This Is What It Takes to Build a Business, Vol. 2

Posted by Loren Feldman on Jan 24, 2024 5:00:00 PM


21-Hats-Podcast-Episode-178-Main-Social

 

Introduction:

This week, we take a look back at the conversations we had last year about the many rewards and responsibilities of business ownership, highlighting some of our happiest, smartest, funniest, and most difficult exchanges from the past year. Along the way, we discuss topics such as escalating salary demands, how much profit a business should make, a new way to sell a business, the problems with ESOPs, how to sell cookies on LinkedIn, breaking a million dollars in annual revenue, escaping the valley of death, and the pain of having to fire a long-time employee. 

There aren’t many places where you can 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 Paul Downs of Paul Downs Cabinetmakers, Shawn Busse of Kinesis, Jay Goltz of Artists Frame Service, Mel Gravely of Triversity Construction, Jennifer Kerhin of SB Expos & Events, Liz Picarazzi of Citibin, Jaci Russo of BrandRusso, Sarah Segal of Segal Communications, William Vanderbloemen of Vanderbloemen Search Group, Dana White of a soon-to-be-named successor to Paralee Boyd, and Laura Zander of Jimmy Beans Wool.

In this episode, we also highlight several appearances by special guests who stopped by in 2023 to discuss their journeys, including Muhammad Abdul-Hadi of Down North Pizza, Jeff Braverman of Nuts.com, Michael Brown of Teamshares, Brad Herrmann of Text-Em-All, Grayson Hogard of Grove Cookie Company, Lance Tyson of the Tyson Group, and Ari Weinzweig of Zingerman’s. If listening to one of these highlights makes you want to go back and listen to the full episode, that can be done most easily by going to 21hats.com. There you’ll find a transcript of this episode with links to all of the episodes we sample.

— Loren Feldman

 


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Podcast Transcript

 

As you’ll hear, I introduce each exchange in this episode with a few words to set the context. In the first highlight, which comes from Episode 138, “How’s Your Compensation Plan Holding Up?” Shawn Busse and William Vanderbloemen discuss what it’s been like trying to make sense of employee compensation in a time of COVID, the Great Resignation, a labor shortage, and inflation.

William Vanderbloemen:
Well, I can tell you what we’re doing in our office, and it’s based on what we’re seeing. You know, in the pandemic, we had to reorg and reshuffle, and we—for the first time—had to do staff cuts back in March of 2020. And we lost some really good people. It wasn’t like we had fluff. But the people who stayed with us through that, we are very interested in keeping around. And retention is such a big deal right now that I authorized a percentage bonus pool. And then our managers go and figure out how they want to divvy that out. And I authorized the biggest pool, percentage-wise, that I’ve ever authorized.

Loren Feldman:
Was that based on your company’s financial performance in 2022? Or was that based on the goal of retaining employees?

William Vanderbloemen:
It was our best year ever, way better than we thought. So it was a little easier to take that step. But cost of living, I guess, is starting to come down some. But we kind of figured, just to make people whole, we’d better do 8 or 9 percent. And then we did a little better than that.

Loren Feldman:
Was it just bonuses? Or did you offer significant raises as well?

William Vanderbloemen:
No, that’s all raises. Bonus is a separate issue.

Loren Feldman:
I see.

William Vanderbloemen:
Not everybody got that number. I mean, we offered that number to our managers and said, “You might have some who deserve 11 and some only eight, or whatever. You figure that out, that’s fine.” But what we’re authorizing as a company is a significant pool of money to raise annual salaries, which is, as you know, an evergreen cost. But we think that the inflation issue is real, and the people we have with us now are some of the best people we’ve ever had. So we’re kind of paying it forward in retention.

And that’s based on what we’re seeing in other areas, that a lot of people really cut down to the bone during the pandemic. The people that are left are really pretty critical to the business. And painful as it is to raise evergreen costs, we’re just going to do it to try and show people we understand that it costs more to live than it used to, and we want you around for a long time.

Loren Feldman:
Have you had much turnover?

William Vanderbloemen:
We did about 7 or 8 percent the year before. The losses we had were not because of finance. We made some pretty significant shifts in the last 12 months, and some people didn’t feel like that was their best place to flourish, and they moved on. And that’s fine, we wish them well. I don’t think we had any really nasty departures. It was just, chemistry is seasonal, right? And as we move from one posture to another, there are some who enjoy it, and some who say, “That’s not my deal.” And we wish them well and move on. But I don’t think we lost people because we were not keeping up with the cost of living.

Loren Feldman:
Shawn, from what you’ve told us, I gather last year was not your best year ever. Tell us how you’ve been approaching employee compensation.

Shawn Busse:
Yeah, so before the pandemic, I went really hard at the idea of compensation and making it better, because I started thinking about the thing that employees and owners both dread, which are those negotiations. And it struck me as very odd that you go through all the effort to hire a really great candidate. You get this high of, “Oh my gosh, this new person, they’re so good.” And then right before they join your team, typically, you engage in this almost adversarial issue of figuring out what they get paid. And there are so many problems with that idea from a cultural perspective, but also from an equity perspective and creating gender and race wage gaps.

And so what we did is we committed to every two years doing a market-based survey of what the positions in our company pay. And then we committed to paying 75 percent of market, which is not the very top, but also pretty significant. And then on top of that, we built a bit of a formula to factor in based on experience, tenure in the organization, and what the rate of pay would be for an employee. So that system was really great. We do open-book management at the company, so there’s a real kind of clear understanding of financials and that there isn’t this giant bucket of money to raise wages.

Loren Feldman:
Are you transparent about salaries as well, Shawn?

Shawn Busse:
We are, but in a very specific way, meaning that every position that you want to go after, we’ll share that range and how that formula works. We don’t post everybody’s compensation on the wall. I think that’s problematic in lots of ways. But if somebody says, “Hey, I’m a designer, and I want to go into the strategy department. What would that look like?” we’ll talk about the compensation range and how that formula works. And then we also post it with every job description, which is now required legally, in our state anyway. So that program has helped us from a compliance perspective a lot, and also, I think, protects us a lot from a lawsuit and that kind of issue.

So, I love, love, love, love, love, love it. It’s been great. The problem that I’m finding now is, it’s time for our annual survey. We did the survey, and holy cow, the wages have gone up so much. Like I said, pre-pandemic, we were at 75 percent. Every position has gone up by anywhere from 1 percent on the small side to probably 14 percent. And then my position—which is crazy—the CEO role has gone up by 20 percent, which is just astronomical. So now I’m looking at that going, “I don’t need a 20-percent raise, but these other people really do need raises.”

And so it’s really creating some challenges to our model, partly because we weren’t hurt instantly by the pandemic. But we were really hurt from a marketing perspective over the long-term of the pandemic, and we’re just now starting to kind of recover from that. But everybody who knows marketing knows that the thing you do today will probably have an impact six months or 12 months from today. So that’s our hurdle right now, is that our financial situation is kind of eh, okay. And how do I stick to my commitments in terms of compensation with a much smaller pie than I’ve historically had? So that’s my challenge right now.

In a bonus episode, “A New Way to Sell Your Business,” I spoke with Michael Brown of Teamshares, a holding company that is buying the businesses of Boomer owners who are ready to retire but in many cases struggling to sell. Once the business is bought, Teamshares turns the employees of those businesses into employee-owners, which is intended to strengthen the businesses while also addressing income inequality. Starting in 2020 and flying largely under the radar, Teamshares has bought more than 80 businesses in more than 40 industries, most ranging between $1 million and $5 million in revenue. I asked Michael to define the difference between how Teamshares operates and how a typical private equity firm operates.

Michael Brown:
So private equity tends, first of all, to play with larger companies that generally start with at least $5 million in profits, and scale up into public companies they take private. So their model, as some of your listeners will know, is to raise money from foundations and endowments and institutions, buy businesses, and within 10 years, sell the business. And so our strategy is not to sell the businesses. It is to let the employees earn 80 percent of stock ownership through time, through service, over 20 years.

So the businesses in the design of Teamshares’ business model will never be for sale again. The business’s succession loop, the succession problem for all the businesses we are working with—basically, the succession gap is broken or filled in another way. Because you don’t ever have to sell the business again. They just end up 80 percent employee-owned and 20 percent Teamshares-owned.

Loren Feldman:
Could you walk us through an example, just to show us how this works?

Michael Brown:
Yeah, so we work with businesses that are as low as $1 million of revenue up to $10 million in revenue. And our goal, over time, is actually going to be to try and address even smaller companies. But we would buy the business from the retiring owner, and then we would do an announcement with the key employees to get them comfortable shortly before closing, and then have sort of internal champions ready before a more general announcement. And then shortly after the announcement, we would issue 10 percent of the stock, basically diluting ourselves, diluting Teamshares, and issue 10 percent of the stock to the employees across the board.

It’s not a key person program. It’s for everyone who’s there who’s an ongoing permanent employee of the business. And then we would also hire a president, and we vet them, and we put them through a one-month training program, and then support them thereafter. Because in addition to the financial transaction that needs to happen for the owner to sell their business and get some of their retirement proceeds going, they also need to transition the day-to-day leadership of the business. And so we also recruit the president. So that’s the gist of the model. And then we transition over 20 years, starting at 10 percent of employee ownership, and ending up with 80 percent employee ownership.

Loren Feldman:
And you’ve done this, I believe, with about 64 companies in 43 different industries. When did you do the first one?

Michael Brown:
The first one, I think, closed in January of 2020, and we did one a month in the first quarter. And then we all know what happened in March and April of that year. And so we decided that it was in the best interest of the company to stop doing new retirement-sale acquisitions and to support the existing companies. And at that time, it was a very small company. It was three founders and two other colleagues. And so we sort of spent the year supporting those companies to get through that very difficult economic environment and starting to build software to be ready on the back-end to start doing more of these retirement sales.

Loren Feldman:
You said your typical range is between $1 million and $5 million, I believe. A million dollars in revenue is not a lot of money. And you need to replace the owner with a president who’s going to run the business. You need to give equity to employees. You need to invest in the business to grow it, presumably. How does that work? Where does that money come from?

Michael Brown:
Yeah, there are a couple of questions in there. The ways we finance buying the businesses from the retiring owners are very similar to any sort of financing, which is a mix of equity and debt that we provide. So that the owner gets a significant amount of their cash out at close, and then some ongoing payments over time. In terms of the size question within there, we will go as low as $1 million of revenue and as high as generally $10 million in revenue. That’s just the top line sales. The profits can be as low as $100,000 to $200,000 after paying for a president, which is a real expense to the business.

But we have a couple of goals here. So one, we are trying to address as many companies as possible. And so we all know that the tail skews left, that there are many more small businesses than there are large ones. And so to your question around, “How do you make the math work and how do you afford a president?” generally, as we go and address smaller companies, a president may start to lead multiple companies, so that their cost is shared over a couple of different companies. Whereas the typical, today, medium-size business might be more like $4 to 5 million of revenue, and the president’s salary sort of fits comfortably in that cost structure. And it typically is less than what the former owner—who built the business and deserved to pay themselves whatever they want—cost was historically.

Loren Feldman:
How do you value the businesses you buy and set a price?

Michael Brown:
We value the businesses based on the cash flow of the business. So to be a little more specific, basically, the operating profit, and also considering what the CapEx capital investment needs are in the business. And then we propose a multiple, based on that number, based on our own calculations for the business’s financials.

Loren Feldman:
Is that regardless of the industry, or does that get taken into account as well?

Michael Brown:
It’s regardless of the industry. It’s really about how steady the financials are, and potentially what the growth outlook is.

Loren Feldman:
Do you think you typically come in at market value—what a business owner could get if he or she took the time to try to sell it on the market?

Michael Brown:
Well, these businesses are on the market. Of the 81 companies, including the companies that have not yet closed, I think all but four of them were for sale by business brokers. So they are on the market, and that broker is running a process to solicit multiple offers. And overall, today, historically, about 50 percent of our letters of intent are accepted.

But if you look at the ones where we are very close to the asking price, it’s about an 80 percent acceptance rate, which I think speaks to the act of choice that small business owners are making in choosing employee ownership as their legacy, but paired with transaction certainty. Where we end up having a different view on price isn’t because we’re doing anything hardball. This is maybe one of the misunderstood things about Teamshares. We actually just have a very different view of what the ongoing cash flow of the business is. That’s generally when we get turned down. It’s because we are at a lower price because we have a different view of what the cash flow is.

Loren Feldman:
Isn’t that something that’s kind of black and white?

Michael Brown:
It is to us. But I don’t think it’s black and white to everyone. I think it’s very emotional. I mean, we’re rooting for business owners everywhere. So if someone is going to pay more than what we can offer, even though we’re buying things very much with a markup, they’re trying to maximize their estate, in many cases. And generally we are very competitive.

Sometimes we’ve actually had situations where people have gone with a higher offer that was only say $200,000 higher than ours. But actually, the other party didn’t have financing lined up. It’s cheap and easy to write someone a letter of intent. But Teamshares closes 90 percent of its letters of intent, which is basically unheard of. And so we’ve had multiple companies that actually had a busted process where they had an LOI signed, and the transaction never got closed. And they came back to work with us.

In Episode 141, “How Much Profit Should Your Business Make?” Paul, Shawn, and Jay talk about the bottom line. What kind of a return should business owners expect to get on their time, energy, and capital? And what can they do to build a cushion into their annual planning that protects against unhappy surprises?

Loren Feldman:

Jay, you said you’ve raised this question in multiple business group sessions and never really gotten a satisfactory answer. I’m wondering why you haven’t gotten an answer. I mean, obviously, profit margins are going to vary across industries. But can’t you get a pretty good guideline for where you should be in any given industry?

Jay Goltz:
I’d say no. I think there are a lot of factors. First of all, what’s the highest bottom line? I’ve got a friend who owns a business. He’s got like a 30-percent bottom line.

Loren Feldman:
It’s not a picture-framing business, right?

Jay Goltz:
No, it’s not. There are businesses that have a 3-percent bottom line. I would think that most people would say, if you had a 10-percent bottom line, that’s pretty good. There are books out there that you can buy with a bunch of industries in it—of course, picture framing isn’t one of them—that you can look up what is the average profit of a printing company or whatever. And I’d say, 10 percent is probably good. Retail? If you look at the big retailers in America, they’re usually at 5 or 6 percent.

Loren Feldman:
Shawn, Paul, is this something you guys think about?

Paul Downs:
I do. I’m in a CEO group, where we have a number of different kinds of businesses. And the guy who’s got the best margins is doing about the same gross revenue as I do, but he takes home four times as much money. He’s in a $4 million business taking home a million dollars a year.

Loren Feldman:
What kind of business?

Paul Downs:
He runs a company that does business valuations, SBA valuations for banks, and he’s an extremely smart guy who really has everything buttoned down. And it’s just like, he’s my hero in terms of running a tight business, but he’s also running a business where you don’t have to buy materials. You just have to pay people.

Jay Goltz:
Well, let me ask you this, because running a tight business certainly is part of it. But from my observation of being in five or six groups over the years, people that have really big bottom lines—I’m going to give you the checklist, and tell me if this is true in any of these: They’ve got some proprietary products, or they’ve got a patent. That would certainly do it. Or they’ve got some business that’s been around for years and years, and it’s got a brand name, and everybody wants to buy that. Or they’ve got one big, or only a few customers, and they don’t do any marketing, because they sell the buns to McDonald’s or whatever. So they’ve got that advantage. Or they have got some market advantage that most people don’t have. Does this guy have a market advantage? Why isn’t there competition going and doing the same thing he’s doing and undercutting his prices?

Paul Downs:
Well, there is. He’s just winning the battle. I think that what you brought up, that different businesses are just different, is really the gist of it. And then the other thing would be, how do you define profit? Because I’m an S corporation, and I’m the major shareholder, I tend to think we’re looking for something like 8 to 10 percent profit on an accrual basis. But then if you fold in my compensation and look at something called seller’s discretionary earnings, which is all this stuff I pay money for but I don’t have to through the business.

Jay Goltz:
All those fancy clothes you wear? [Laughter]

Paul Downs:
Yeah, the fancy clothes, the heat for the office, all those fripperies. I was close to 15 percent on SDE last year, but I think you also bring up another very important point, which is that there’s a lot of times profitable businesses are profitable because they’re not actually doing something that they need to do to secure the business.

In other words, your example of someone who does no marketing but they happen to have a huge customer. It’s like, okay, if you’re not investing in the things you need to make sure it runs without you or it could survive without you or anything where you might have been spending money but you just take cash instead, and I think a lot of small business owners struggle with those decisions, particularly when they’re trying to get started. They need to support their family, and they just decide, “I can’t afford to upgrade my software,” or whatever it is that sets them up for the future.

Jay Goltz:
I think the guy you spoke of has got two things going for him. One is, that’s a lot of business for a service business. So I think like if you’re a lawyer or accountant, I think if you can get your sales up to that, and you’re doing a good job, yeah, you do have a really big bottom line. That’s one, and two is, the fact that he’s hooked up with the SBA, he probably doesn’t have any marketing expenses—

Paul Downs:
No, no, no. He does these SBA valuations for banks. He’s not directly involved with the SBA.

Jay Goltz:
Okay, but still, he’s probably got 10 banks he has relationships with.

Paul Downs:
No, he’s got more than that. He’s got significant marketing expenses. He’s just very, very good at everything he does. He runs his business using the Traction concepts, and really does it right out of the book. And he’s just a fantastically good business person.

Loren Feldman:
Paul, could you give us a quick sense of what the Traction concepts are?

Paul Downs:
The book is called Traction. I can’t remember the name of the guy who wrote it. But it’s a set of moves that anybody who’s running a small business could implement. It’s about setting goals and holding people accountable, basically, and then doing regular reviews to make sure you’re hitting those targets. And if you have no idea how to run a business, that’s a pretty good place to start.

There are a number of people who’ve implemented it in my group, and I’ve implemented a version of it. And it’s really effective. It makes you look at, “Okay, how do I actually run this business? How do I make sure everybody knows where we’re going? How do I make sure I have the right people here?” It just gives you some ways to go about that. And if you were looking for a set of ideas to guide your actions, it’s a pretty good place to start. You may not end up implementing every single thing, like I didn’t, but it certainly gave me a lot to think about.

Loren Feldman:
Shawn, how much thought do you give to what your profit margin should be?

Shawn Busse:
Yeah, so it’s a really critical number for, I think, any business. For us, we’ve tracked it every year pretty closely, for… I don’t know, well over a decade. I mean, we’ve been around for 23 years, but I really didn’t understand it probably until the last 13 or so. And that was a real eye-opener for me. And I think that the big breakthrough I had was—and we’re touching on this a little bit—the artificial ways that business owners influence profit, either from the income side or the expense side.

So examples are: Some business owners load up the business with lots of costs to make the business look not profitable, because they don’t want to pay taxes. But then that creates some artificial views of the business, which can make it difficult when you want to get a loan or if you want to sell the business. I think it also just clouds your vision of what’s going on in the business.

And then other businesses are clouded in other ways, in terms of what y’all have been talking about, which is organizational debt. So they don’t invest in things over time, like software, people development, etc, etc. So they may have really good profits, but the business itself is suffering. And that impact happens over the long-term. So for us, I use a really simple idea, since we’re a service-based business, and we don’t have a lot of product coming through us. For us, we kind of treat 10 percent as a breakeven mark. If we get below that, red lights are going off.

Loren Feldman:
What do you mean 10 percent is the breakeven point?

Shawn Busse:
The way I came about this idea was somebody talked to me about how there will always be a mistake that you make. There will always be some unexpected event. Somebody files a lawsuit against you. An employee makes a claim. You really screw something up with a client, and you end up having to refund their money. There are just so many ways that a business is vulnerable. And what the 10 percent allows you to do is to have those events happen—the things that are out of your control, maybe an economic downturn—and you can live to fight another day. You’re essentially creating enough of a buffer to build resilience into the business. And if you fall below that—at least in my world, in my professional services world—you’re just very tenuous, and you’re often having to act reactively and emotionally, which is never very good for business.

Jay Goltz:
Okay, so the question is, you use the phrase “breakeven.” Correct me if I’m wrong, that’s really not breakeven. Wouldn’t it be more accurate, entrepreneur-to-entrepreneur, to say, “That’s our loser line. If I run the business, and I have a 2-percent bottom line, I’m a loser.” Like, that’s stupid. Whereas in your case, if you get to 10 percent, okay. You’re doing okay. Could do better, but you’re doing okay. It’s the okay line. It’s not really a breakeven line, it’s your doing-okay line. Is that not true?

Shawn Busse:
Yeah, yeah. No, you’re right. I mean, technically, zero is breakeven.

In a bonus episode, “Selling Cookies on LinkedIn,” Shawn and I spoke with Grayson Hogard about how he and his wife started a side hustle, Grove Cookie Company, during the pandemic’s early days and then found themselves selling cookies to on an unexpected platform and to an unexpected market—businesses looking to build relationships with their clients.

Grayson Hogard:
I had listened to a podcast, actually, because I had never been on LinkedIn prior to the cookie adventure. I listened to a podcast in July that had a business-to-business LinkedIn video expert on, and her summary and how I took it was: If you’re a B2B company, and you’re not utilizing LinkedIn, you are missing out on the biggest opportunity ever. And so I got home that day, and I made sure my password and everything worked for my LinkedIn, updated my photo, and I put a new bio in there—you know, cookies, blah, blah, blah. And from there, I just kind of hit the ground running with LinkedIn.

Shawn Busse:
Aside from tuning up your profile—and it seems like you went after the personal brand, as opposed to making it about the Grove Cookie Company in the beginning—what are the other things you did in those early days, since you just got on the platform, and you didn’t have thousands of connections?

Grayson Hogard:
Well, Shawn, you happened to fall right in my little web of connection requests. My real strategy was a connection request, but with a message—not just rapid-fire connection requests. I just think the slightest personalization, and presenting what you’re offering, and why you’re connecting… It’s like meeting a stranger. It’s like, “Hey, why am I meeting you right now?”

That’s how I took it from that strategy of trying to build my following. And I got really lucky that there’s not a lot of cookie companies on LinkedIn. So you start posting photos of cookies, and you talk about cookies, you angle it from the client-appreciation standpoint. B2B gifting was the unlock.

Shawn Busse:
I remember you reaching out to me. I don’t remember exactly how you positioned it, but I do remember it was customized. And I get so many requests, and all of them go in the trash. Because I know that as soon as I accept the request, they’re going to start selling me something. But somehow you broke through that.

Loren Feldman:
He was selling cookies, Shawn. [Laughter]

Shawn Busse:
That helps. That helps. But it was more about what he said. And maybe if you can remember, I don’t know if your script is the same, or if you even have a script. Do you customize every one that you send out?

Grayson Hogard:
I do customize it, very minor in the customization. Really, if you have founder, CEO, VP, or any title in there, I’m gonna offer you a free sample box of cookies in that connection request.

Shawn Busse:
Got it, okay.

Grayson Hogard:
So, I’m coming in there, and my thought is—and I’ve learned this just over the two years—is I’m basically getting you reciprocating. I’m sending you a connection request, but I’m also sending you a free box of cookies, if you want it.

Loren Feldman:
That’s a good deal.

Grayson Hogard:
I think it’s a very fair deal. You just had to click a button. So, yeah, I actually have the message pulled up. I went into LinkedIn and pulled it up. Do you want me to read it?

Shawn Busse:
Yeah.

Grayson Hogard:
“Hi, Shawn. My name is Grayson. My wife and I founded Grove Cookie Company in Beaverton, Oregon. If you enjoy out-of-this-world, soft, and delicious cookies, we’d love to connect. Let me know if you’d like to try a sample box.” Then I always kind of forward people to our about page, because most people want to see that. And you responded with the funniest thing.

Shawn Busse:
I don’t remember.

Grayson Hogard:
Do you want me to read it?

Shawn Busse:
I don’t remember. [Laughter]

Loren Feldman:
Yes, please.

Grayson Hogard:
Shawn goes, “Hey, Grayson, great intro. I get a ton of connection requests and ignore 90 percent of them because they aren’t relevant. Or it’s someone looking to sell me something. But free cookies? Genius. Your timing is funny, too. I was just telling someone that the untapped opportunity is for consumer brands to use LinkedIn for marketing. Anyway, nice to meet you, Shawn.” And from there, you gave me that positive reinforcement. Like, “Oh, this is, like, smart.”

Shawn Busse:
It worked.

In Episode 144, “What It Means to Break $1 Million in Revenue,” Liz and Sarah talk about what it was like to pass a milestone that many women never reach. But having passed that goal, what’s the next one for Liz and Sarah? And is it possible that profitability is as important as revenue growth? I’m just asking!

Loren Feldman:
Today, I want to talk about your attitude toward growth and how it may have evolved over time. But first, I just want to note that you’ve both already beaten the odds. We’ve all seen the numbers that indicate how hard it is to break a million dollars in revenue. I think fewer than 5 percent of businesses—one in 20—actually do that. It’s a huge milestone. Both of you have done it. I’m curious, were you conscious of that? Was it a goal? Was it a big deal? How about you, Liz?

Liz Picarazzi:
Yeah, it definitely was a goal for me. And I remember on the day that it happened, I was really excited. But I was kind of by myself. I was working from home that day, and I felt like, “Well, who do I talk to about this?” You know, besides Frank. And so for me, it was a weirdly non-eventful day for a milestone that was so important to me.

Another reason why the million-dollar mark was significant for me is that when I worked at American Express in the small business division, we had a program to help women entrepreneurs achieve a million in revenue. And they did seminars all over the country, and I remember I took note of that: “Wow, this is a very hard thing to achieve.” Like, less than 40 percent of businesses are owned by women, and something like only 2 percent of women-owned businesses achieve a million. I mean, that was a stat from like five or six years ago, but I think it’s still pretty significant.

Loren Feldman:
Sarah, how about you? Were you conscious of it? Was it a goal? A big deal?

Sarah Segal:
No, it was never a goal. Actually, when I was acquired, the person that facilitated the acquisition basically handed me the goal. He said, “This is your revenue. You should have this goal for the end of the year.” Honestly, it gave me anxiety. It gave me stress. I had always just focused on profitability and not that million-dollar goal. But the problem since then has been meeting that goal that was handed upon me, but now working at moving beyond that goal. And so that’s kind of where I’m in a holding pattern.

Loren Feldman:
And we’ll talk some more about that. We should point out that you were acquired, but recently took your business back, and are running independently again. Liz, once you hit that goal, how did you reset after that? Did you come up with a new goal? Did you feel like you could relax a little bit? Or did it kind of rev things up for you?

Liz Picarazzi:
I think it revved things up for me, actually. I really wanted to get more millions, like most people do. So when I hit that million, I set the goal the next year to get to 2 million. And I do think it’s significant. I don’t think I reset. For me, it was less about the money, and it was more about the brand and establishing the business as the go-to in a category that, quite frankly, I’m kind of creating.

Luxury trash enclosures were really not a thing until Citibin came along. So for me, success is also to be that go-to, like Canva was for easy graphic design, or Spanx was for shapewear, or Chobani Yogurt was for Greek yogurt. Those are all gigantic companies, but part of the reason they became successful is that they were category creators. So for me, it was like, “Wow, we’ve achieved this revenue mark. We’ve got great momentum. We’re headed towards being this category-creating company. Let’s just keep going in that direction.”

Loren Feldman:
How did you pick the goal of doubling your revenue after you hit a million? Was that based on anything in particular, or did it kind of just seem like the next logical step?

Liz Picarazzi:
I mean, it looked like that’s where it was trending, and it did. Also, I saw the types of clients that we were getting, and they were bigger, and the order sizes were bigger. And we are really moving from residential to more commercial. So I really saw it as an attainable goal.

Loren Feldman:
How about you, Sarah? I think you told us at one point that your goal going into last year was to double your revenue. How did you come to think about it that way?

Sarah Segal:
I don’t know, it was just a number. It just seemed like a natural step. I mean, it was a reach number for me. And I always kind of placed that as it, because I wanted to grow in a way that I can maintain, that is not going to get me in trouble. Because as we saw during the pandemic, clients go away. And there are a lot of different factors that can cause a client to leave.

It can be VC-funding drying up, or change in the marketplace in general. So I just don’t want my growth to be dependent too much on one category. So it’s kind of, I’m trying to be a little more methodical about our growth. Of course, it’d be nice to have extra funds, but I also am not just going to take a client because it’s going to add to our bottom line.

Loren Feldman:
Are you still thinking about profit the way you did originally, Sarah?

Sarah Segal:
Yeah, 100 percent. Profitability is important to me, because of the way that I’ve set up my company. So most PR agencies are around the 20 percent profitability range. That is, they end up with a checking account with 20 percent of their revenue at the end of the year. And we give out pretty sizable bonuses when we can, when we have that nice pocket of funds. And that also helps us maintain our employees and makes people happy. And it’s a nice way to end the year.

I’ve been able to maintain that as a minimum. But it’s always nice to reach toward a 30- or 40-percent profitability, which gives us that nice bucket of cash to play with at the end of the year, either by giving it away to staffers or reinvesting in the company.

Loren Feldman:
How do you try to manage profitability? What’s the key point there?

Sarah Segal:
Ooh, that’s the million-dollar question. I have a P&L that I literally look at every single day. I’m looking at expenses. I’m looking at how much it really costs to hire a person. I only have one person on staff who’s not billable. Everybody else is billable. And literally, it’s like you’re balancing your checkbook every day. And that’s how I make sure that, at the end of the month, we’re not at zero balance in our checking account. I want to make sure that there’s a buffer.

In a bonus episode, “Turning a Failing Nut Shop into Nuts.com,” Shawn and I talked to Jeff Braverman, who was CEO of the company at the time but has since kicked himself upstairs to chairman. Jeff spoke about how he took control of the retail nut shop that his grandfather had opened in Newark, N.J. and that his father and uncle had been running. Over time, Jeff managed to turn the business into a direct-to-consumer juggernaut—without destroying his relationship with his father and uncle.

Shawn Busse:
Just stepping back a minute, I run into a lot of second-generation business owners where the parents are still involved. And it sounds like you’ve faced kind of a common situation where there’s a status quo. There’s a way of working. It was boots on the ground, retail presence. And you had a vision and a transformation you wanted to bring about. How did you navigate your big ideas and change and all that, and also manage your relationship with your family?

Jeff Braverman:
Yeah, it’s a great question. And I think I was looking at a little bit of a special situation here, because I think, often, whether it’s a strong patriarch or matriarch, there’s someone strong who’s reluctant to cede control to the next generation. I’ve had a unique relationship with my dad, where in high school, I was investing his money and managing his money. So there was something a little bit different there. I did come home my freshman year of college. I put together a little business plan—my dad or my uncle had probably never had a business plan—to try something with the Internet.

They gave me a very small budget. It did cost me more than that. But they had a strong belief in me, and like I said, when I decided to come into the business, this was exciting. I’ll speak for my dad, he was just a creature of habit. When the store was actually struggling—so when there were no customers on a Saturday—he’d be nervous. And when it was right before Christmas and really busy, he’d be equally nervous. You know, a reluctance to change and kind of set in their ways. My grandfather was the exact same way. My dad told me that, when he came into the business, he wanted to put display cases in the store. This was old-school, you had to know what to ask when you came into the store. You couldn’t even see the product.

And it took my dad years. He finally cried to his mom, and finally, she said, “Sol, listen to him and give it a shot.” And they finally put in a display case, and then sales went up. So I think he probably forgot a little bit of that once I came into the business. But he was certainly more open-minded. And one thing that uniquely they did was they gave me the keys in a much more generous way than would normally happen.

And there were challenges. At some point, I said, “Hey, we need QuickBooks.” And I remember distinctly, it was about $299 at the time. And my dad said, “Let’s wait for business to be a little bit better.” And I just said, “No.” He just had no choice, because I just bought it.

You know, we were dead on Saturdays in a retail store. I put together the case and said, “Hey, we need to close. We’re actually not making any money on Saturdays.” And their response was, “Well, Poppy Sol would never let us close.” And they wanted to start with half a day. And sometimes I just dug in, and they didn’t have the fight in them. But then what happened was, things worked. So we had a business that was not a good business, was not making much money, and then we started growing, and it becomes super exciting. That’s when we turn on that website, again, the new version, December 4th, 2003. My dad actually said, “Shut it off.” Because it was too much business, and he was scared.

Loren Feldman:
Scared he couldn’t fulfill it?

Jeff Braverman:
Just nervous, yeah. And it’s like, “We got this.” Here’s an example: We had a wholesale customer. We had to have a wholesale business, because the retail store was just going down and down each year. And I just visited them and asked them questions, “So how can we help you?” They’re like, “Well, we really love packaging. Will you package for us?” My dad and uncle said, “Nah, too much labor.” Because for them, they didn’t want to think about hiring people. And I showed them math, like, “Oh my gosh, we can make retail margins at wholesale volumes. Let’s go.” So I was the person who packed it, and just kind of dragged them along.

But then it starts getting faster, and we start hiring people, and it worked. We grew this business very quickly and profitably. And so I think that covers up a lot of stuff. But I think there was a deep love and respect that they had for me. I’m not saying that’s not in other places, but they were much more trusting. And then, to my dad’s credit, and all of his stubbornness in life—because he’s pretty dogmatic—he pledged that he wasn’t expecting to have a kid come in the business—like he had to kind of go into the business—but if he did, he would have given them a lot more latitude.

So, very quickly, that retail store of ours got bulldozed in 2005. That was 50 percent of our business. Fortunately, we had the internet.

Loren Feldman:
That’s a symbolic moment.

Jeff Braverman:
Yeah, and I was there. That saved the day. And again, we grew 50 percent a year for 10 years, or whatever it was. We got paid before we paid our suppliers. It just was a model that worked.

In Episode 146, “I Can’t Have a Handle on Everything,” I played a little game with Jay where I deliberately asked him questions that I knew were likely to trigger him. I don’t like to brag, but triggering Jay happens to be something I’m pretty good at. So eventually, I asked Jay about my perception that he’s kind of given up on keeping up with technology, especially digital marketing technology, something I think he could come to regret.

Loren Feldman:
Let me try another one. This one’s about digital marketing. And actually, it’s something that came up the last time Laura and Dana were on with you. They were both talking about how they’ve used influencer marketing, and they both expressed the opinion that it could work really well for you and your businesses. I think you do it to some extent with Jayson Home, maybe not with picture framing. And when I asked you about that, I felt like you got a little defensive that this is not something that you really want to put your energy into.

Jay Goltz:
I wouldn’t call it defensive, maybe dismissive. [Laughter]

Laura Zander:
I knew you were gonna get defensive about him saying that you get defensive.

Jay Goltz:
Yeah, right. No, I don’t, because being defensive means I feel like you’re attacking me. I don’t feel like you’re attacking me. I just am dismissive of it, because we do it. And I just have not seen any evidence that it’s working.

Laura Zander:
Point, Loren. Loren, you just scored a point—just so you know.

Jay Goltz:
What?!!!!

Loren Feldman:
You were dismissive of it. I think you were a little bit defensive, too. When I asked you, “Well, what are you doing?” Your answer was kind of a quick, “Well, we’re doing stuff.”

Jay Goltz:
Yeah, there’s no question. I would give you the same—I don’t know if defensive is the right word, but the answer is—I know we’re doing a lot of stuff for Jayson. I know it’s working well. I hear about it. I simply don’t have the day-to-day knowledge that I can sit here and tell you what we’re doing or what we’re not doing. Which gets to my point of: I just don’t know every single thing that’s going on in the company.

Laura Zander:
Same.

Jay Goltz:
And some people might go, “Oh, well, that’s terrible.” Yeah, really? It’s working okay for me. I don’t know what to tell you. I’ve got 130 employees. They’re competent. They own their job. They do a great job. I will tell you this, which to me is a litmus test: I’ve been in a business group with six other business owners. Every single month—and I’ve said this to them. At the end of the meeting, I can confidently say to all of them, “Do you know what you all have in common that I don’t? Every one of you is stressed out.”

They would say during the meeting, they’re stressed. I’m not stressed out. I’m not a micromanager. It’s like, it’s okay. I don’t have a total handle, personally, on the digital marketing, but I feel comfortable that my people do. Do I think we’re doing it as best as possible? I’m sure not. Perhaps I need to hire an outside firm or something. But I just can’t have a complete handle on everything. So that part I might be defensive about, if in fact, you were insinuating that I should. Go ahead. I just handed you a tool to use against me.

Loren Feldman:
Thank you. I appreciate that. No, I don’t expect you to be able to handle everything yourself. That doesn’t make any sense at all. And I’m certainly not encouraging you to be a micromanager. But there’s a difference between being able to do it all yourself and being conversant in it. And I don’t think you’ve made the effort to be conversant in digital marketing.

Jay Goltz:
True.

Loren Feldman:
You’re not doing your own taxes either. But you know accounting, and you know what to look for. And I’m curious if maybe it might be worth a little more of your time.

Jay Goltz:
Sure, maybe.

Loren Feldman:
Laura, you are conversant with digital marketing.

Jay Goltz:
She’s 20 years younger than me. Big difference.

Loren Feldman:
Jay, you are smart enough to figure it out. I mean, I understand—

Jay Goltz:
No, no. I have to remind everybody, when I started in business, there was no such thing as a computer on a desk. There were zero computers. She grew up with computers.

Loren Feldman:
I’m right there with you. I understand. She’s a native—certainly, more so than we are.

Laura Zander:
I remember when the microwave came out.

Loren Feldman:
He could do this if he wanted to. And I’m just raising the question.

Jay Goltz:
You’re right, I could do it if I wanted to. I have to decide what I want to do. And I’m in the—

Laura Zander:
I’m on Jay’s side.

Jay Goltz:
I’m just doing whatever makes me happy.

Laura Zander:
And I think that, especially with marketing—we see this in the software world as well—we keep using new terms. And we keep throwing new phrases around: influencer marketing, blah, blah, blah. We’ve been doing fucking influencer marketing for forever—I mean, for at least the last 50 years or 70 years. The format has changed. Maybe it was in print magazines before. And now it’s in Instagram, like—

Loren Feldman:
Wait a second, we should define that, because I—

Laura Zander:
But I just think the principle in a high-level approach is the same. You get someone popular who has an audience to help promote your product. So I think that Jay—

Loren Feldman:
That sounds like you could be referring to celebrity marketing.

Laura Zander:
Exactly.

Loren Feldman:
That is a form of it, for sure. But with social media, you can do something different. For all Jay knows, there are people posting pictures of one of his frames on Instagram, and he could be using that to his advantage. And it doesn’t matter if the person is famous or not. There’s a way to—

Laura Zander:
I just don’t think that’s Jay’s role. I think that that’s tactical.

Loren Feldman:
Not for him to do it himself. But maybe to know whether it’s happening, don’t you think?

Jay Goltz:
Well, I certainly could find out if we’re doing that. I have to tell you, I’m in a new place now. Are you ready? I’m in this phase: I’m in the whatever phase. Like, whatever. You know what? Things are going fine.

Loren Feldman:
That doesn’t sound like you.

Jay Goltz:
No, I’m paying attention to a lot of stuff. I can’t argue with you. I will follow up and find out what we’re doing, all that stuff. But at some point, it’s like, I could spend my whole day hunting around. I don’t know. I will ask. First of all, for Jayson, I feel good that we’re doing the stuff right, because I hear about it all the time. For framing, I know we’re doing stuff. I don’t know that it’s having any impact. I certainly can follow up on it.

Loren Feldman:
That’s what you always say.

Jay Goltz:
There are two pieces to this that you aren’t addressing. One is, we are doing it for Jayson. Artists Frame Service, the framing business, is a local business. It’s just not the same thing. And when you call it influencer marketing, would you include—I’ve got on my website that Architectural Digest said we were the master framing place, and Chicago Magazine named us the best framer in Chicago, so I—

Loren Feldman:
Nope.

Jay Goltz:
Okay, I don’t know that that’s the kind of thing that works on a local basis. I thought you were giving me your best shot. Is that the best you’ve got, Loren. Seriously?

Loren Feldman:
This does work on a local basis, Jay. And I think you’ve proved my point that you haven’t taken the time to really think about this in the way you would with other things involving your business.

Jay Goltz:
Perhaps.

Loren Feldman:
I’m a little surprised that I didn’t get more backup from Laura on this, but I think she’s trying to be nice to you.

Jay Goltz:
Man, I’m feeling a little sorry for you right now, Loren, because you’re not giving your best shot at this. I can think of far more things that would get me triggered than that.

In Episode 147, “I Just Cut My Pay,” Paul talks about how 2023 got off to a difficult start for him. Some of it was personal, but it was also business-related, with sales of his custom conference tables falling way below expectations (happily, things did improve as his year went on).

Loren Feldman:
First of all, Paul, you were out for a while, I believe with COVID. How are you?

Paul Downs:
COVID was just part of the fun. I started by screwing up my knee playing soccer. Then I got wicked COVID that lasted for a couple of weeks. And in the middle of that, I completely threw my back out. So it was great. It was great. It was a way to have a nice break from work and sit around feeling miserable and intense pain, which is what all bosses dream of.

Jay Goltz:
You could have done that at work. You didn’t have to be home for that.

Paul Downs:
Yeah. But I’m all better now. So thank you for asking.

Loren Feldman:
Glad to hear that. How did the business run while you were home being miserable?

Paul Downs:
It ran very well. I mean, we are having a little issue, which is that I planned my manufacturing operation for $5 million a year, and we’re off to a $3-million-a-year start. So that’s bad, because we’re running through our backlog. But I think that we’re going to pull it out right at the last moment.

We’ve been able to run the factory at full speed, and it’s just a question of the backlog shrinking, but we have some orders coming in, and people have been calling us. So it’s just one of those boss clutch moments when you have to get up in front of everybody and give them an inspiring speech about how things look terrible, but they never are as bad as they look. And I gave that speech, and the people seemed to buy it. And I think that we are going to get out of it okay.

Loren Feldman:
I seem to recall that you’ve had struggles in the early parts of the year in previous years. Is this any different than that?

Paul Downs:
Yes, in that it’s an unexpected slowdown in orders unaccompanied by any other indicator that that should be happening. So, usually, what we would be looking at would be, “Okay, how many people are calling us?” That’s the baseline metric. If X number of people call you in all other years, that’s correlated with X amount of sales. And this year, I am not quite sure what’s going on. But the best I can see is that we are heavily dependent on being the last ones into a construction project or a corporate move. And usually what happens is those projects take a couple of years to initiate and execute, and they don’t want the table until the very end. So people often don’t call us until the end of that project. And I’m thinking that it’s possible we may finally be seeing a COVID lull in my business.

Now, it should have appeared the minute people started working from home, but it just didn’t. But if there were projects that would have been initiated in 2020, and 2021, and 2022 that would have been finishing about now and just weren’t initiated, that could be part of it. That’s the external possibility. Internally, I can’t put my finger on it, because we’re doing all the same things that we did last year. And it was our best year ever.

Jay Goltz:
You know what, I could ask the reverse question. I could say, “How could that not be affecting you?” Because I got clobbered last year in my corporate art business because the offices were closed. Who’s hanging artwork in offices that are closed? And I took the hit on it. I think what you just said makes perfect sense. I don’t know how you couldn’t be suffering from some COVID backlash from two years ago. And it begs the question, as the boss, it’s not like you can just turn off everything. I’m not going to start laying people off who are good, solid people who I’ve got years invested into. At least as far as I’m concerned, sometimes you’ve just got to take the hit.

Paul Downs:
Well, I agree. I mean, that’s what I’m doing. I had planned to make a bunch of investments in marketing. And I’m going to continue to do that. And I’ve also put a lot of effort into building relationships with other companies that are in similar business with us, but maybe sell a different way. And we are getting some orders from people who are very busy just selling through other channels, and don’t have the manufacturing capacity. So it’s kind of a tight-run thing, but compared to other moments I’ve had, this is nothing. This is just a little bit, you know, the backlog’s down low, but it’s not something where I think, “Oh, I’m really dropping the ball here.”

Now, when we last had something like this—it was actually 2012, and I ended up writing a book about it. But when I was weeping in my beer to my Vistage group, “Oh, our sales are down, and I think it’s the economy,” their advice was, “It doesn’t matter what’s happening in the economy. You’ve got to look and see what you’re doing, because that’s the only thing you can control.”

In Episode 149, We’re Still Buying Inventory,” Jay talks about how the pandemic supply-chain ended up sticking him with a lot of surplus inventory that has been soaking up his cash and greatly exceeding his warehouse space. Interestingly, Jay continued to tell his buyers to keep buying more stuff—even though he wasn’t entirely sure where he would put it.

Loren Feldman:
Jay, what kind of year are you off to?

Jay Goltz:
There’s no question that the market’s a little soft. If I was to go back over the years and chart the stock market to sales, there’s clearly a relationship. It’s a little soft. I’m suffering the end of the pandemic problem, which is, my guys were out there buying all kinds of cool, interesting things for my home store. And it was all tied up and couldn’t get over here, and then whoosh, it’s all coming in now. And I’ve just got a tremendous amount of inventory, and it’s gonna take me the rest of the year to get it back under control.

Loren Feldman:
Did you say it’s still coming in?

Jay Goltz:
Oh, yeah. I mean, it’s just, you couldn’t get stuff.

Loren Feldman:
The supply chains have been cleaned up for a while now, haven’t they?

Jay Goltz:
To a degree. But you know, my buyers literally go around the world looking for cool and interesting products, and they’ve gotta fill a container. And as you know, the containers—they were tied up. And I’m not saying it’s happening today, but just a few months ago, the stuff started coming in. And I just have a tremendous amount of inventory. And I’ve got a ton of money tied up in it. And it’s gonna take me the rest of the year to work down.

But to make anyone feel better who’s got a cash crunch, even after 45 years, it still is a problem. And I’m gonna work through it as I always have. But still, I can tell you, it just weighs on you subconsciously. It just weighs on you. And I’m not afraid of bank debt. I’ve had bank debt for many years, but using up big lines, it just wears on you a little bit.

Loren Feldman:
Lines of credit?

Jay Goltz:
Yeah, and it’s like, we’re fine. We’re paying our bills on time. It’s very easy to get inventory out of control when you’re buying the way we buy. It’s kind of like cutting Samson’s hair. I don’t want to mess with telling the buyer, “Stop buying stuff.” Because that’s the business we’re in. We’re into buying cool and interesting stuff. So I’m not going to put the hold on it. But I do have to work through the glut.

Loren Feldman:
With the inventory, Jay, what’s the bigger issue? Is it finding places to store stuff? Or is it the money that it’s tying up?

Jay Goltz:
Well, I’m lucky in that my kid does development, and he buys buildings. And then he either eventually bulldozes them and puts up the new thing, or he converts it. So my son has a couple of empty buildings that I was able to stick stuff in. But without that, I would have definitely had a problem with storage.

It’s both. It’s, where do you put the stuff? And Jayson Home has gotten to be a pretty big business. It’s very easy to have a lot of money tied up in inventory. So it’s not like I’m in the ice cream business where you just order your gallons of ice cream, and you have X amount in the back. I’ve just got a lot of interesting, cool stuff that they bought on a bunch of trips, and it comes in, and it takes a while to cycle through it.

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Topics: Marketing, Entrepreneurship, Goals, small business, marketing strategy, CEO, Entrepreneur, business start-up

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Hosted by Rich Armstrong and Steve Baker the Change the Game podcast highlights true life stories of organizations influencing positive change by doing business differently. They’re teaching people how business works and closing the gap between the haves and have-nots. It’s capitalism at its best. Inside each episode, you’ll discover stories of entrepreneurs who are Changing the Game.

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