‘You’re in the Valley of Death’

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Sean busy Jay gz and Jennifer Karen talk about that difficult transition most growing businesses endure when the owner can no longer handle all of the most important tasks herself but also can't quite afford to hire the people she needs to lighten her load it's part of the reason Jennifer as she's told us in previous episodes has been working 12-hour days 6 days a week it's a challenging transition and it has a name it's the Valley of Death says Shan who Compares it to crossing a desert we also discuss how big the owners went their businesses to get why important tools and processes seem to break with every $500,000 of Revenue growth and what constitutes the proper care and feeding of salespeople plus Jay has an idea for owners who are having a hard time selling their businesses the idea involves selling the business to a key employee in a transaction Jay is calling a weop get it's kind of like an ESOP but it's a lease to own version of an ESOP a weop even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our principal sponsor the great game of business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transer desps of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are regulars Sean busy CEO of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy Jay goz who's CEO of the gos group and whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason home and Jennifer Karen who's CEO of SB Expos and events and events management business based near Baltimore Maryland the episode is titled you're in the Valley of Death welcome Shan Jay and Jennifer it's great to have you all here I want to start today by picking up on a conversation we had at our event in Chicago uh the first thing we did in our peer group conversation there was to kind of take turn suggesting conversation topics and then we voted on the ones we found most intriguing and the topic that got the most votes and that we spent the most time discussing was one I think you suggested Jennifer which was how big do you want to be am I right was that your suggestion it was and there's you know that age-old discussion with business owners if you look at Top Line or bottom line right and so when you think about how big are you thinking how big your annual revenues should be or how much money do you want to take home and how big is enough what prompted you to ask the question was there something a decision you had to make that was looming that prompted that or why were you thinking about it our companies in a fast growth from a revenue standpoint right now and so I'm spending a lot of time on Shoring up operations our theme for the year is scalable structure and so I'm not putting a lot of review on the bottom line on our profits not that they're bad but I'm not focusing on that I'm focusing how to create structure which takes a little more investment and then I started to think well how much do I invest at this stage because am I investing to create a $10 million company a $20 million company or should I look at it in stages should I say okay I need to invest enough to get to 5 million and then I'm crowd having to do another investment to get to 10 million and someone at that table said something so interesting that I play over and over and they said every half a million dollars in Revenue something breaks in your company operationally wise that you're going to have to fix and I can't tell you how many times I think about that so overall is where do I put my priorities for the future and it depends on how big I want to be see I never in all of the well not never now I do but in the old days I never thought about how I just kept working to grow it and grow it and I didn't think there was enough and now I absolutely believe at least for me there is such a thing is enough which means I don't need to work any harder it's doing just fine everything's good and I do think it's a good conversation to have because there's an economy of one of your issues is you would like to not have to work as hard so I would say there is a size of a business that you get to that you can now afford to pay the operations person the accounting person and the marketing person and you don't have to do the work and you can't do that at a23 million company usually because you can't pay them enough so I do think there's a sweet spot for lack of another word and in your case I don't know maybe it's 8 million bucks because then you could afford to pay people to do all those things and you'd be making a lot of money what's a lot of money 10% bottom line I mean that's a lot of money I think but I do think it's worthy thinking about especially at your stage Sean you you have the advantage of having had your own experiences but also seeing inside a lot of the businesses that are your clients I'm curious do you have a sense of what's more common do most business owners kind of just see what happens and grow however much they grow or do they think about setting a goal and trying to hit it I think i' I've seen both maybe an equal measure although I will say I I'm most skeptical when somebody comes to me and the first thing they say is oh I want to become a $50 million business like if that's the mission I I don't I find I find it's often hard to find motivation around that and that's a different thing than what Jay described which is I want to grow the business so I usually see the three camps being I pick a number it's a random number it's often it's often a number that people pick because there's some sort of ego attached to it it's a big round number sometimes it's a 100 million yeah right it's 100 million or a billion and I F I usually am not very inspired by that the second group is probably the J Group which is like I want to grow because the thing I'm doing I'm excited about I believe in it I I know it creates opportunities and then the third group is just focused on they're just really interested in the work and maybe aren't that fixated on future state so it's really all over the map Lauren I knew a guy he wanted to hit $100 million and like he went bust I mean what's the this whole thing with hitting 50 m it's like the fact of the matter is most people do not have the wherewithal the money the smarts the op whatever it is that's very difficult to build to a $50 million company that's like anyone playing track at the high school going I want to be in the Olympics yeah maybe but that's a long shot but getting to 10 million okay is that success I mean the statistics are it's like 4% can get to a million and like 04 per can get to 5 million so 10 is actually very very difficult okay I yeah and in my case I was told that less than 1% of companies have more than 100 employees so I'm already in the less than 1% thing but the point is the good news is I think you could now obviously it depends what business you're in but I think if you had a business that was doing I don't know six seven eight million doar you can make a lot of money and have a extremely competent staff that you pay well so that you can do like me in golf four days a week and go for a massage on the fifth day one issue is yes to figure out where you want to be personally but the second part is where do you invest in your structure to support today but also tomorrow right and so understanding how much money do you really want to invest do I want to invest in right now to Jay's point my issue is I need to get some balance back right to to take off some of it how much do I invest in my accounting do I hire a controller and a bookkeeper internally that takes off a lot of effort on me but that's a hefty salaries right to do that's sort of the question I'm going with is investment the Hefty salary is doing your own accounting that's a hefty salary you're doing the work of somebody that should be making a fraction of what you're making there that's that's a hefty salary so that one's an easy one so Jennifer you're a Professional Services business yeah we are convention management and trade show sales okay so people you got to have it's people powered yes and so you're at the $3 million Mark somewhere in that range yes uh and you I think you said in the last show I was listening to around 30 people yes you're in the valley of death oh I've heard that before so what does that mean Sean so she's big enough to wear like systems matter and she needs talented people and she needs to offload the work like Jay is talking about but not yet quite big enough and the next number is probably four or five million for her where it like starts to stabilize again Valley of death's really hard she's yeah and you know what I have to tell you that was my life for for five 10 years that you know when you're smaller you can do everything yourself no problem I don't care what you do it all yourself then you start to get really busy and then you get to be where you're starting to get a little overwhelmed but you can't go and buy a tenth of an employee so now you're overwhelmed for a while and there's that period which I guess you're calling the whatever you just called it is going from I can't afford somebody but I'm overwhelmed until you finally can get it over the hump of okay now it makes sense yeah and i' I absolutely live through that and it's difficult said the same thing she said the 2 to 5 million for us it's brutal is Valley of Death she said once you get to 5 million she said even maybe four and a half million for me once I get that life's going to change a lot but that means I have to put the systems and structure in place now can we change the word from Valley of Death that's not real inspir I don't think you're going to die I think it's a matter of it's the valley of being overworked yes but I don't know that it's the Valley of Death here's why it's I think an app metaphor is like it kind of goes back to the like pioneer days if you're going to cross a desert you got to have a lot of resources a lot of water a lot of food because by the time you get to the other side of that desert you're about out and it's like if you get halfway and you turn around that's pretty deadly too it's that it's that between Zone where you have to have a lot of resources you got to really bulk up and and I think the Jennifer's Point like you've got to reinvent all your systems which cost money I bet your margins are shrinking like crazy with all this growth yes like you're probably in the single digit realm at this point and maybe you were in double digits before all the growth is that true or I mean is that kind of uh I'm not quite in single digits yet yeah okay but it's a downward number and I I'm prepared for it because investing in in systems and structure to be a $5 million company and to give myself not working six days a week I like your desert metaphor I've got more bad news for you I think your margins are artificial because you are doing the work of two or three people and so those salaries are not in your p&l good point yeah and so your margins are prob you need more professional people at this point so that's the hard part you've got to make those hires you're the woman in the salon who's cutting hair of 30 40 people a week and just you're right you're you're a profession to some degree like you saying but there are some tools here that no one ever no one usually don't hear about one of the tools is perhaps you just raise your prices 5% and put some more margin in there because if you're growing that fast and you got the demand I believe that that is one of the number one mistakes entrepreneurs make is they don't charge enough and I that that's always been my number one problem so that would take the pressure off all of a sudden you can go to hire somebody now because you're going to take in another 150,000 bucks and it works do you think you could do that Jennifer uh yeah I think so um I think as we get new clients it's hard with Legacy clients right but with new clients absolutely that's great you have that that that I love what Jay said because I see that over and over and I made that mistake for many years too way undercharging how long have you been at this Jennifer uh I got my first employee in 2014 but I started you know basement in the cell phone 2009 but it sounds like this growth has been relatively recent is that true yeah the last 18 months two years I mean to grow that fast in such a short period you like you should pat yourself on the back I mean we're talking value death and you're not hiring enough people like you're kicking ass I mean that's you're doing some great stuff all right I'm gonna call it the valley of opportunity she's going to ra she's going to make some adjustments and life's going to get much easier and she's going to have better margins and this is just a time to reboot but the the beauty is there is a number out there that you could make more money than you could I'm not talking about you need to buy a $5 million house an asmen but like reasonably you can make a lot of money not be working that hard and have a manageable amount of people and grief and I think you can do that at I don't know six seven eight million doar and so there is light at the end of the tunnel Jenner have you answered your question do you know how big you want to be I think I'm not going to measure it by numbers I'm going to measure it by time for me is working less I think what Sean just said open my eyes a little aha Epiphany is that my margins are less than I if I count the time that really should be other people that was a little aha moment yeah so I think big small what I want to get to is where I am taking a few calls a week like Jay I like that and to do that I have to put people and systems in place and have a healthy profit margin so less how big and more of uh what the structure I need I think if you were doing six million and you just did what I call a model income statement said okay well how many people would that be and I got to think that would work now here's the rub of being an entrepreneur that a lot of people don't think about if you're a lawyer or a doctor or anyone who makes a lot of money and you make 700 Grand a year you get a paycheck and you go to your advisor and you put it in the stock whatever and or you go and buy an expensive whatever you spend the money if you're a business owner and you make 6 700 Grand a year the question is how much of that you have to leave in the business and it might be half and then the money you leave in the business you still got to pay income tax on that and that is why I've never had a lot of cash because between the taxes and the reinvestment it just keeps going back in and back in and it's okay because you know the value of the business is still there but you have to factor in when you say how much money do I want to make there's a difference between how much money you made quote unquote and how much money you took out there's definitely a difference in that because you're GNA have to keep investing in it but so so Jennifer doesn't have inventory but she does have cash flow like receivables potentially do you do you get paid up front Jennifer or do you get paid after you do the work uh I get paid on a monthly basis so this is a part one I love what I do I love the associations I work with I love the Association world yeah and the way we get paid is a scope of services divided by 12 for each month so I have pretty great cash flow nice all right here's my concern for you which is only because I've talked to you before so I know what you're doing you're trying to do this virtually and I am very concerned that that is going to prove to be very difficult to continue hiring training mentoring monitoring managing leading I think I think for what we do convention planning and the type of travel and how often we travel I am not as concerned about that I think the training part especially for col recent college graduates is something I'm going to have to look at because you need when you go fully remote you need an excellent training program and we're not quite there we have a good one but it's not excellent yet but I'm not worried in the longterm I can work on that well Jen did also tell us last time that she's been able to hire quality people that she might not have been able to hire previously when she was restricted to her particular area for sure it opens up the market to many more people but I'm just saying there is going to be those one out of 10 that don't get their act together that Sean how many people when you hire 10 people how many of them work out before the pandemic I would say 90% wow that's excellent in the pandemic and hiring remotely our failure rate went up significantly it was super depressing but I think Jennifer's unique in that if I understand you correctly Jennifer your people have to kind of go all over the country and so you've kind of woven in to your business model the opportunity to get together is that fair absolutely yeah we're on show site at least once a month sometimes three times a month for these conventions so we're having dinner meeting them deciding when you're on Show Site who's great at problem solving who's better at pre-planning and and writing that into our systems yeah so it's a little bit different because we see each other often throughout the year Jennifer can we go back to what you said before about the notion that every half a million dollars in growth something breaks can you talk about how that's applied to you sure so I started thinking about that coming back from the conference in Chicago and I thought huh okay so the first half a million dollars of Revenue great but then what I realized is we were doing sales using Excel spreadsheets and that wasn't working so then I invested in Salesforce and then the next half a million dollars I realized that we didn't have a good project management system so as we H hired our first staff we had no way to manage tests then we hired we're now on sort of round two but we hired an initial project management software then not even another half a million but probably 300,000 later I had used QuickBooks which was great but I had I had to need to upgrade my systems of how I did it how my chart of accounts was so I'm starting to think back and I'm like wow and it's just a product of growth it's maybe not so much it breaks is that what worked for you at that level is not the system that you can take to the next level well it's called Growing Pains you're going through Growing Pains but here's the one that you might not have had yet that's going to be the big one that's going to be very Troublesome the person you hired when you had four people is maybe going to work is going to grow along with you or maybe they're going to get peaked out and you're either going to have to bring someone in to manage them which is not going to make them happy or they're just going to get over their head and I don't think there's Sean correct me if I'm wrong I don't think there's a business around that doesn't outgrow people and it's painful you with me on that Sean definitely seen it many times um but what's the what's kind of the average age of your employee Jennifer I would say 35 to 45 oh interesting okay there's some kind of magic trick in your in your p&l cuz your ratio of Revenue to people is like what maybe 3 million to 30 people that's what 100,000 per employee well she has no cost to good so are there are there no but it doesn't work from a c are there part-time people in there or there are I was about to say full-time equivalents we're looking at 24 okay all right thank you when I first heard that I'm like she's not making any money like at full time but that that makes sense yeah yeah and we're doing about three and a 3.4 this year so you had a little bit more Revenue a little less people yeah um is it amazing Sean no but it's good yeah that's uh 141,000 142,000 per person yeah that's a ratio I've tracked for many years I think Paul DS has talked about this and in the service business you probably need to be a little higher which means what's what that tells me is you're doing too many jobs and maybe not paying yourself a market based wage I think to my problem is scope is fine-tuning scope a little bit better to ensure that we're getting paid adequately for the scope of work we're doing oh yeah okay yeah so Jennifer are you going to start raising your prices it's minimizing scope to be honest yeah I think I I think it's less about prices it's more of I think our prices are per hour are okay it's the hey I thought this would take 10 hours and it took 50 that's where I have to focus more energy well that's one problem the other one I'm going to guess is you're going to figure out if you haven't already that some customers you just can't make money on period end of the story that they just require more that attention more time more than they're willing to pay and it's part of life sometimes you just have to lose some bit I don't do it a lot I almost never do it but there have certainly been cases where we've just realized this just isn't worth all the trouble do you got any of those uh I used to I don't think anymore I think I got a lot better at that J of realizing um from a Time standpoint our scope issues isn't really client-based our clients now are wonderful our issue is more the technology needed is we thought it would only take 10 hours and what we're really is is this was way more complicated from a technical standpoint and we need 50 hours and that's me not understanding in in this postco world of doing virtual and hybrid events oh right it's more complicated yeah it's way more complicated this is something that nobody knows how to do right it got created two years ago we're all still learning that's the problem I'm seeing our clients are fantastic it's the technology is brand new see that's actually an opportunity because you're smart and you're going to figure it out better than other people do and that's why you've been able to grow the business because you're better at figuring this stuff out people that have been doing the same thing for the last 30 years might not be as app to be able to navigate it maybe they're just going to retire well to that point J we're starting I mean we figured it out we haven't figured out from a scope and price but we figured out the tech work now right the technology but in order to then do a better job of either a business model in terms of charging by hour charging by scope one of the things I realized and you pointed this out recently is that we need a much stronger brand presence and we need to explain our story much better we're not your parents Meeting Planners or your old school trade show sales we are a hybrid convention planning and trade TR sales company and my brand my marketing does not reflect that which I need to fix which is another investment right now I'm investing heavily into a new website into exhibiting this year that hopefully will be paying off in 2024 but it's significant investment now because what happened the past two years it wasn't reflected no that makes perfect sense and I think that will make a huge difference because you are in fact bringing something to the market some of the stuff that you're bringing to the market didn't even exist you bring it to the market because Zoom calls didn't exist 10 years ago so you're bring you're repackaging and inventing a whole new selling proposition as they say all right next topic Sean you've talked more than once here about how Co threw your marketing off in particular you used to rely on events uh to bring in prospects and obviously that got interrupted you recently hired a salesperson what prompted that and how's it going yeah um so I had been cultivating a a business development person internally for many years um somebody who had gone from an operations role actually they gone from more of a customer facing role to internal operations role and then I was um developing her as in the business development and taking over a lot of the things I had done that was going splendidly um up until 2020 and the pandemic just really messed that whole thing up because the pandemic just really made her job very very difficult and for a number of reasons but I think a big one being that she was not able to be successful in her job in the pandemic she ultimately left the company and you know as a 10-year run at Kinesis so I you know I owe her a big debt of gratitude and she was a great employee but I needed to find a way to replace that role because I you know I have a whole transition plan that I'm working on and a big hard part of that transition plan is getting out of the business development job so what is she doing today out of curiosity I'm just curious to see what she went into that worked she went to work for a very large digital agency 300 employees so very different than kesis and you know got the big title and the whole thing so that's what I want to know what's her title now I think it's uh uh Chief brand officer I think it's something like that yeah okay cuz this is what I've just heard which I find interesting Lauren starts It Out by going hey you hired a sales you got you wanted to bring in a salesperson and then you said a business development person which is not necessarily the same thing true and now she's got a job as a cheap brand officer which isn't like either of the other two so there's really it's that's what's interesting about hiring someone to do this role do you need a salesperson which is very different than somebody who there's an overlap there but this is where it gets tricky and I've learned the hard way I'm a retailer and was used to hiring inside salese and when I went to hire outside salese I never understood the difference because I've never been in that world and I hired lovely wonderful people you'd love to have lunch with the only problem was they couldn't find any business Jay just to make sure everybody understands it inside salesperson meaning somebody who works in a store and deals with customers who come in they work in the store store customers walk in they take care of them they're lovely they're nice they do a great job versus selling artwork to corporations someone needs to go out there identify companies knock on doors make phone calls make presentations it's very very very different and and that's the shift that Sean just made right Sean you're you're going to somebody who's knocking on doors now correct well so yeah and NJ highlights a really a common Pitfall is that the ability to convert a warm Prospect versus to generate new business is a very different skill so I would say that with my uh former employee she started out more and I did this intentionally inside sales is an easier I'm going to insult some people but it's an easier job there's no question it's an easier job I don't think it insult anyone and so you know I started her off I would go get the thing kind of work with her to give her pieces of the sales process and then over time she would take on more more and more and then she was before the pandemic she was actually doing outside sales and she was actually pretty good at it but then the problem was is the pandemic took away her ability to meet people face to face and in person which was how she did that work so the new the new hire is exclusively outside um sales Sean how do you get most of your leads so like Lauren was saying before the pandemic we would do a lot of speaking engagements a lot of workshops uh a lot of kind of thought leadership out in the physical world and then we would build relationships with centers of influence and get refers so combination of Word of Mouth refer and then thought leadership thought leadership okay and that was enough to grow the business about very predictably 10% a year so this new salesperson Let's Pretend This is Glen Gary Glenn Ross the famous sales movie are you handing them the the leads where's my leads are you handing them a shoe box of leads when they come in the morning or are you saying yeah go out and figure it out that's what I want know uh probably in between those two extremes so what we're doing is we're teaching him fundamentals what's an ideal fit customer what's a what's a right fit what's a wrong fit what are the signs and you know indicators um what is our value proposition what are the services we offer so we're spending a lot of energy to train him and get him up to speed he's a very senior person you know he's got an MBA he worked at the Business Journal for many years he's managed and coached sales teams he's done sales he's he's he's really good um and I've known him for a long time so uh I'm able to not have to do a lot of handholding with Rob which is great and he's very thoughtful and smart but Sean is he the thought leader or are you no oh I I am still in that role but that's changing because I've also promoted um some folks internally who are now developing themselves as thought leaders okay so they're starting a coup they're they're planning the coup CP basically all a c a coup that I started yeah so he would take the leads that develop from other people's thought leadership uh at this point no at this point I'm going to take him uh what I want him to do is his sole job is to find identify prospective customers and to actually do Outreach and connect to them that's a totally different approach than what we've used over the last few years so how does he intend to do that uh it's combination you know so there Market intelligence so using tools like LinkedIn using our CRM going through our newsletter signups you know basically we we do targeted strategic sales Outreach we're not doing spray and prey we're not you know cold emailing thousands of people like former prospects former customers yep former prospects former customers we're looking for refer connections having meetings with them Sean have you had any previous experience hiring a salesperson have you ever tried this before uh many years ago um maybe 13 14 years ago when I did had no idea what I was doing U we hired a salesperson it was a total failure yeah why uh we didn't know what our value proposition is we didn't know what our unique ability was we didn't know who our Target customer was we hired a salesperson who had been successful at selling product for which there was a clear Market fit I I was hoping he could do consultative sales which is a totally different business uh approach so total failure and and you know we owe the responsibility for that the better perspective I have is probably Through The Eyes of my clients I have seen so many clients try this fail at it some succeed and learned a lot through through their experiences over the years yeah Jennifer have you gone down this road we hired our first uh Business Development persons salesperson now thinking probably more in the business development person 18 months ago she is uh a thought leader herself she comes from this industry and had years of experience that's why I was asking you those questions Sean um because of the the growth half her time though honestly is spent on supporting me in operations because of her strength and to be honest we couldn't take any more business right so I don't need her business development side but I was hoping not just thought leadership is how we grew too but I started to think to get to the next level I need to move beyond that and I'm thinking what's that next level of marketing right um sales obviously Outreach of sales Sean like your your person's going to do but what's the next part and and that's where I'm I'm going thinking for companies like ours Jennifer I'm always interested in things of like what's the asymmetric outcome you know what is the thing I can do that has like not incremental results but actually a steep slope and like I have a client for example where he actually started his own Association which I'm like wow that's really cool you know he started an association for a very narrow Niche for which there is no association yeah but it's like those are the employees he wants to hire those are the clients he wants to get I'm just like Ah that's super smart that's a kind of like asymmetric thing I'm looking for yeah we could have a whole podcast on creating your own Association I can I have a lot of stories about that a interesting we may have to come back to that going back to your salesperson I'm I'm curious how did you structure your arrangement with him are you is it primarily commission or salary or both um yeah there's a small commission I I have seen over the years that if you weigh things too heavily on the commission side you get really bad unintended consequences so I would say it's probably 7030 you know salary versus commission you know mostly I'm really looking to align incentives and what I mean by that is I you don't want to hire a salesperson that brings you just any client because then you start to waste your time with either Tire kickers or badfit customers or clients that make it hell on your team that's the unintended consequences you're talking about exactly so yeah so primarily salary the unique thing I've done with this situation is that um this person because I've known him for a long time he has uh a situation where he really needs like a part-time work right now and I don't want to get into details why that is cuz that's personal but it is allowing me to kind of evaluate this without such a major Financial commitment that you normally have to make with a salesperson you know what you just answered the question which I was thinking should I bring it up cuz it's a little brutal but my question was going to be and I say it to myself why would someone come to work for you or for me especially 20 30 years ago in hindsight I think they could be selling Herman Miller furniture or something they could be selling carpeting they could be selling so many other things that's easier and got way bigger numbers on than selling artwork and so I recognize in hindsight I'm not going to get the best and brightest salespeople that are out there in that that world unless there's a reason and you just gave us the reason he wants to work he wants flexible hours and that makes perfect sense and I also would say if you ask me what the compensation thing I'm right on the same money with you I think the 703 thing right in the neighborhood you go too much on the commission side you're going to get the kind of person that's you're not going to want to work with yeah totally Sean do you tear your commission is your commission like if you get a new person obviously the Hunter Farmer status right but are you what if that person repeats business are you still giving him a commission off of repeat business yeah that's a great question yeah and we did we structured it so that there's a real positive outcome for clients staying with us and continuing the journey okay you know there's a small commission when a client starts and then you know after a year they actually get paid out incrementally over the year the client is with us so we're I'm really trying to align it like we want clients to stay with us for many years and if he if he builds this ride and he brings clients to stay with us for many years it's a compounding effect for him where the commission side of it grows over time as clients stay with us because you just ours is a relationship business and you bring in the wrong people then I start to have employee turnover and I can't have that like that is toxic for a business like ours so you got to bring in the right customers and you don't want to incentivize A salesperson to bring in just anybody so that they can make their mortgage payment do you want to hire that guy that says in the interview oh I could sell snow to Eskimos oh gosh that's what I say no I don't want that person here right right Sean we did the same thing I teared it so that there's a higher percentage for the first contract and renewals there's still a percentage to keep that what do they call it that long tail for the sales Personnel so that that person stays and you have the right kind of client that will stay and repeat with you that everybody's happy with yeah and then that salesperson gets a percentage of that but at the other side you also go on a structure so that if they work really hard for two three four years and get a good book of business that they can just Coast because the business is coming in they're not you want to have the need to go out and find some new customers so there there does need to be some Nuance in that I'll worry about that when I get to the five million how about that I mean Jay makes a good point in that I see this in the insurance industry a lot you know where these insurance agents worked worked really hard in their early career and then they have this book of business and then they're the like the laziest people you've ever met um because there's just a lot of commission in that World um sorry Insurance Brokers but yeah all right one more topic Jay you've told us here previously that uh you've tried to help the owner of a frame business sell his business as I recall it's a fairly common situation we're hearing a lot about these days a baby boomer owner who's ready to move on but hasn't been able to find a buyer uh and I gather you came up with kind of an intriguing suggestion for him can you tell about that um first of all he's got a very successful way more successful than most frame businesses and he owns the building and he wants to sell it and he hired the the business broker and I just coincidentally ran into him and he told me the story at this was after he' already listed it and it had been six months and he wasn't getting any bites so he's asking a good amount of money for the business and it's worth it okay so then he's got someone else that's looking at it the broker found some someone who wants to be an absentee owner and I realized I think I came up with a new plan for him which he's he's he's excited about I think he's got some key employees there or at least one key employee and I said why don't you work out a deal where make them the president of the company train them better give them give them more money and then in four years sell them the company and then they'll have some money put away from the money you pay them and then you can pay it out everybody wins is is this an employee who has the money to buy the business no no that's the point he has to finance it this is the typical situation in businesses you've got lovely wonderful dedicated employees that don't have the money to buy the business now I think a mistake would be to say hey why don't you buy the business you can pay me out over four years they got nothing in it I mean if anything goes wrong you got a problem now you just gave away your business to someone versus work it for four years I'll pay you more money and then I'll sell to a significant amount more I mean you're not talking about like a 10% raise yeah sure if they're making here I'll give you a real number no here I'll give you there not in this case but if you've got a key employee who's making $60,000 a year you raise them to 990,000 and you take it out of what you're making but if you've got a profitable business that shouldn't be a problem and then they've got some money to pay you back because here's what's interesting to me the typical small business you know that they throw word EA earnings before interest takes depreciation the typical small business can only sell for maybe Sean you probably know what three and a half four times maybe it depends on the industry you know not 10 unless this isn't a computer okay so my point is you're gonna sell it you're gonna get paid maybe three four times earnings well if you can hold on to the business for four more years you're going to get that money out of your business and then by the time you go to sell it to the employee you could give them a really nice deal they can pay you for another couple years everybody wins is the point whereas if you just try to sell it to someone who's working there and they don't put any money in I I just think that's a mistake you're just I don't understand why any M would want to take that exposure Jay you're talking about training an employee to be the president yes okay so you give them the title and you say I'll hold your hand provide training and coaching maybe you go to Community College go to a community college to get an accounting class just one class just get some background and accounting which most people don't have I will train you how to do those pieces of the that you're not doing that I'm doing now yes okay okay and what how long you think if you took someone who wanted to be president first of all that's hard to find most employers are like see you later wanted to be president with the ultimate goal it's kind of like leas to own right to own yes yes is you're the president for a couple years moving with the expectation you'd move into buying the business is that what I'm hearing yes okay yes but here's the beauty of this this first of all we're not talking about a business with 30 employees my guess is you probably can find a buyer for that business the problem is the smaller business it's tireder to find so here's the beauty of this they do it for three four years you're still there to back them up and they change their mind they don't want any part of it okay you're no worse off than you were before except you got four more years of earnings in your bank I I it's it's a win-win they change their mind it's not a problem because you've you've successfully ran the business for another three or four years and I I'm telling you this is compared to most people they just close done I don't have the statistics but I will GE I can tell you in the frame business for sure 80 90% of frame businesses just go away I know because I have you know I have a wholesale business I sell to them we don't get many people calling up and going hi I want to introduce you to the new owner of my frame shop they usually just go away um it's it's probably 90 some perc I'm thinking that most small businesses from what I've seen just one day and I think this could be a solution or go bring somebody in with the with the with the deal hire them bring him into the business say here's the deal work for me for three or four years and I will give you an opportunity to buy the business what a great opportunity for somebody I'm curious Jay have you looked into because to me I go to kind of the mind of like deferred compensation you know because you are taking a little bit of a risk as an owner because you're making all these investments in in this person and if after 5 years they changed their mind now you're at zero again I mean in terms of no no you missed it I've got five years of earnings in the bank from running the business I've got my money out you're also now 70 and now you do not have a transition plan and now you're you know you're kind of starting over so no no you just close the business be done guess you C your money out no you got your money out that's the whole point of this you got your money out it's it's it's like a maybe installment plan you either got your money out or you got your money out and now you can sell to someone else for less money but that's the whole point of this that you did get some money out of the business Jay are you thinking that if this works as intended that that the owner is sort of selling the business twice you get your money out over those four years to a degree sure and no one's getting cheated here yeah so this week I was on showsite with three employees that I don't they're newer I don't know them very well and at one dinner one of them asked me so Jen tell us what you do on a daily or weekly basis and I told them what I do on a week they all looked horrified and one of them said you could not pay me enough money to do this job they have no clue I would tell people what I was doing they start laughing like like a like I'm making a joke or something and like they have no idea that I bought my house in 1984 I had three charge cards to the max I I mean it's not always pretty I've borrowed against my house now 20 times I I it's just what this isn't what most normal people do yeah but the question Jay is to your point with the framing guy is what what is that job position description look like for the President right like is he really telling this employee all the nitty greedy of what the stuff you have to do as a president but there might be three employees in in a business and it's they're already doing most of it and then the owner goes on vacation for two weeks so what aren't they doing we know what they're not doing they're not putting payroll through they're not doing the accounting maybe they're involved with hiring maybe they're not I mean there's certainly some pieces they're not doing I'm not talking about taking a guy from the loading dock and going hey you want to take over the business I'm talking about taking a key person that's in your business that's taking care of customers that doing most of the work now if you don't have that person that's another story could you bring somebody in from the outside and do the same deal yes I have another friend who that's what I'm working with him on that he he doesn't have that key person and I and he's got a very successful business and I said we need to get you hired someone and tell them on the front end here's the deal come to work here for three whatever the number is and I'll give you an opportunity to buy it but but no obligation I I'm just I'm just trying to understand the model a little bit so you said oh give them a raise from 60 to 90 okay so that's 30,000 so over four years that's 120,000 but that's pre Grand plus they got some interest they got 100 Grand now they got 100 Grand they give you they give you the 100 and they pay out another 100 yeah and that's enough to buy this over the next two years but now at least they've got some money in it plus you've been living with them for three four years and it's working that's the beauty of this nothing's perfect this is all compared to you don't have someone standing at the front door giving you a check for 3400 I mean it's just like I said I've seen all these businesses just close over the years they're too small nobody wants to buy that business yeah they're too small I had a frame place call me she's in a small town and I said what did you make last year she said $80,000 I said oh that's not bad oh that was my gross and it's my husband and I oh gosh yeah yeah do the math on that her husband and she are paying themselves $10 an hour to run this business look you're 72 congratulations you did something you love for many years and you made a living and good for you but it's not sellable we got to go in a minute Jay one more question you've talked here a lot about your own thinking about succession and how it's evolved and esops and all that we've been through I'm calling this a weop like this is a weop I'm talking about I like that well that's my question is a version of this feasible for you I mean obviously you've got kids in the business but you're not sure they want to take it over if they don't could something like this work for you possibly I mean I think my kids are in it in it to win it and I think they're going to be around but could in if I'm around and I'm coming to work every day in 20 years and they they say you know what I'm kind of is I could I po yeah sure I I think this could work for anybody not anybody could work for a lot of people I just think it's a shame that businesses just close and go away and the problem is the business owner really didn't have the financial Acumen or they don't listen to 21 hats they don't have any perspective to anywhere and they never thought about some other options they just do their job they do a nice job comes to retire they close the store all right my thanks to Sean busy J G and Jennifer Karen and to our sponsor the great game of business which helps businesses use an open book management system to build healthier companies you can learn more atre game.com thanks everybody 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 he 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 dubron founder of blank word production okay now you can leave thanks for listening everyone [Music]