Self-employment Keys to Success

This blog post is about entrepreneurship.  Not my normal stuff; but this is my background and writing about small business has been something I have done for years.  I was in the process of writing several “Success Paths” books at the end of 2019 and beginning 2020 when the whole small business world was turned upside down due to the pandemic.  I still anticipate writing those books as we slowly return to normal.  Thought this might be of interest to you if you are giving any thought to opening your own business in the future or know someone who is giving that scary adventure some thought.

During my working career which has spanned almost 60 years, I have been self-employed for approximately half of that time.  Or said another way, for 30 years I worked for someone else.  What is interesting to me is that I fully identify with my self-employment years and have only vague memories of my many jobs—I was a good employee but was always looking for the next deal.

For many of my self-employment years, I was a small business consultant.  This was a mixture of accounting, general business guidance and assisting those companies secure loans.  I saw an unbelievable number of poorly ran businesses by people who had no clue what it took to be successful.  They fully operated by the seat of their pants.  Now, don’t get me wrong, many of these organizations were successful.  Almost all, but not all, success in business is based on luck and someone else’s money (usually family). 

Some of the best ran and potentially most successful of these businesses failed not because they were mismanaged, but because they lacked capital (no dad money).  Some of the worst ran businesses succeeded because they had sufficient capital (thanks, dad) to fail but surviveOn the fourth attempt Junior succeeded and became a family legend.  Capital almost always determines the likelihood of success not “hard work,” innovation, creativity, great product or great management—it is always money.

Towards the end of my career, I became a consultant for M&A firms who were assisting medium size firms complete acquisitions or to sell the business.  What was surprising is that most of the good and bad I saw in small companies was the same nonsense going on in big companies.   In most companies the biggest asset of the company is the employees.  There are exceptions to this rule where an innovative product may drive success, but in most cases it’s the employees who have the most influence over success.  Yet, with hardly any exceptions, employers treat their employees like shit.

Why would they do that?  Because of their egos.  I have yet to meet a business owner who didn’t think all of his success was due to him or that all of his failures were due to his employees.  Logic be damned the ego must be protected. 

The keys to business success. 

One is capital.  The more money you have the greater your chances of success.  This is painfully obvious but is ignored by most entrepreneurs, they always think whatever venture they are starting is an exception.  This business I’m starting is so great all I need is a few bucks, and I will be a zillionaire in a week.  They are always wrong; you must have more money than you can probably acquire to be successful in a new business.  New businesses have a ton of surprises that cost money you did not count on.  The amount you thought at the beginning was more than enough will not be.  Your initial capital needs to be as large as possible and you should plan on sources of additional capital as the business grows.  Capital drives success.

Two is hard work.  I have met many people who wanted to open their own businesses because they were tired of working hard for some asshole boss who never did anything.  As an owner you will either work extremely hard, or you will go broke.  Anybody who thinks it is easier to be a boss/owner than an employee has never owned their own business. 

The third key might surprise you—it’s employees.  Unless your new business is a one-man operation you will be totally dependent on employees for your success.  For many new business owners this is an afterthought—they assume they can always hire people.  But can you hire the best?  Because that is often what it takes to succeed.  Learning how to hire people, manage them, retain them, keep them motivated without costing a fortune are some of the most important skills of a manager/owner.  In a successful business, your employees are always more important than you are; but can your ego be kept under control so you can support these key assets as you grow your business.  I have heard story after story from successful business owners who talk about their key employees when they first started, but now almost hate their employees, because they are never satisfied.  If you cannot mange people successful (and, no– being a tyrant is not managing a successful team); you should not start a business that needs employees to succeed.  You will fail.

Fourth is the product/service/business idea.  This is usually where the business entrepreneur starts.  I have an idea for a business that will be a huge success.  Yes, you need that idea, but it is the least important key to success.  Mater of fact many successful businesses were just a rehash of an old concept; but done better. 

The best time of my life was when I was self-employed, and the business was successful.  The worst time of my life was when one of those self-employment ventures was failing.  And, I have, for sure, experienced both of those extremes.  Even with that experience a day does not go by that I don’t give thought to a new business venture.  This one for sure will be a huge success, and I can do it on a shoestring.  Once it’s in your blood it’s hard to give it up.

Free e-book box set on Amazon on January 3rd.

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Community Lost

My focus for most of my life was business; often as a business owner.  Even if this corona virus crisis ended immediately the business world will change.  Many businesses will no longer exist.  Much of what we considered normal about business will not return.  The trend toward on-line purchases will continue and totally destroy the already weak retail organizations. 

Amazon and Walmart will capture an incredible percent of total retail revenue.  That is not good for anyone; maybe not even good for Amazon or Walmart. 

In the 1960s and 70s my father was a retailer in a small town which was next door to a larger city.  He sold shoes.  His customers were his neighbors and friends.  I worked in that store.  It felt like no one came in who didn’t either know my dad or my mom.  He extended credit to the people who needed it—even though he was not rich.  He was active in local politics and was on the school board for many years.  This is the America many people still dream about, although there were huge social problems right under the surface.

In what seemed like an overnight change, two large malls opened in the bigger city.  There were twenty shoes stores in each mall that all opened on the same day—each of those stores was three, four or maybe ten times the size of my dad’s neighborhood store.  His business changed overnight.

Their friends and neighbors still shopped at the local store, but almost immediately the older kids did not.  They wanted to go to the mall and buy from the “cool” stores.  And of course, even many of the friends bought from the mall because their prices were “better.”

I observed that dramatic change in retail close-up.  Many described it as progress.  But almost all of those small businesses that were the beating heart of the smaller town dried up; and their owners no longer had time to meet at the Lions Club or Kiwanis because they had lost their businesses and now were employees somewhere, often in the malls in the larger city.  The small town government and school board became dominated by political activists not local business people.

My dad hung on longer than most.  He worked harder and harder, but the level of business that had once been never returned.  He eventually closed his stores and retired.  What replaced those family shoes stores was different and definitely not something better.  What was lost was a community.

Reader reviews nag at me.  Some are good, even great; some are not.  But I read them, all of them.  Is that good, or just a waste of time? The average review of all of my books is above four stars—so by far the majority of readers like the books.  As I have said before, the majority of bad reviews are because of language.  My use of the F-word is, no doubt, not comfortable to some; and I will occasionally toss in other words that fall into that taboo category. 

But there have been the reviews that seem to suggest I’m an idiot.  The Greek root of idiot means a private person, or later a common man.  Someone who was not an official or important person.  Okay, I might be an idiot.  Of course the word now means a foolish or stupid person.  I might rub some people the wrong way, but I’m not a fool or stupid.  So there!

Of course the reason I’m talking about reviews at all is because they are important to authors.  The reason they are important is that they influence sales.  Better reviews equal better book sales.  The more books you sell; the better life looks.  Yes, the quality of life is determined by book sales—oops that should not be said out-loud.  Sure, there are other factors to happiness, but if you are an author who has spent hundreds if not thousands of hours writing books—book sales are a key element.

Thanks for being a reader!

Hope isn’t a strategy

As you get older you tend to stay at home; maybe out of necessity or perhaps desire.  If you’re no longer going to work, it becomes the new normal to stay put; except for trips to the doctor or grocery store.  Even before coronavirus, groceries were being delivered and medical advice was available via telehealth.  Without much thought I had become something of a hermit in the middle of millions of people.  And, it was essentially okay with me.

I have worked within many different business environments; from large corporations to small family operations.  One common thread between these very different worlds was meetings.  Meetings in the massive corporate world often became the job.  Your entire reason for being is to attend or conduct meetings.  The first thing I don’t miss about business engagement is commuting; the second is meetings.  Meetings are normal in big companies but it might surprise you to know they also are normal in small companies.  The amount of time and effort wasted related to meetings must be huge.

Scattered throughout my working life have been periods where I worked for myself.  Except for the lack of financial security, these were my best jobs.  One of those jobs was as a financial consultant.  I helped businesses, large and small, deal with problems.  Usually this was a lack of cash problem and the owner was basically looking for someone to perform magic and fix his poorly run company.  While voodoo may have some benefit for particular ailments it is not very useful for bad management.

If you follow this blog you know that I’m a baseball fan and I’m currently following my favorite team, the Colorado Rockies, in their simulated season.  This is a computer generated simulation of the games based on historical statistics.  So the simulated 2020 season will look much like the 2017-2019 seasons because it is based on that data—interesting but not a real prediction because you cannot predict the surprise outcome—which happens in sports all of the time.  Businesses also use the past to make decisions about the future-even when the past is not good. Just like baseball and the surprise MVP no one expected; businesses are now dealing with a surprise of mega proportions. A pandemic that has shut down a significant portion of economic activity. Planning a strategy for this circumstances is almost impossible. Hope is the strategy.

A financial consultant for a troubled company is being asked to recommend changes that will correct past errors—and almost always the company will retain the bad management that caused the problems in the first place.  No consultant recommends the owner/CEO be fired and replaced with someone halfway competent—because it is the owner/CEO who hired you.

So the consultant recommends the same ol’ “improvements,” holds a bunch of meetings, writes a report—and leaves with a check.  Knowing that nothing will change and soon the company will be bankrupt.  It’s just a game; because the one recommendation that makes sense is not an option.

Today we are in a financial situation for all businesses that has never been seen before.  There is no historical reference.  There are no proven methods to form a basis to establish a game-plan.  Even firing the current management would not fix this problem. 

The businesses that are thriving right now (Amazon, Walmart, Netflex, Instacart, Dominos Pizza, Clorox) will dominate the recovery.  Every other business will be on the ropes.  While I believe that to be true it is not based on any analysis of past experience because there is no data from the past to use as a basis of forecasting the future.  My best guess is that staying at home becomes the new normal.  We give up freedom and unlimited options for security and comfort. 

Meetings, the true lifeblood of so many businesses, become less frequent. Sure you can teleconference but you need good equipment and patience to make it work without glitches. It might start to occur to everyone that the point of the meeting was no longer relevant. Plus everything is so depressing. The owner/CEO never listened anyway.

Business activity will change forever, our interactions with fellow humans will not be the same, congregating will become taboo.  Nothing will stay the same.

While that new world might fit me—for many it will be difficult.  Human connections had become more tenuous before the coronavirus; but after, they will become frayed to the point of breaking.  What that brings may be worse than the virus.  Let’s hope not.

For a rather bleak analysis of the science behind the modeling for this pandemic and how that will impact reality going forward read this Defense One article

Ignoring the top portion of this blog, I think my best attribute as a writer is my humor.  Every book I have written, even the droll Muckraker series, has humor. 

One of my favorite series of books was Robert B. Parker’s Spenser series.  I couldn’t wait to buy the next book (often in the overpriced hardback version) to read the latest exchange between Spenser and Hawk.  It was just great.  Often these books had a very thin (I’m being kind) plot, but the dialog between the two characters was worth the price of admission.

I’ve tried to capture some of that goodhearted but pointed humor in the exchanges between Ray Pacheco and Tyee Chino.  Their relationship grew in the books, and I think in the last book in the series (so far) Four Corners War reached close to the level of Spenser and Hawk—maybe not there yet; but getting closer.

Thanks for being a reader!

Mysteries of the Business World

I write mystery books, usually murder mysteries.  My stories are not based on deep analysis of much of anything, other than human nature and a little common sense.  By design the characters are flawed, but interesting (I hope).  Perfect characters would most likely not be involved in murder and no doubt would not be very interesting; or at least would be hard (for me) to relate to.

In my other life, I’m involved in business.  Some of that activity is focused on financial analysis and forecasting.  I look at businesses’ data and try to determine the value of that on-going business.  This is taking historical numbers and placing a current value for the future prospects of the enterprise. 

Earnings (or profits, or cash flow, or some other measure) are a key to calculating value.  In my case I’m valuing non-public, mid-size businesses and the measure is usually something called EBITDA, earnings before interest, taxes, depreciation and amortization.  Whatever the particular measure, it is based on the assumption of profits—in the future.  Value is always a guess about the future.

This week’s blog might seem entirely off my normal subjects of books and writing; but I will connect the dots at the end of this article. 

The over-hyped and inflated value of the stock market has created an unreal (or unsustainable) expansion of market value.  Because I have a good sense of how non-public companies are valued, the public companies appear to be super over-valued.  The why of this is due to the vested interest by almost everyone in an over-valued market.  Politicians want a hot stock market so they can claim it is because of their wise policies, all of Wall Street wants a thriving market because they make money, investors want a growing market because, duh!  No one wants a down market (there are some marginal players who bet on a down market but are a relatively small group), so all of the hype is promoted by almost everyone.  No one suffers from an over-valued market, or so it seems.

Except, it is not based on any viable measure.  The most common measure on public stocks is price earnings (PE).  This is a common sense measure of the return in profits as a percentage of the price of the stock.  So what would be a good return on the stock; 10%, 20% or what?   The PE does not give you the percentage, but the number of times the stock is of earnings.  So earnings of $1 with a PE of 10 would be a stock price of $10.  A PE of 10 is a 10% return.  A PE of 20 is a 5% return.  A PE of 50 is a 2.5% return.  This is a list of some of the top companies selling at a PE of 50 or more (that is a 2.5% return or less):

  • (AMZN)
  • Liberty Global (LBTYA)
  • (CRM)
  • Tesla Motors (TSLA)
  • Netflix (NFLX)
  • Vertex Pharmaceuticals (VRTX)
  • Twitter (TWTR)
  • Illuminata (ILMN)
  • General Growth Properties (GGP)
  • Prologis (PLD)

It is very unlikely a private company would sell at anything close to those PE ratios.  Because a large portion of that value is based on speculation.  Speculation is the anticipation that you as an investor can sell the stock you purchased at $1 for $10 in the future.  So that speculation is based on your perception of the rise in value of the stock, which is not necessarily tied to any kind of earnings.  You hope someday in the future an investor (sucker?) will pay 10 times what you paid knowing (mostly likely) that the company’s earnings or assets or any measure of value will mostly likely not grow all that much.  Your investment is a leap of faith based on market hype.  But, you might say, lots of people make a ton of money doing just that!  And, yes, they do; until they don’t.

In my private company mid-sized world, a common measure of value is a multiple of EBITDA.  In most industries the value of a business will be in a range of 4 to 6 times adjusted EBITDA.  There are exceptions of course, but on average that range will cover it.  The EBITDA multiple for public companies is readily available; so these are a few of the above companies EBITDA multiple:

  • Amazon  27
  • Netflix  64
  • Prologis  31
  • Twitter 22

In most cases public companies will always be worth more than private companies (no reason to get into that briar patch—no doubt you’re already wondering when this will end—soon.)  But if a private company’s higher end value is based on 6 times EBITDA; how can a company like Netflix be worth 64 times?  The simple answer is that under any normal economic measure, it isn’t.  What creates that higher value is speculation—the hope a future investor will pay you more for the stock you purchased—regardless of the underlining economic factors. 

At some point this overvalued reality will become evident and the whole mess will collapse.  The bubble will pop.  In case you’re wondering, I have no idea when that might happen; I just know it will.

This is an oddball way of letting you know that I’m in the process of writing some business books.  Some of you may be aware of my background (CPA, CFO and other initials without much meaning), and understand that a murder mystery writer penning business “how to” guides is not completely farfetched.

At one time when I was considering this, I thought about using a pseudo-name for the business stuff; so not to confuse readers of Ted Clifton’s mystery books.  After a little thought, decided that was just stupid.  So I write mystery and non-fiction business books, it may be odd to some but not to me; so I will use my real name and assume the readers can tell the difference.

The first book in the business series, which will be under the series name Success Paths, will not be out until the latter part of 2020.  These books will have little value to you unless you own a business or are starting a business.  Of course, there may be people who just buy business books for their entertainment value, but that’s got to be a fairly small group.  For those people, I would highly recommend my mystery books, easier reading and definitely more entertaining.  As the Success Paths business series progresses I will keep you advised. 

Thanks for being a reader!