other owners to get get the kinds of insights only a business owner can offer if you're interested in learning more step one is to sign up for the Morning Report newsletter which highlights the most important news of the day for business owners so you don't have to go looking for it step two is to get on our slack Channel where you can ask questions get vendor recommendations and tap the wisdom of a very impressive crowd just search for the 21 hats Morning Report to sign up for a free trial there aren't many places where you could hear entrepreneurs talk about the real life problems they are confronting right now today as they happen with no guarantee of a happy ending but those are the conversations I have every week with Shan busy of Kinesis Paul Downs of Paul Downs cabinet makers Jay gz of artist frame service Mel graveley of triversity construction Jennifer Karen of SB Expos and events Liz picarazzi of City bin Jackie Russo of bran Russo Sarah seagull of seagull Communications William Vander bloom of Vander blo and search group and Laura Xander of Jimmy beans wo they come from a wide range of Industries and geographies and experiences but they all share our willingness to talk about not just what they get right but what they've learned from getting stuff wrong in this episode we also highlight several special guests who stopped by in 2024 to to discuss their Journeys including Matt hoing of Choice One engineering Jill and Paul choma of gilded Moon Framing and Jamie e of the Crafters Workshop if listening to one of these highlights makes you want to go back and hear the full episode just search 21 hats podcast along with the title of the episode you want to hear you can also find a transcript of this episode at 21h hats.com that has links to all of the episodes we sample this episode is titled this is what it takes to build a business volume 3 part one we'll be back next week with part two the first highlight comes from the first episode of 2024 episode 179 New Year's resolution make some money in which I asked Paul Shan and Laura about their hopes for the year and whether they'd made any resolutions as usual Paul got right to the point what did you resolve Paul I want to make a lot more money this year seriously can I pick back on yours yeah no but but the context was last year was a year when I knew I was going to be making a bunch of Investments and didn't expect to show much or any of a profit and I absolutely nailed that goal and uh congratulations and this year now I want to see some payback on that so I'm going to be concentrating more on cost cutting and efficiency and making sure that we're profitable all the way through are you thinking about achieving that more by uh uh efficiency and uh cost cutting or by growth um growth and the thing is that we did a bunch of uh sort of projects expensive projects and had one change to our basic fixed costs in 20123 the change was just that my rent went up because we renewed our lease and then took over another 15,000 square ft so my rent bill went from about 11 Grand a month to 23 Grand a month wow wow and and that's a that's a significant jump but it's still much much cheaper than trying to move into a different facility so uh whatever the difference is there let's say call that 130,000 bucks and then we bought a new spray booth and put it into uh service and that was about $140,000 project and then all the marketing and new website I did let's call that 100 Grand so whatever that is almost 400,000 now we're going to show an acrude loss of about a 100 grand so we would have been in pretty good shapee if I hadn't done those things but those are the things I needed to do to get to the next level in the next few years in episode 181 have we been too generous with employees Mel Jackie and William talked about how the balance of power has been shifting between employees and employers over the past few years and specifically whether some owners may have gone too far in terms of compensating employees during the labor shortage Jackie you you raised an intriguing question I don't want to put words in your mouth but what I read into your question was this we've been through this really interesting period a challenging time with the pandemic the great resignation the labor shortage which I'm not sure is completely over yet but in trying to build a culture at a business through all of that uh one that attracts and retains employees how do you know if you've gone too far is is that a fair reading of the question you were raising that is a very fair reading and I would add to that you know I'm in Lafayette Louisiana and so from a salary perspective we skew lower than National averages even State averages and so you know is it enough to meet the state average do I need to get all the way the national average where is the line for fair and Equitable these days and how am I building the culture or being taken advantage of is this primarily an issue of the pay dollars or is it all of the it's all of the above we've always had a flexible schedule uh from when we started in 2001 you could work from home work from the office and it's about being a mature adult and knowing what you needed and and taking care of it so there were very few rules around that we moved into Co and so that became even more so we've always had unlimited paid time off and really 23 years in it's worked very well I can think of one time when I felt like that was maybe a little bit taken advantage of but so then coming through Co we've now added to that a 4-day work week pretty impressive increases in Pay um a paid professional development trainer who comes to us once a month uh paid one-on-one coaching and so I'm thinking am I adding more stuff have I added too much when do I know that I reached the line did something trigger this thought I think that I can attribute part of My Success to the fact that I'm always asking the questions am I doing enough how can I do more where's the right balance and but now it's am I doing too much right now that is the question have I reached The Sweet Spot or have I gone too far past the sweet spot so nothing's wrong I just sat down and analyzed the numbers from last year and everybody did their um salary wishes you know this is what I would love to be making and I'm thinking you know if I can afford it do I push to it if I can't afford it do I find a way to push to it where's the line interesting Mel William have either of you thought along these lines at all well that's the tension I think everybody that I'm working with is is facing so I don't I would I don't know if it's helpful or if it's discouraging but I would uh I I would say Jackie that you shouldn't feel alone and I and I think particularly what we're seeing is you know as we deal with the reality of hybrid is probably here to stay some kind of remote work and also the tension that there's a whole lot of productivity that happens with people in the office I think the Dilemma that I sense business owners facing is if I'm going to ask people to be in the office it better be the best office ever and it better be someplace people want to come so they focus on building culture and they raise pay and then they put in a Miss Pac-Man machine or whatever the thing is that makes people feel like it's fun um and then it's like when is it too much and I'm a huge proponent of Millennials gen Z and now gen a I just think they're I'm very bullish on on our future with them but there is that that common uh perception that I've heard for years that well they're entitled now maybe that's because they got a participation trophy for everything ever they got titles way before they should have but I do think it becomes a bit of a black hole the more you feed this into the culture here's something I'm entitled to the more it becomes a a problem so man I wish I had the magic formula to tell you how to figure out how far is too far but you are not alone and that is the tension I hear a lot of leaders managing right now I love the what you said about getting them back into the office we just invested heavily into taking what was a pretty cool Ad Agency office Vibe we have both Miss Pac-Man and gallaga and uh but we expanded it and so we've built you know our our creative team was like Hey we've done this open Office Vibe for you know two decades now we want rooms we want our own offices and so we built independent individual 10 offices 11 offices so that each of the graphic designers has their own space but it's no ceiling and so it is both still open and a unique an individual and so that seems to be making them want to be here and so retention is my word because I want to make sure we're retaining good people we've got the greatest team we've ever had how do I keep them happy and I guess that's why I'm asking the question what's far enough what's too far where's middle the way I see this because I think we lean in pretty hard toward people people first as well and retention is a Big Driver behind that but it's also we we've got other things to our culture that we want to be intentional about so it's not just to retain it's to retain and to support collaboration it's to retain and to support uh high performance it's to retain and to support our inclusive environment it's to retain and to support high levels of customer satisfaction and so we try to get very specific about the why of the C culture not just good culture so people say you know I just want to have a good culture well yeah but like let's define specifically what good is and then to me you take a long-term view like you would a portfolio of investment so you named a bunch of things and I would call that the portfolio pay work conditions office environment flexibility all that stuff right paternity leave maternity leave all all that stuff is the portfolio of stuff and the question is and I think this changes over time which instruments in that portfolio are providing return because some of them don't matter I'll give you an example we've got a division in our business that they do not value longterm incentive at all oh they they just don't care about long-term incentive totally agree with that so the portfolio including long-term incentive for them they're like okay I'll take it but could you give me two more bucks an hour cuz that's really what I care about so figuring out and making sure you stay contemporary around your portfolio balancing if you see it as a portfolio then you can you can kind of manage it that way and checking in regularly Employee Engagement surveys if your team's small enough I just talk to them and find out in in my 101's like what matters and what you're like yeah I'll take it but I don't really care because it's all costing money right and so I take away the things they don't care about and double down on the things they do care about in episode 183 I had to fire the guy I talked to Paul Jay and Sarah about sexual harassment and where you draw the line with employees is it possible to Define sexual harassment precisely does it require a zero tolerance response or is it better to leave room for discretion and judgment the conversation was sparked by a situation Jay experienced with a valued employee who had been with the company for almost three decades having started at the age of 17 Jay you recently had a stressful situation with an employee a longtime employee who got in trouble and forced you to make some difficult decisions can you tell us a little bit about that not much for his own privacy but with me 29 years since he was 17 years old and falls under the category of sexual harassment and it's it was just it was just a difficult situation of which there's some lessons from this sexual harassment if you think that it's not happening at your company maybe it isn't maybe it is it's it's if you've got 30 50 100 I got 130 employees it's a problem and you can have all the training you want which we do we do the training but it's very difficult and one of the worst phrases ever made in my mind usually usually is zero tolerance because it takes out judgment and the fact is things are not always black and white is it sexual harassment for someone to ask someone out for a date is it sexual harassment when they ask them twice is it sexual harassment when they close the door and they grab their arm it's not black and white and anyone who goes well people should speak up I fully understand that especially for a woman it is very difficult to speak up it's embarrassing they're worried about getting trouble they're worried about losing their job it's it's very complicated and then they worry about oh the manager is tight with the owner so they're not going to do anything at the end of the day I had to to fire the guy and it was a very sad very sad very sad you did the right thing I mean it's a hard thing but you have to as the owner I mean it all comes down to you if you hadn't acted then I think that the the the risk of being held liable for for something would have been too high that's part of it let me tell you the other part what does it say to the rest of the employees that's a problem it's both with the risk with the one employee but then you got to take a stand sometimes because everybody's watching this stuff and it's a problem and I will also tell you that which is all part of why we do this this podcast did I sleep that night yeah like I got to tell you I'm a warrior I've I've had to fight people for for all kinds of reasons over the years and like it was a very sad moment with him and he was very upset didn't argue with it but if you're in business and you've got a lot of employees you better just toughen up because this stuff happens if it's not this it's something else and I haven't had one in many years that was was personal like this where I knew the guy for a long time but like whatever I you know I do what I got to do and I'm not whining about it Jay was it obvious to you that you had to take this action uh here's why this is going to make it this does make it black and white this wasn't the first time 10 years ago there was something else and that's why it wasn't that hard because it's like okay I'm big with Second Chances I'm not big with third chances and if it wouldn't happened before maybe the outcome would have been different but uh this is the second round and like enough just yeah normally if I have an un employee who is misbehaved behaving in some way we have a procedure to tell them what the problem is what the solution is how we're going to help them but they get a second chance in many cases sure and I'm curious whether whether sexual harassment sort of it in in not like an obvious grabbing someone and you know whatever right right but just a just a remark or something whether that's something that it's okay to give that person a second chance or is this are we in a world where you you basically got got to get rid of them immediately no no I that's why I started out with this zero tolerant I don't believe that phrase I'm sure there's some cases I think that phrase is overused I don't think it's practical if someone makes a bad comment yes I absolutely believe they get one warning it's it's just not that complicated you get one people say stupid stuff men women it happens but to your point yeah they grab okay there's certainly some stuff that yeah it's that's it I got to tell you somebody call someone a a racial slur that probably would be it I I don't know that that's a warnable offense because I don't think you can undo the damage from that so I'm not saying there aren't things that aren't Zero Tolerance but not many in episode 184 that would put me out of business Mel and Jackie talk about how they handle requests for proposals Mel does so carefully Jackie won't touch them we left the RF P Rat Race about 10 or 15 years ago and that really freed me up to not worry about what other people were charging rfps are designed to put apples next to Apples and it's a very price centered approach to choosing an agency and I think again that should be maybe the fifth consideration because choosing an agency you're dating and you're getting engaged and you're getting married and you should not do that just because they're the cheapest available option on the corner so it's a lot about it's a lot about chemistry it's a lot about expertise and we want people who think those are more important than pricing so then if there is a slight fluctuation between this price or that price we're still going to get the gig and we used to go from being the least expensive um company in the room and not winning to now most of the time being the most expensive company in the room and winning and I like that version better Jackie when you say you left the rat race of rfps does that mean that when somebody came to you with an RFP you refused to play along I say things like thank you so much for considering us but at this time which is for the past 15 years and will continue to be for the rest of my life we don't participate in the request for proposal process if you want to meet with us and have us do a discovery and put together proposal we're happy to do that but I'm not filling out your RFP I'm not playing your game I believe that you already know who you want to hire and I think you should go hire them and don't waste my time so that you have somebody to say no to to justify the decision of who you want to hire I don't always say that last half but I think it and my creative team is happier I am happier we are happier we have not participated in a single RFP in 15 years and we won't under my watch why do you assume that somebody who's doing an RFP process already knows who they want to hire because most of the people that I've talked to that have conducted at RFP processes say we really know we want to hire this agency but we need to have five uh to justify the decision I'm like okay good good luck and sometimes they say it's me we really want to hire you but I'm like we're not GNA be a part of a decision by committee we're not GNA um look as good on paper as we do when we get to actually have conversations and talk so if we're just filling out this piece of paper and we're going to be judged Apples to Apples on the paper what we're bringing to the table is not going to come through I'm not doing spec work and I'm actually Pleasant that makes me sound like I'm very unpleasant but I'm very pleasant to work with I just we've been able to sort of narrow down and figure out where we Excel and that's where we spend our time Mel I'm guessing you do play the RFP game am I right we do in a select way uh we will RFP if the if it is a qualifications to driven RFP so we're not afraid of the pricing part but there must be a qualifications part of it so we don't hard bid hard bid would be basically here's the draw here are the drawings we're construction company here are the drawings what's the price that's a hard bid we don't do that at all zero none because we don't want to be low but we're not afraid of competing if price is a factor amongst others so we do qualitative including rfps in episode 185 managing your tasks your credit cards and your anxiety J Jackie and Sarah respond to a Reddit poster who asked whether the stress of owning a business ever subsides the thought of a stressfree life brought a few Chuckles from the owners I saw an interesting post on the small business Reddit from a business owner who had a question that I think might be relevant to a lot of our listeners I'm going to read it to you it's titled when does the anxiety of a new business subside and and uh this owner wrote we're laughing already yes I started my business Wilderness guiding and outfitting last year and things were very slow at first December got some business January a little more I was hopeful words started to get out but suddenly this past week I have been flooded with requests via calls emails texts forms submitted on my website and it's absolutely amazing I'm 100% not complaining just a week ago I was stressed about if I could even pay my bills but the sudden influx of customers and reservations has me feeling anxious and a little overwhelmed I am so worried about a customer falling through the cracks as I navigate getting back to this person or that person making this or that reservation for a trip or service it's just that it was so sudden as if everyone all at once decided they wanted to do a trip I am a one-person show well that's an easy one the answer is the anxiety stops at the 42-year Mark so they got to hire somebody a freelancer okay lighten up no I I think it's about managing customer expectations that I think if whoever is emailing texting whatever you say I'm a oneman show I return all of the all correspondence between and just just let people know when you're going to get back to him I think people are perfectly most will be happy with that and just when he gets home at night he she gets home at night uh you go ahead and get back I'm always happy if they just tell me when I'm going to get the return that's all I just would like to know where it's at I don't think there's anything embarrassing to tell someone I'm a Onan operation but you need to have a system in place also like if you're going to start I mean whether or not it's to doist or or something else you need to you get the your person's name put in a spreadsheet they came in you responded this is pending what's the next step and and just making sure that you're organized on all of those things and updating that spreadsheet every day so you can you know keep on track of everybody because yeah the worst thing in the world is to get a Yelp revieww oh I tried to go on this this Outdoor Adventure but um they never got back to me you you want to avoid that but you know you could probably if reservations keep coming in hire a freelancer somebody to help manage that there are tons of folks that are perfectly capable of just helping you know send out those email thanks for your inquiry we are you know we are a Onan show we will get back to you within the next seven days or whatever it is I think those phoning answering Services make sense too I can't tell you how surprised I am when I call companies and we're talking about things that cost thousands of dollars and the phone machine just says the person you're trying to call is in here they don't even put their name on it for God's sake so even if it just said hi this is Joe Schmo leave your name and num so I've learned that people in my experience from being the customer people are either really good at this or they're horrible at it and there's no reason to be horrible at it to your point have system have a person answering the phone or have something but it's not brain surgery and I'm surprised at how many companies just dropped the ball on it I thought this one was interesting because it was so early in the process I mean as he acknowledges this is one of the lucky ones he he started his business it was slow for a couple of weeks and then boom that's a problem a lot of people uh would like to have I know I want to know what the secret sauce is how did this person do that like tell me and I will I will emulate it you know it starts with a website also and it's seasonal you know so if you started in the beginning of the winter then it's going to be slow and now people are planning spring and summer trips it's going to pick up I sensed he was asking a deeper question it wasn't just about managing the sudden inflow it was about adjusting to life as a business owner and recognizing that even if he figures out this situation there's going to be more coming that he's going to have to live with yeah he's going to have to deal with the next step which is he's going to have to learn about hiring and firing and management which is not a simple thing and it's a he I think it's a he okay if he wants to grow this is you know I deal with this in the framing business all the time I I just was in the show and I said everyone you have to make a decision do you really have the mindset the stomach for growing a business or do you want to be a oneperson frame shop there's nothing wrong with that if that's where you're comfortable because he's going to have to make a decision does he want to grow this to have a staff and be a manager in episode 186 Ken Jimmy beans wool sell yarn on LinkedIn Laura and sha talk about Laura's unsuccessful efforts to move marketing off her plate and get others to do what she's always done part of what she had to learn is that marketing doesn't come as naturally to others as it does to her I've been told that like I'm a marketer and that I'm good at that and you know I I don't know I have a hard time thinking that other people can't do it as well or do it a lot better than I have so I've let go of that for the last few years and just thought she could take that on with the leader that she has and I just don't think their skills are there you know they don't have that same intuition they don't think that same way they don't think huge you know they don't think about getting Q Jackman to do a video for them um and we haven't had that for a number of years and I think it's just catching up to us yeah and so that's where you know I'm kind of stepping back in and like okay we got to think big you know going back to like marketing 101 it's not just about marketing to our existing customers which our team is really good at it's about we have to grow you know literally our customers are dying off every year we have an older customer base and we need to get new customers in and we need to do it in a systematic way and our team doesn't think that way mhm and that's the hardest that's the hardest marketing new customer acquisition is 100% the hardest marketing you can do oh it is oh I love that oh 100% oh I think it's so fun see this is like your unique gift like anytime there's something where you think it's easy and everybody else thinks it's hard it's like that's the special thing right that's your unique gift yeah it's just door too I love going door to door along those lines when you described it before as your team kind of lost sight of marketing uh 101 yes I think along the lines of what Sean is saying it really isn't marketing 101 no it's not you brought uh a unique brand of creativity to it and just the the example you gave of bringing in Hugh Jackman to be part of a campaign yeah y That's not marketing 101 um yeah it is it's easy that's but no I this is actually very enlightening because and that is the mistake the oversight that we made is that I assumed that that stuff is just marketing 101 like it's not that [ __ ] complicated you know it's not that hard and so I let go of that and my expectations then obviously are set at the wrong level um and I'm expecting other people to just be able to do that and they and it doesn't come as naturally for them and so we're having to reset and reorganize and you know then you figure out like do I find somebody who that is marketing 101 for which is expensive you know or do I I mean it this goes back to Cliff Oxford but I don't think that's what you're looking for well that's what Cliff would always say he's just like you're never going to find somebody to replace you who's Cliff Oxford sorry I don't know Cliff oh Cliff was one of the he was in the um a blogger for the New York Times he's been friends with Lauren forever and has been was a good Mentor to me um in a lot of ways and he was a marketing genius if you will but yeah he used to always just he's like you're not going to find somebody else like you are marketing you are the marketing like person um and I resisted and have resisted and resisted I'm like I don't want to do it it's too easy it's boring I want to do other stuff but anyway you know maybe the takeaway here is and I love what you said Sean is that if I think something's easy and other people say it's hard then maybe that is my unique gift and that's something I need to lean into as opposed to trying to Outsource or Farm off and then I get frustrated cuz I'm just like dude it's not that freaking hard in episode 187 man I'm glad we didn't do an ESOP special guest Matt hoing tells Shan and Jay how he chose to create a do-it-yourself employee ownership structure at Choice One Engineering in Ohio rather than creating an ESOP we start with Jay summarizing Matt's concerns about esops okay so as someone who spent a lot of time looking in the esops it seems to me that the issue is there's no question I don't think there is a tax advantage to esops but just correct me if I'm wrong the reason why you gave up the tax advantage is because a you like the fact that they have to pay money to get into it which in ESOP isn't that you like the fact that every that that not everybody's going to be invited into it I assume you like the fact that you don't have the government in your place every day telling you what to do because there's tons of regulations with esops because it's a government sponsored tax plan so you don't have any of that now I assume right is that true that's correct Jay and that's I mean you hit the big topics there but that last one is one of the ones that I look back on and say man I'm glad we didn't do an ESOP cuz we've changed our plan a couple times since 2014 you know not having control to be able to internally within our own ownership group decide what's best for our structure was something I just couldn't get past like I'm going to have the government telling me what I can and cannot do with our business I did that just never resonated with me right and to be fair to the government I understand why they do it they don't it's just like 401k plan they don't want somebody to be able to take this and manipulate for the benefit of a few people so I totally respect that the government's got their hands in it your plan and is far more running the business in the most efficient and effective way and by doing an ESOP you lose some of the tools to do that so I totally understand why it was worth giving up to tax advantages for that yeah and I looked at it as a you know there's pros and cons and ours isn't a perfect system by any means right but there's what was the way that we could best ensure the the future of choice one and when I say the future of choice one I mean mean Choice One in the way we want Choice One to be could Choice One exist as an ESOP yes absolutely but there's lots of things we do that an ESOP wouldn't necessarily encourage or support Matt I think I heard when you were talking about what this would mean for the future of the business I think you may have been uh referring to another aspect of esops which is that you can't really control what a future generation of owners will do they would have the option and maybe even the fiduciary responsibility to sell the business at some point was that a concern yeah that that was probably the last piece of it that really turned me off of the ESOP was that we wanted to be able to say we want to operate Choice one as we feel best for Choice one and if that means continue on forever um or if that means know someday do we sell I don't ever see that in the future that I'm involved in Choice one but my concern was that if if a very enticing offer financially was on the table and we were in ESOP that we would have to consider that and we like the ability to take those emails or phone calls that come in way too often and just say thanks but no thanks you in episode 189 What to Expect When You're Expecting a business Paul Jennifer and Liz respond to a small business subreddit post from a young woman who's about to marry a man who's about to birth a business and who's thinking about how they will balance the needs of the business with the needs of the marriage we start with Jennifer warning against focusing on the best case scenario the person that ask the question is in the throws of excitement they are about to get married there's nothing more exciting than the engagement and honeymoon period the fiance is also about to start a business there's nothing more exciting than the thrill of starting on your own those two are a recipe for disaster for an honest conversation the passion and excitement will meet the brick wall of reality pretty soon and so what I would suggest to them is to talk to someone that has had a business fail and have an open honest conversation what I've heard people say is oh well in a couple I'll work now I'm going to work really hard but you'll have the day-to-day job with the health insurance in a couple years we'll be able to figure stuff out and then we'll have enough money and don't worry we'll take the vacation then well that's best case scenario I want to hear worst case scenario I want them to have a conversation if you put all of your money instead of let's say you don't buy that house after the wedding and you put that money in the business and in two years from now that business goes bankrupt how you going to feel about your spouse is your marriage going to be strong enough enough to survive it what are you willing to do to keep that marriage alive don't think of best case scenario cuz we all want to live in best case scenario think about the worst case scenario so that's my advice Liz yeah so when I started my business I had kind of sketched it out I had a business plan for it a couple of years before I left corporate and part of that was that I wanted my husband to see that I was prepared to launch the business that I wasn't just doing it impulsively so he had a couple of years to see my passion for what I wanted to do and to see the business plan so when the time came for me to be able to leave corporate you know I I had a severance I had unemployment that I was able to get at that point he saw it as this is your opportunity to go for it because we have this runway in front of us so it was kind of an easier decision if I had just decided to leave corporate to start a handyman company which sounds insane even now when I look back on it he would definitely not have gone along with it we probably didn't talk about worst case scenario and I could have had that because my first business I ended up selling and getting out of very quickly but there still was a messiness in closing that whole operation down that was definitely a strain on the marriage you know there was still some money involved even though I had sold it and that was a really trying period the lucky part of it was that the reason that I sold the first business was to focus on City been my current business and that was doing well so the conversation wasn't like this thing shut down what are you going to do now it was oh it's a good thing you had this other thing going when the first one you know imploded you know and then current Communications as everyone knows my husband Frank is my coo so we talk continually about this as we grow the stakes definitely seem higher you know taking on higher like line of credit buying inventory in a much larger quantity that's Al always a big part of tension for us because he is risk averse and I'm like we need to prepare for Success stop you know having a mindset of preparing for failure Frank and that's probably a tension we're always going to have but I think we understand why the other has that perspective more than we would have a couple of years ago do you think it's a healthy tension that gets you into the right place I think so yeah there's not a lot of angst there can be a lot of angst because you don't want to think that your spouse is preparing for failure and if I really boil it down when he's being risk averse in my mind I take it sort of personally and think that's what's going on but it's really he's just being protective of the life we have you know the house that we have which yes is mortgaged you know against our big Idol own but it's a big tension and I have to say it doesn't work for many many couples regardless of whether you work together it's a very big area where a marriage can fall apart and it is really important for this you know person on Reddit to to have their eyes open the second part of uh This Woman's question is what do couples where The spouse's business failed wish they would have done differently in terms of communicating with each other other Paul happily your business did not fail but you've been very open about how tough it was around the time of the Great Recession you wrote about it in the New York Times you wrote a book that was largely about it can you tell us anything about uh how you handled that in your marriage at the time sure one thing about my marriage is that all that was really bad but it's not by any means the worst thing that's ever happened to me so my wife and I have a very severely autistic son and that's just a constant Challenge and we've been able to turn that challenge into something that binds us together so the business failing was a distressing prospect but you know it wasn't how can I explain this it just never got to the point where it was actually the worst thing because it didn't fail but we had over the years like we've been together for a long time we just settled into a pattern of how to be married that didn't require how to put this we didn't require any continuing Assurance on my part that the business was going to be this or that and part of that is because it started as just an effort to be a a a reasonably successful artisan and it quickly grew beyond that but Nancy's roots and and my roots in business are very humble and she just she just was not so worried about I or at least I didn't feel that she was worried about a moment where uh income was down or whatever because a she grew up in a household where that happened a bunch of times and B we'd had a lot of years prior to them when I was starting the business where just really didn't make much money and we just got used to not having money um so I think that it was tough to explain to her every every little in andout of what was happening in the business and I just didn't do it but we skirted disaster so I never really had to conf front the consequences of whatever I was doing at the time Paul you and I met because you sent me an email when I was at the New York Times saying that uh you would like to write for the small business blog that I was editing and you thought you could provide a different perspective because you were running a business that was headed toward bankruptcy at the time you wrote that email to me did Nancy know that you felt you were headed toward bankruptcy I don't know I didn't explicitly say to her that way like at the time I wrote that email which was mid December of 200 2009 we'd already been through a pretty tough year she knew it was bad but she's not somebody who can really listen to the minute by minute oh here's how much money we have in the bank account and I think that that's partially because as I said she grew up in a household where there were some pretty lean periods and it would just be distressing for her and and the other thing is when you have a child with special needs one of the things you learn is that something happened to you right it just happened and then you deal with it and so with the impending bagrey I could see it coming but at the end of the day it did not happen so we never really had to get down and and and deal with it as the biggest problem of the moment because uh we just got out of it and it just made it possible for me in my marriage to to get through that without having that Frank conversation now that's my experience my wife my situation and I would never hold that out as hey if your if your business is failing you should do what Paul did don't do what I did I I'm not a not a good role model in this case so I think you should ask the the other podcasters a couple specific questions uh to give this person some really specific feedback one is if the the company fails who's responsible to pay back if there's any debt is this an assumption that the meritable couple will do it together or that the person who had the business it's their responsibility second is how soon after it fails is the expectation that that person who's a business owner would get a job right and and not necessarily I don't mean like a employment but to bring in other cash whether that just means taking catering gigs on the weekend to bring in cash what's that expectation of a time period is it a month is it two years until they get their feet on the ground to start a new business you know everybody's different three is expectations of changes in lifestyle most businesses that fail at this level your lifestyle is probably going to change dramatically are you on the same path of well we still need to take that luxury vacation on the cruise or do we need to cancel it and then the final one I would say is where's the health insurance coming from if the health insurance is from the spouse that's not the business owner and they had expectations to do something of themselves another job stay home with children right there's all sorts of reasons is to relook at that because health insurance is a serious aspect in the marital side when a person wants to start a company and who's going to provide that in episode 195 yeah I can hold myself accountable Mel tells Jay and Liz that as he was moving into an executive chairman role at his main business triversity construction he decided to buy a small business that he'd always thought had a lot of potential things didn't work out the way he expected mostly because Mel didn't realize that the company he bought was literally losing money on every [Music] sale did you buy this business as something that you expect to really focus on uh now that you kicked yourself upstairs from your main business actually I bought it um because I always loved this business I was hoping that I could convince triversity the the the company that I was exiting to over time see the value in it and add it to its portfolio of companies that it owns so that was the motivation right they they were not buying in and so I decided to buy it myself and convince them over time that it was a good idea it's a construction related business yeah it's Facilities Management so it's the grunt work plus so you know um little patches of dry wall all the way down to mowing grass and moving snow and cleaning out gutters and cleaning windows it's the ultimate execution business but companies good companies during even bad times they're going to maintain their facilities well Y and so to me it was an offset to the economic kind of um trends of construction that construction can lead itself into but it is a tough business and um and I didn't buy the company I bought was um I misdiagnosed their challenges and um and now I'm in a situation where now I understand the challenges and they are they're tough ones how many employees are there all together in triversity or the new company no everything everything under your purview 150 people maybe total and the the the new company are are you managing it on a day-to-day basis uh no there's a president in place uh that just is um if he would have come along if I had five years he'd be great but I don't have five years he's got to gy up a little faster he's bright he knows this business super well but um and so I would have to say he's managing the day-to-day but I'm very involved Lauren I'm very involved and uh and I'm not used to being very involved so it's a challenge can you give us a sense what the the main challenges are why is it a tough business yeah the fundamentals is this company when I bought it had one customer so that to me is not a problem because they had an amazing customer a very large customer for this kind of business and we were performing very well for them so I was confident that our ability to perform was going to be a base for us to be able to grow this business what I misdiagnosed I thought they had a management problem but they had had a structural contractual problem with the customer that is just we were actually paying the customer to show up every day and the team just didn't know it I'd never seen negative gross margin before literally never seen negative gross margin and when I saw it I just knew it was a mistake so that's the biggest challenge so the good news is is that it's a great customer we're working through um new contract uh terms new bill rates that I will put it back to profitability but you know when you dig a hole as deep as we dug it just makes it a challenge that the second thing about this business it is very cash intensive you know when you deal business with big customers 90 days is are good terms and so you're paying weekly because that's the kind of employees you have and you're getting paid in a 120 days so the cash that it can consume is uh significant so you add the cash uh that it consumes to lack of profitability and you just it becomes very difficult wait wait why see this is what's interesting about this this podcast we're very different I everything you've been saying up till now is like yeah that ain't me I mean we're like on opposite ends of the spectrum you've got a bunch of Partners I have no Partners you've got one customer I've got 40,000 customers you finally hit on something okay I got my arms on this one what's with 120 days why do you have to wait 100 what if you say to them you need to start paying quicker why do you have to live with 120 day payment terms yeah that's a that's a great question um you don't have to but you do have to if you do business with them so you think this particular customer if you say we can no longer Finance this at 120 do you think they'll find someone else that'll do it for 120 days I guarantee it wow now here's the nice thing if you're smart though and you're profitable you just build a carry into your into your business model yeah yeah yeah and um but you got you gotta carry you got to build a carry into your business model and if you don't uh then you know then you're going to be really hurting you know our our triversity the construction company does business with the same customer we've never had a problem with 120 days we have some problems with our subs that can't wait that long but we've never had a problem with 120 days because we've built it into our business model are you looking for other customers uh no well here's why um I've got to make sure that I can cash flow a new customer the worst thing I could do today is get a new customer I see the customer would have to pay me up front right and uh those and at at scale those are hard to come by um we when we get this model straight though I'm confident and I've told the the customer and I are very clear about this we can get back to 120 days um we can continue to deliver at the A+ level that that we've been delivering and and then we can start to add customers you say you have gr negative gross margins I assume you've got to charge more right oh absolutely okay so my question is are they going to find someone else that if you raise your prices where they need to be are they going to find someone else who who's going to go ahead and do it cheaper because they don't know the difference is that a question mark or is that it's not a question for me at all because we've been very clear please do find someone else that can do it at this price and they can have it you know you know when you when you get super clear about super clear the customer get super clear too and they've been great because what I said is I'm going to show you everything all the cost and you tell me that you're that you're paying for what you're getting now they never admit it we're not paying for something that we're getting what they did say is we we're willing to talk to you about the pay rate the rates so um they've been great about it to be honest with you but you know it's not their job to make sure I'm profitable they want me to be profitable it's not their job so interesting business question to me is the people that you bought this from how do you I'm gonna guess they didn't have the proper accounting people in place to recognize that they were doing it a negative gross profit is that true that is correct down it comes down to accounting it does and an idiot to that would buy it without believing the profor not because this company did not have the model change so I'm Gonna Make it try to keep it short this this company did not have financials when I bought it it didn't even have employees when I bought it the two owners prior to me were loaning employees to this business and charging the business 10% margin for the the the cost of carrying those people so they had no purview into what it was actually costing the company to do this because they didn't care because they were both getting 10% on all their employees where they did care was they couldn't seem to cash flow and they couldn't figure I that's where I misdiagnosed I thought they just had a bad bottle and that they weren't managing it well it was worse they had a bad model they weren't managing it well and they had no idea what it what it cost to deliver the service in episode 196 how to waste money on marketing Sean Jack Jackie and William talk about the many reasons marketing can be so challenging for business owners it all starts Jackie says with the marketing industry's refusal to set standards so I hear from companies all the time this frustration that agency XYZ we paid them all this money and we got nothing for it and now we don't have money for you and we think you're going to do actually a really good job and and now we're sad we wasted the money okay so sure maybe part of it's just a thing to get up saying yes to us but they could just say no but I as I dig into it and I see what XY EZ agency did they're right they did get paid a ton of money and very little was done and then I I look a little deeper and you know the client should have been smarter there was some red flags they should have maybe not hired XYZ but here we are and so I think in so many situations and Sean I'd love to know your thoughts on this we do it to ourselves as an IND industry anybody can call themselves an ad agency or creative agency or Communications firm or PR Company or whatever you want to call it these days anybody can open their Mac laptop and have a canva account and now they're a designer we have not done any licensing or certification or educational requirements or testing or ongoing continue education and I look around and literally I can't find another industry that treats themselves so badly plumber electrician architect CPA realtor hairdresser nail salon tech everybody else has some semblance of something to say I am a legit entity except our industry and I I don't get it yeah oh man that's such a good point Jackie I I was on a call the other day with a with a company that had 300 employees let's just call them an engineering firm and they had just fired their entire marketing department and I was just sort of digging in and I real like their their marketing team had built this like Byzantine spiderweb of digital marketing that no one could understand and I was digging into it and what I realized Jackie is that the level of complexity that has become the marketing and advertising industry is way higher than people's perception of its complexity correct you know like this owner of this company which is in the tens maybe hundreds of millions of dollars he has no idea really and he's a pretty smart guy right he has no idea say the difference between you know an SEO strategy and maybe account-based marketing or you know thought leadership and all the different ways that plays out and what is a relevant social media strategy and what I realized in that moment is that in our care you I think we have a probably similar career trajectory Jackie right back in the day when you and I were operating you know early in our careers like you didn't actually have to track that much you know like you know maybe four or five channels you know in terms of how the message might get to the customer and then you could just focus on being creative and today marketing is everything from super super highly technical tracking users and they digital Behavior to yeah actually being really creative and Innovative and brand and all places in between and I really think that the the the business uh world just fails to comprehend how complex it is and then as an industry we've done oursel a terrible disservice by actually not creating some standards in education and so you get it's a freaking wild west and no wonder I mean Lauren you've said this before like it is the one topic where there's massive massive confusion and frustration of of all the all the aspects of running a business there's so little Clarity on what to do with marketing why is that I I have said that Sean and I've focused on it from the perspective of business owners who just struggle with figuring out where to spend their marketing dollars who to hire uh you know what channels to use it hadn't really occurred to me that it could be frustrating from the other side of the table as well uh which is one of the reasons that intrigued me when you when you brought this up Jackie have you spoken to other agencies have you you mentioned you get on your soap soapbox when you can have you gotten anybody to to salute I mean everybody I you know whether it's local agencies uh agencies that we partner with on clients you know we may share a client each filling a different role you know I I'm an AMA member I brought it up to them adfed it's sort of this third rail that nobody wants to touch and I never want it to sound like I'm saying I'm inside now so I want to close the door behind me and not let anyone else in that is please don't hear that what I want to do is let's just go with a naming protocol the reason why the company in Sean's example had all these people doing all these things is because there's no protocols in place I think about architecture what would it be like if every architect was self-taught and and maybe they had a degree maybe they don't maybe they went to two-year maybe they went to four-year maybe they worked at other companies for years or maybe they just learned some stuff in their mom's basement and watch some YouTube videos and now they're out there selling their Arch we would never allow that why would we not allow it it's a hazard they could build something that could fall down it's an incredible expense it's safety how is this any different William is this confirming your worst impressions of the marketing industry oh my God should listen to this podcast two weeks ago we're rewiring our whole marketing thing trying to figure this SEO thing out among other things and uh it's it's deep dark magic man it's not Don Draper coming up with a good idea you're ABS I'm just learning how much tactical strategy is in place and then also intuitive I think this is right and I should have hired you guys come help me figure it out yeah well call me we'll talk in episode 197 how to sell a business that won't sell we discuss what we're calling a weop the term coined by J refers to a business transaction that is something of a do-it-yourself ESOP but without the expense and complication and debt of a full ESOP it's a transition that lets owners get money out of what has been their life's work it lets loyal employees who may not have the money to buy the business right away keep their jobs and preserve the company's culture and eventually buy the business and it's a potential poal solution for the silver tsunami of retiring Baby Boomers because it can provide a sales path even for owners who have never managed to extricate themselves from their day-to-day operations in this episode Jay introduces us to Jill and Paul choma co-owners of a business gilded Moon framing that Jay recently guided through the weop process I realized that when you sell a small business you usually get in general unless you're a computer business I don't think anyone would argue with this you get three and a half four times EA or you know which is very similar to profit okay so I realized boy if you could just hold on to the company for a couple more years if if you've got that luxury you could get some of your money out just by holding on to it Jay I think you need to explain that you could get some of your money out just by holding on to it if you for instance if you own a business and you sell it let's just say you get four times earnings okay well if you could get someone to run the business and you could go on vacation for four years and keep it going for four more years you've got the earnings you basically got your money out which is why I I threw it's like a sale price you you still own it right but you're not there every day and you get you collect the profit and that's the sale price I said to to Paul and Jill can you sell to your employees and they said you know we'd love to but they don't have any money and I looked into an SBA loan and that's when the light bulb clicked on and I said you know what it's hard enough to take a civilian and turn him into a business person like that takes some work but it's really hard to to take somebody that's a civilian and turn them into an entrepreneur because that's the whole definition of entrepreneurs taking risk if they went out and got a SBA loan for hundreds of thousands of dollars I've seen this happen they're going to be real nervous they're going to go to Thanksgiving dinner they're going to tell their Uncle Bob and Uncle Bob's going to go oh no you can't do that remember what happened to my friend so and so people are going to freak out we don't need to do that so that's when I came up with I'm calling it a weop it's very similar you sell it to the employee except you stay around for for a couple maybe three years and you give them a little raise maybe you put that money on the side and then after two or three years you've already gotten most of your money out like I said because you're still getting the profits and then you can sell it to them and there's no bank loan there's no SBA loan no one's got the risk and then after two or three years maybe it doesn't work for them maybe they decided they don't want to do this maybe they got divorced maybe their mother um left $300 million there's lots of reasons you're still okay because you still own it and you don't have any lawsuits so I proposed that and they made it work yeah it was uh it was it was genius it really worked out well for us so tell us about the reaction of your two key employees when you threw the weap idea uh at them what did they think they're very smart young women and I think it took them slightly by surprise that they hadn't considered it but once we kind of laid out a road map on what we were thinking and let them have some time to talk amongst themselves I know uh one of them is married and and she spoke with her husband and his comment was this is a gift because we did give them a very attractive price uh we when we bought our building we had as Paul said it was a gift to us because it was such a good price we figured okay let's pay it forward and let's give these guys a gift because they're smart young women they're creative and they'll be able to take this business and run with it and take it into the next decade and Beyond so so once they spoke about it and came back to us and said yes we're interested then it became time to really put a plan together and uh we worked out a deal with them where we would hold the note and they would pay us for the sale of the business we we charged them a you know a fair amount but it was a lot less than what we were um asking through the broker wait wait you got to qualify that which you could do because you're getting the income for the next couple years so you didn't need to get four times earnings all you needed to get was two times earnings because you got two more years out of it and they were running it that's the key to the whole thing you didn't lose and this was a win-win if there's ever been a win-win in the world this is a win-win everybody came out great in episode 199 I decided to slow our growth Jennifer called in from Spain where she was finishing up her first real vacation since starting her business almost 20 years ago the vacation Jennifer told sha and Jay is part of a decision she made to regroup a bit in part by backing off on her sales and marketing Outreach the goal was to give her team and herself a bit of a respit while they catch their breath and while Jennifer institutes processes that will improve operations and get some day-to-day responsibilities off her own plate I asked Jennifer how much she'd kept in touch with her office during the more than 2 weeks she was away I would say the first 10 days not at all not at all I made one person who was basically my second in command anything that was an emergency could go to her and she could text me she didn't at all and then we actually had an event here from a client in Barcelona the last four days so I stopped in to to see them uh but no issues whatsoever it's been fantastic the only thing I had to do which I got got to figure out how to get off my plate is I had to run payroll twice but other than that I didn't have to work do you run the payroll because you don't want everybody there's no way you would be comfortable knowing what everyone else makes is that one of the issues yes Jay and I think this is purely I have a Personnel who does finances and she's like Jen you got to learn to trust somebody to do payroll it's exactly that Jay it's the last thing I'm holding on to as a CEO uh everything else I've sort of given up but it's not irrational it is a potential problem if somebody knows what you're not necessarily wrong you gotta be careful who you give that to because that is information that somebody go oh I can't believe she makes more than I do I've been here longer I mean it's not that simple Yes it really isn't that simple compensation is something that is not just skill set not just experience it's what the market value is for that skill set for us how many times do you travel if you only travel 5% versus 25% right there's so many variabl with compensation and I'm just not ready to give it up yet and you're assuming that the word would spread I know and maybe would it Lauren I don't know you're not necessarily wrong listen when you when you actually grow and you have a CFO or a controller that makes more money okay that's not a problem because they're making more money but when you've got someone on there who is not necessarily making more money than the other people and they might think it's It's Tricky I I don't blame you for being hesitant to give that up and it's a different culture you know people under 30 are much more likely to share their salaries than that's what I was going to say they they all may already know some of them do yes definitely under 30 they've shared it I don't know if the people between 40 and 60 have shared it with the under 30s right and giving up I don't know it's the last the last vestage of me holding on that I think in probably less than a year I'll be ready to let it go Sean did you worry about that at all was it hard for you to let that go no I uh that was quick yeah I mean you know 2008 was a a really big reset for my company kind of forced upon me by the you know recession and and I I made a lot of really big decisions that were made easier because I kind of had nothing to lose and so when you're in that kind of mind space I think it's liberating and so one of the things I decided to do was to remove all the low value activities from my life and also Outsource as much as possible so it helped in that we Outsource things like payroll which eliminated some of that friction back in that time um and then since then we've gone to you know open book management and I've talked it quite quite length at this you know in terms of my belief on compensation philosophy and and making it far more transparent to eliminate a lot of those hidden frictions and kind of backdoor conversations that are bad for culture so for me it's been very liberating to not be focused on that for I don't know 14 years or so but that's that's part of my just sort of ethos and mindset of you know a not wanting to work on things that are low value and B eliminating things that are potentially um Troublesome for the culture so that's just been my Approach and I know that doesn't work for every business no Sean I hear you and I'm very open book transparent about the books of the company uh you know the finance aspects of the revenue and and profit and stuff but the last vestage again I I know it's just sort of holding on to me it's controlling me rather than me controlling it and I think part of it which I fixed but part of that is because when we grew so fast we had Legacy employees that I had to figure out how to catch up to new employees with the Sal so that was hard now I fixed it I fixed it across but I need to get to one your mindset of transparency where I can justify I don't want to be like the government right like step one you get this incre whatever but to add the the compensation to a higher level of transparency and to let go of it you're at the higher level plane of Consciousness that I aspire to so well I I I should cave out this that the development you're talking about took place more recently so you know we did just like you we went from Close book financials to open company financials and then the second phase was to move to a more deliberate transparent um Compensation Program that transformation happened I think starting around 2018 so it took a little while to get there too so in many ways I think you're on the same track that I was on and I will say the for me at least in my experience it was so liberating especially in the hiring process because we have absolutely eliminated negotiation as part of the hiring process in episode 2011 this is not How This Ends we published one of our entrepreneurial fishball brainstorming sessions facilitated by Chris Hutchinson of the trevet group in this one we tried to offer ideas to support Jamie e founder and CEO of the crafter's workshop as Jamie made clear her challenges are real her sales are down her customers are aging her lease is ending and she really wasn't sure what to do next but summoning the grit that made her an entrepreneur in the first place she knew she wasn't ready to give up Jimmy I just want to ask you you've told us you've been doing this for a while now you've obviously had some ups and downs could you just give us a sense of where your heads at are you excited are you eager to try to rethink aspects of the business are you feeling burn burned out what are you feeling oh that's that's a very good question so I'm in my mid-50s and I am not burnt out I certainly know what that feels like this is not that I feel like I am baffled and perplexed when I'm kept up at night it's because I'm trying to think my way through this and I probably didn't to say forcefully enough I mean I'm at the point where I am using my savings my line of credit I I am no longer bringing in the dollars that support my monthly nut and we are very very Scrappy there's not a whole lot of fat here so for me to get to that point is is very worrisome when I talked to my employees about this and I said you know this is where we are and I said tell me how you feel about this and they were like we're not ready to see this go that would be sad after all these years of working towards this so they are also energized to to make this happen so I'm a planner and I I believe in playing the long game so this is not how this ends I I like we've been through 911 we've been through 2008 I've been through a divorce um cancer scare with my daughter I mean a lot of lot of stuff they're all with my business and all with the people here this is not How This Ends but I do need some help thinking my way through it and that's the end of part one next week we'll be back with highlights from the second half of 2024 in the meantime my thanks to everyone who participated in the 21 hats podcast and the 21 hats Community this year including our amazing producer Jess Thon of blank word happy holidays everybody