Straight To The Point

Compassion Is Directly Related to Experience

You can't be compassionate without experience.  You also can't be compassionate if you have experience but feel shame.  I am talking about mental health.

Nearly 1 in 4 Americans has experienced mental health issues ranging from easily overlooked social anxiety to nationally reported psychosis. It may have occurred once, during a short period or over a lifetime.  It follows that all of us have been affected by it.

It is amazing that while mental health professionals have been talking about it for years, decades really, lay people can't seem to have the same conversation.  Having a family member with more severe forms of illness is extremely isolating. That once a month support group can't begin to make up for the loneliness of not feeling comfortable talking to friends or extended family. Yet, like the sick person, families need ongoing care and support.

Lesser forms can be just as debilitating.  Anxiety can lead to depression or substance abuse.  Brilliant ideas cannot be turned into brilliant products or services if the fear of being in a crowd overcomes the desire to let the world know.

We need to re-brand mental health.  I commit to use a chunk of my time in 2009 gathering information, putting it into articles and blogs and spreading the word that we must use our collective networks to address these issues so that - at the very least - we will become compassionate. 

There's No Relapse Without Recovery

I have spent more time than I would have ever dreamed sitting in a group with parents of kids who abuse alcohol and other drugs over the last year. I am so very lucky because my daughter didn't veer off into the deep ditch of addiction but she sure could have and we both needed support. 

I've learned a lot. Enough to know danger when I see it. My oldest daughter's sister-in-law has had a chronic drug problem for years.  Finally, Becky and a couple other family members confronted their sister today with the bottom line that her 16 and 5 year old daughters would be taken from her if she didn't do enter rehab. They had an inpatient drug rehab facility picked out and her insurance would take care of it. 

The s-i-l was furious.  It didn't take long for the inpatient to become outpatient and the girls would stay with her when she was working (as a nurse!) and with others when she attended treatment on her days off.

Sigh.

Why is it so hard for us to stick to our guns even when we know children are being harmed or neglected? Why do we worry about someone keeping a job?  Why are we so concerned that by naming the addiction that we expose them to others - as if everyone doesn't already know?

We are losing our teenagers to a drug culture that most parents don't even know exists. The bottles of Boone's Farm and bags of Mexican we remember from high school and college are so far from the prescription pills and doped up pot kids use now it makes your head spin. 

Other important things I learned:

In general people who do not have someone close to them affected still mix up the words recovered and reformed.   

Nutmeg is an hallucinogen and mimics LSD - most often mixed with marijuana.

Relapse is a part of recovery. Four times in rehab is not unusual.

Heroin is cheaper than oxycontin.  The creepy addiction is necessary when the cool addiction becomes out of reach financially.

Water pills and lots of water can often prevent marijuana from showing up on a tox screen.

Drug use is progressive.  So is the rotten behavior of the person using it.

Denial is a warm fuzzy place. I know.  But it doesn't serve us and it sure doesn't serve the user.

Borrow It Forward

Too much and not enough information is available. I have been talking about the economy since early last summer. My 17 year old Ashley didn't seem overly interested until gas started dropping like a rock.  A recent conversation...

 

Ashley: Will gas drop to $1 a gallon?

 

Victoria: God I hope not! The price is dropping because people aren't working.

Ashley: Who isn't working? The autoworkers? Aren't they getting a bailout? 

 

Victoria: Hopefully. The companies say they just need to borrow money to keep day to day operations moving along until they can get their companies efficient.  On the other hand there are 1,000,000 cars on lots right now so people will be laid off and companies will not be able to hold out until they do get efficient.

Ashley: Why aren't they efficient?

Victoria: They are owned by millions of people so short term profits are more important than long term plans. Easy credit allowed them to borrow money without being sure they could pay it back.  So they kept on doing what they were doing and not looking into the future.

Ashley: I thought they were too big to fail.

Victoria: It's funny. The ones who will suffer the most, the middle class, says no. Most of them still don't get that global business means global wages. The politicians and executives in the top 10% of all income earners say yes.  They get it. 

Ashley: Where will the money come from?

Victoria: From you and your children and maybe your children's children.

Ashley: It's not fair that I have to pay for for that!

 

Victoria: Sorry Honey. It's not. I don't want this for you.  Grandpa got what he had by saving and getting loans he could afford to repay.  I'm at the tail end of a generation that didn't have to look more than a couple days for a job or worry about health care or take care of parents and children at the same time.  Nobody believed it could end.  Plus Social Security guarantees a minimum payment every month and a little bit of health care so there seemed to be a safety net.

 

Ashley: So you're saying that you really don't care what happens to my generation!

Victoria: Of course I care. But most people have taken the same short term approach public companies have.    

 

"I want it now. I will pay later."  When all our buying and paying take place only on paper as opposed to handing over actual money we lose our sense of its realness.  Kind of like buying a house and then borrowing against its value to get more stuff and then finding out we owe more than its worth.  People are always astounded about that but it happens whenever owning a house is considered a form of savings.  It's not.  

 

My generation has believed in borrowing every dime we can, hoping we go to heaven just one day before the reverse mortgage has run out.

Ashley: But you always say all sins come due.

Victoria:  The people putting all this together consider that the beauty of their strategy. Their borrowing sins come due on your watch.  

 

Ashley: Are you serious?

 

Victoria: Completely.

 

She walked away and I'm not sure she believed me. That's okay.  I really can't believe it myself.

It's Quick! It's Current! It's Gross! It's A Financial Ratio!

 

 

Financial reports can hide a multitude of false positives.  Sales have increased but your best customer has fallen to number five.  Assets have increased dramatically but it’s because you really have too much inventory.   Your gross margin is 15% and you have cut everywhere imagineable. 

 

It’s very tempting to just use your accounting software to get the reports and then forget them until, oh say, disaster strikes. (Do NOT get me started on the “trusted bookkeeper” subject!)  Here’s a way to really get in touch with your true financial position and make sure your company is going where you want.

 

There a number of ratios that compare one set of data with another. You should look at them over time as trends preferably years but start looking as soon as possible.

 

A one time order can make a great profit for one day or one month.  Does it make up for a series of lackluster profits over six or eight months? Can you find another one time order when you need it or should you cut expenses? Layoffs are a quick simple (I didn’t say easy) fix to increase profits unless you have to increase overtime.  Once again a short term solution to a perhaps long term problem.

 

Another important consideration is checking your ratios against similar companies within your industry.  A grocery store won’t have the same ratios as a software developer or a high end bicycle manufacturer.  That doesn’t mean these companies don’t have happy owners; it means they understand the uniqueness of their operations.

 

The Missouri SBDC has seventeen different ratios listed under four categories: Liquidity, safety, profitability and efficiency.  We will discuss several but it is by no means comprehensive.  Make sure you know the ratios most important to your company.

 

Liquidity

 

Can you pay your current obligations as they come due? This is all about how much cash you have and what can you convert to cash if necessary. There are two ways to look at it.

 

Current Ratio: The ability to pay today’s bills with today’s money. Take all current assets (cash, accounts receivable, inventory) and divide it by current liabilities.  General rule of thumb? 

 

Total Current Assets/Total Current Assets = 2 or a ratio of 2:1

 

Quick Ratio: Also called the acid test it does not include inventory. Can you meet your current obligations without selling inventory?

 

All Quick Assets/Current Liabilities = 1 or a ratio of 1:1

 

Profitability

 

If you don’t have a profit there is no cash to run the business even if there is money in the bank.  On the other hand a high profit does not necessarily mean high cash reserves.  Both liquidity and profitability must be analyzed at the same time.

 

Gross Profit Margin: How well can your business generate a return by addressing inventory control, pricing and production efficiency.  There is no rule of thumb ratio here except you want it trending upward from 0 towards 1.

 

Gross Profit/Total Sales 

 

Net Profit Margin: This ratio shows the competence of the company to manage its operating expenses and can indicate if there is enough sales volume to cover fixed costs and still make a decent profit.  You get to decide what the right number is here.

 

Net Profit/Total Sales

 

Efficiency

 

This is how you judge your assets on both value and how effectively they are utilized. Remember you may need to turn some into cash or you may use them as part of a sale agreement.

 

These two categories are often discussed when there is a downturn in the economy.  Demand your customers pay quicker and don’t pay your creditors as quickly.  A slippery slope as you may alienate your best customers and annoy your vendors both of whom you need.  May be the right thing to do but don’t make it a knee jerk decision. Think long and hard about changing your terms.

 

Accounts Receivable:  This assumes you have accounts receivable.  Many companies are credit card only, Paypal or some other sort of cash in advance. It is the best possible way.  If you can’t do that here are the two ratios you need.  The first you want a high number.  The second should be as low as possible.

 

Total Net Sales/Accounts Receivable = AR Turnover

 

365 Days/AR Turnover =  AR Collection Period

 

Accounts Payable: How well you use early pay discounts or how long you are holding on to your money can be seen here.  Like accounts receivable you may have very little if the vendors you are dealing with may want their money up front too.

 

Cost of Goods Sold/Accounts Payable = AP Turnover

 

 

Become familiar with these terms and any others that affect your business.  They are tools.  Just like you wouldn’t refuse to look at the ads you are running or address a customer service problem financial ratios and reports indicate if you are getting what you want from the blood, sweat and tears you have been and will continue to pour into your business.  It’s the only way really.

Isolation. Arrogance. Stupidity. Failure.

These are the steps that too many companies follow. Whether the company is large like AIG and staff becomes the buffer or the company is small and the approach is simple avoidance the results are the same.

Isolation, like denial, is a warm and fuzzy place.  Unlike denial isolation is not the first step towards better thoughts and ideas. It can be a permanent stop.  Worst of all the folks who become isolated are often jeered behind their backs and sometimes on the front page of The New York Times.  Favorability ratings of Condolleezza Rice dropped after she was discovered buying shoes in Manhattan while people in New Orleans were standing on the roofs of their houses waving at helicopters during Hurricane Katrina.  Napoleon Bonaparte isolated himself within his army and probably never realized that Waterloo would become synonymous for a final crushing defeat.  Unabomber Ted Kaczynski was completely alone in his Montana cabin where he plotted against the government.

Isolation leads to arrogance.  Arrogance is the outward manifestation of overblown pride and excessive self-worth.  It is another of those traits that is usually accepted only by those who have to.  A perfect example is Leona Helmsley who required her household staff to line up outside in full uniform to welcome her back regardless of the time of day. Arrogance is flying your private jets for a day to Washington at a cost greater than the annual poverty rate of a family of four and then asking for a bailout of failed management policies.  Arrogance is knowing your product offering is so necessary that you won't spend the money to better train the customer service staff because who cares?

Arrogance breeds stupidity.  Stupidity denotes an incapability or unwillingness to properly consider  relevant information.  This is the best definition of stupidity ever for businesses. Relevant information must always include financial statements.  Refusing to look at them doesn't make them less intimidating. It must always include analyzing the value of the product or offering on a regular basis.  There are people who are LP connoisseurs who only use turntables to listen to music.  Not many but maybe it's you.  Just because you know everyone in America dedicated to record players is it worth turning your hobby into a business?  If you refused to associate with people who listened to CD players and ipods and then felt puffed up over your connections you might just be dumb enough.  Finally, relevant information must always include the economic environment.  If you use receivables as a back up to your credit line then you need to make sure your customers have done what they need to do to make sales and order more.  Or, like one of Lear's plants, you'll have to close for an entire month instead of the normal two period over the holidays and pray to the might automotive gods that it's enough.

No business owner wakes up in the morning and says "I think I'll lead my company to failure today." Unfortunately stupidity generally has nowhere to go but failure.  It may take three months or three years or three decades.  It can happen so quickly that you never saw it coming or it can feel like the slow march of death.  Either way it's not what you planned even if you became isolated, arrogant and stupid. Your customers may mourn your business failure.  They may be furious because they tried to tell you but you wouldn't listen.  They may be glad as the new owner or competitor learns from your mistakes and offers a much better service or product.

Pay attention to your surroundings.  Make sure they include naysayers as well as supporters.  You get to make all the decisions anyway.  You'll want to hear every point of view because after isolation the chances of failure become exponentially larger.

I Want A Transition Team. Not.

I have been wondering how to get so many people in love with my business they fight over who should help me transition to the next step. Then I want the press to follow my every move and write editorials on who did a great job or who to let go.

Oh. Wait a minute.  I think that's called a publicly held business.  No thanks.

On Your Business this morning on MSNBC a company made an elevator pitch to two potential investors.  It was a pretty neat product actually - jeans with customizable, removeable pockets - and the partners were looking for $850,000 in working capital. They clearly had no problem with investors taking a stake in their company although most VCs usually want to run it too.  They expect to get big fast and provide a 40% ROI.

The feature story company had taken sixteen years to go from $16,000 in sales (today's value $24,387) to $1,000,000.  These owners had spurned debt or investors and grew their graphics art company by reinvesting profits into licensing bedding designs.

Which is the right way? 

The first company has already figured out its exit strategy. They will get VC investment, the company will probably grow exponentially and then it will be sold or taken public.  Either way the owners will make big money but probably lose control of their company.  A completely different skill set is necessary then and sometimes it just gets ugly when a founder won't let go.  Just ask Jerry Yang of Yahoo! 

The second company's owners are in it for life.  Their products are more and more desireable.  They are debt-free and have no partners. They could have reached the same dollars (without the expenses) but simply putting $1273.23 in the bank every month for the last sixteen years assuming an average 5% interest rate.  So it's a lifestyle choice. 

I cannot say what is better for others.  And amazingly I have changed my mind. I don't want to be in my business for life.  I would love to sell to someone who could take it to the next level.  Plus I would get all the transition team I could ever want.  Besides, I don't want to be one of those people who can't let go as if they will never have another great idea. 

What sounds good to you?

 

Companies and Marriages Change Over Time

There's an old story about a college age son who toasts his parents at an anniversary party on the amazing skill of staying married to the same person for 25 years.  The parents look at each other, laugh and reply "This isn't the same person at all!".

All of us who have been married for a while understand that.  Marriage usually includes children, loss of parents, moving, financial pressures, job changes, etc.  These experiences shape us and how we respond to them singly and as a couple determines whether or not the marriage will succeed. We need a different set of skills at each new stage. 

Businesses are the same.  There is no more exciting stage for entrepreneurs than start up.  The new idea is thrilling and when the idea starts generating cash we can hardly believe we would ever want be anywhere else.

Then the experiences start.  Meeting payroll, paying rent, deciding how much to allocate for client acquisition.  Now entrepreneurs are working on the company as opposed to the idea.  The thrill is a little less. You start to relate to the yells of TGIF by your employees.  You never had to wonder before if missing your daughter's dress rehearsal is a fair trade-off.

You can't be a visionary and a manager at the same time.  They are entirely different.  One looks forward.  The other looks back.  Can the same person do it?  Of course.  Small business owners do it all the time. But it does change the texture of how they view what they are doing.

Decide on an exit strategy. Maybe it's never.  Maybe you'll pass it on to your children.  Maybe, like in a marriage, there's a deal breaker that means you're out.  But think ahead.  It'll help your business and your marriage.

Never Sleep With An Elephant

I have always encouraged caution to companies that sleep with an elephant.  If it rolls over you're dead.  I know how crushing that is because I have done it and been killed.  Too bad I was never hired as a consultant to General Motors.

Now the elephant itself is dying.  The companies that have been sleeping, albeit in fits and stops over the last couple years, are wide awake.  They are desperately seeking solace from the great elephant hospice -Uncle Sam.  Except the hospice is encouraging the elephant to stop fighting. Just let go it counsels.  Poor elephant is simply delaying the inevitable they say.

Of course the immediate family, Lear, Magna and American Axle who used GM receivables as the back up to their credit lines, are the least able to want to let go.  Their own stock prices are cratering and market caps are actually in a number range regular people can understand. Boo Hoo they are wailing.  No matter that they didn't Black Swan their futures. There are plenty of people on the Fortune 500 List of Richest People who can afford to buy any one of them lock, stock and barrel.  Foreign investors must be swooning. 

Unfortunately the cities around Detroit like my hometown Toledo are swooning too but for the opposite reason.  "When Detroit gets a cold Toledo sneezes" is a common saying here.  Voting against legislation that didn't support the auto industry was heresy.  Situated at the intersection of I-75 and I-80/90, setting on the navigable Lake Erie and within 50 miles of at least eight major universities Toledo seems at the perfect spot for all kinds of transportation hubs and distribution centers.  But like many small cities close to large industrial centers Toledo kept its scarce resources focused on an elephant. It was warm and restful for nearly 100 years.  Now Toledo finds itself walking behind the elephant and everyone knows what that gets you.

It's easy for small businesses to get in this position.  Don't let it happen to you.  Learn from OPM - other people's mistakes - and you won't have to find yourself begging for the other OPM - other people's money...like your neighbors.  It might be painful but you'll be able to respect yourself in the morning.

How Can You Be In Business And Hate Business?

I was scheduled to work with a client today at 9 a.m. and planned to be done around 11.  My client runs a center for women in transition - a place where she holds a space open for each one to decide the next step in their lives.  It has been a dream of hers and is in the second year of its brick and mortar existence.

She has struggled with the business aspect of it knowing it had to at least pay for itself so she could continue creating the content for programs and retreats that have the real potential for financial freedom.

In order to remove herself from the daily management of the center she brought in several "partners" who offer holistic services and would host the open times.  Each partner was supposed to do one event each month that was free for the members.  The rest of the time they were welcome to bring in their own clients and use the space as they wished.  She is compensated by the number of clients each brings in monthly.  Her responsibility to them is sending out a newsletter highlighting each one once and then listing them as a group each week.  She was quite blunt that she was offering them space and they would be responsible for getting their own clients.

She has already decided that method of getting a return on her offer of space is not working.  Instead she plans to offer levels including facility rental, associate and partner.  So far so good at least in my mind.

She was upset as the "partner" who was scheduled for open time today so we could work together didn't show up on time.  People started coming in and our session was delayed until the partner came in a little after 11.  I was scheduled somewhere else and so the conversation my client so desperately needed was not possible.

I asked why she continued having this woman as part of her circle and she said she just hated the business part of her work...she could not do it.  Fortunately I knew this was just part of the process and I offered to run the business end for an entire month.  During that time I told her to stay away from the center and focus on what she really wanted to do.

She proclaimed that scary.  I agreed.  Be careful what you wish for.  On the other hand not everyone is cut out to do the management of a project especially when they have such vision and leadership gifts. You cannot do both.  They are different mindsets. 

What will she ultimately decide to do?  Not sure.  I was encourage when as I left she said, "It's my business and it's all on me to be successful".  Ah, the morning had surely not been wasted.

When Did Mentor Become Coach?

I am surprised at how many business coaches there are.  A Google search yields 208,000 responses. All say you don't need specialized training or certification but there are companies that provide just that. It's probably a good thing as the prices per hour average $275 for phone conversations with different levels for face to face meetings or email coaching.  There are even goal coaches that spend five minutes a week holding your feet to the fire.

According to Wikipedia mentoring and business coaches are not the same thing. "Mentoring involves a developmental relationship between a more experienced "mentor" and a less experienced partner, and typically involves sharing of advice. A business coach can act as a mentor given that he or she has adequate expertise and experience. However, mentoring is not a form of business coaching. A good business coach need not have specific business expertise and experience in the same field as the person receiving the coaching in order to provide quality business coaching services."

Interesting. Mentors and mentees have a difference in experience in a specific field that is reduced through development of the mentee.  Business coaches are not industry specific but can offer mentoring as part of their offering.

Okay.  So does that mean coaches are only for small businesses as large companies probably have plenty of people who want to help others climb the corporate ladder? Mmmm, no. That leads to whole lots of politics generally and, well I don't care about corporate mentors or ladders.  I am interested in entrepreneurs. So what should small companies do if they need to seek outside advice?

Here are a few guidelines.

• If you are not able to get a recommendation then look for someone who has some sort of credentials or certification.  It's not a guarantee by any stretch but they do have a code they have to live by.  It's a good start.

• Decide exactly what your goals are.  Do you need to expand, increase sales or hire staff? These are all vastly different and you may hire different coaches for different issues.

• Be clear on how long do you plan to work with a coach?

• Keep an open mind.  You didn't hire them to be "yes men".  (Shoot you could have just assigned that to a staff member.) You hired them to move your company forward.

• Expect changes in your staff as you change.  They may be a little wary of your new way of thinking.  That's okay. Maybe they need coaching too although mentoring might be a better idea.

Coaching is a personal experience.  You want it to be a positive one.  Spend as much time investigating potential providers as you would on selecting a new car.  In fact do it right and you may be buying the car of your dreams much sooner!