Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim Law Firm : Mergers & Acquisitions & Contractual Negotiation

Yesterday at 5:00, I found myself sitting in our conference room across from a very interesting gentleman. He was in his upper fifties, maybe 60, and carried himself as a professional. He explained that he had been in business for upwards of 40 years – that he had made some big mistakes, learned from them, moved on, and built a fairly successful business. 

He told me that the business that he had started had run its course and he wanted to start a new one, having learned from the mistakes of the old. In order to start the company, he decided to bring in 3 additional people. These people were friends of his, experienced in his industry, and possessed of the skill sets necessary to make the new venture run. My visitor had decided to divide 40% of the stock among them, retaining 60% for himself – enough, he felt, to keep control of the company.

He was convinced that giving out shares of the company was the only way to keep the group motivated, absent money to pay each person’s going rate. My visitor was wrong.

Recently, I wrote a piece in our e-mail series discussing the mistake of offering partnership at the outset of a business relationship. And whether the discussion concerns true partnership or co-ownership of a corporation or LLC, the fact of the matter is that co-ownership is a business marriage. And make no mistake, just like the real thing, a business divorce can be expensive and emotionally draining. 

For his part, my prospective client was asking his friends to invest their time and skill in a new business for little or no compensation. What he wanted was a way to show his friends that they would reap the benefits of their investment.   We explored a number of possible solutions, but what we decided upon was offering stock options.

People, you see, are unpredictable. Some may be highly skilled and great friends, but start working together and it’s a trainwreck. Different business philosophies, work ethic, or personalities can destroy a team that could not possibly look better on paper.   Stock options and a vesting schedule are two ways to put together an arrangement now which takes effect later. 

In this case, we could commit to an option to purchase stock in the company beginning in 3 years, discounted for each year the person had been with the company. Moreover, as incentives, other discounts to the purchase price could also apply, provided we took care not to trigger any unwanted tax consequences.

In other words, my prospective client could date before he got married. And in my experience, that’s a pretty good plan.

Questions? Comments? Concerns? Raise it for discussion on Facebook, Twitter, or LinkedIn.

For more information on our free e-mail series, click here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

“There is a difference,” I was taught, “between ten years of experience and one year of experience repeated ten times.”   I thought about this the other day as I contemplated the calendar change to 2011 and the fact that next year will mark my 25th year in practice. 

Everyday it seems like I see too many examples of companies celebrating survival, rather than progress. We regularly receive letters adorned with “our 10^th anniversary” ribbon stickers and see businesses using the phrase “since 1956” or some such instead of an actual message.   When I was a young attorney (maybe for ego’s sake I should say “younger” attorney), I was hoping to be made partner when the management committee told me instead “we’ve decided that you have to wait 3 more years before we extend an offer of partnership.” 

Now, granted I was young – younger than any of the partners by a long shot – but I had just as many clients and generated more revenue than most.   “Why,” I asked, “does it matter how many more sunrises I see between now and an offer of partnership?” I urged them to give me something different such as a revenue, performance, or even billable hour target to hit. But no, to them it was time. To me, this made no sense.

One of the real values of seeing another sunrise is the ability to leave behind the mistakes and absurdities that had, no doubt, been a part of your yesterday. But equally as important, with the sunrise comes the opportunity to build on yesterday’s lessons. Sometimes that’s painful in business.

Print out your customer list. Not a list of your most active or largest. Print out a list of all of them. Don’t just read the names, ponder them. As to each, are they enthusiastic about your work or did you make a cringe inducing mistake? Were you late? Were you, perhaps, a bit less responsive than you should have been? Are they loyal to you or are they casting a wandering eye across the business landscape wondering if they can do better? 

I have yet to find a business owner who, in his heart of hearts, can honestly say that he did right by 100% of his customers 100% of the time. 

So here are the questions: What are you going to do about the failures? Are you committed to learning? Have you created a company culture open to improvement? Can you begin a lasting and productive dialogue about your failures? Have you ever conducted a bloodless autopsy – one with a mission of education rather than the identification of a scapegoat?

In other words, in 2011, what will you have learned by the sunrise?

Questions? Comments? Concerns? Raise it for discussion on Facebook, Twitter, or LinkedIn.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

“I got a phone call this morning from one of our oldest customers. He fired us. After 20 years, he fired us. Said he doesn’t know us anymore. I think I know why.” 

The speaker recounted his phone conversation to his account reps, saying “we used to do business with a handshake, face-to-face. Now it’s a phone call, a fax, ‘get back to you later,’ with another fax, probably.” 

This United Airlines commercial was originally aired before e-mail and the advent of social media. First aired twenty years ago, in 1990, it still resonates. So many businesses are started by an entrepreneur, skilled in the producing the product or service that spawned the company. Customers came because of the skill and stayed because of the attention. As the owner of a small business, the founder could track every project and knew every client. When someone was upset; he knew it.

Growth has a way of making that kind of personal attention obsolete. Time passes and a founder looks around to realize that whole projects are being performed for customers he never met.   And what about the ones he knew – the ones who built his business or who inspired him to go into business in the first place? Chances are, they’ve been delegated. Delegated to talented people, to be sure, but delegated just the same. 

Sooner or later, the thought has to occur to these customers – your old friends -- that if they mean little enough to your company that they can be delegated, your company means little enough to them that they can go elsewhere.  

Looking ahead to 2011, most business owners set targets for growth -- more revenue, more customers, bigger projects, better distribution. But how many set goals reflecting stronger relationships, customer retention, and expressions of gratitude? 

Many years ago, I read a book in which the author urged business owners to “pay attention to the ‘fine’s.’” He meant that people rarely voice their complaints. When asked about service or the particular product they purchased, even when dissatisfied, they’d normally respond that things were “fine.” Not every customer can be counted on for enthusiasm. After all, there isn’t an infinite amount of enthusiasm to go around. But the silence and the “fine’s” speak volumes to those with a keen enough ear and enough focus to notice. 

So what are you doing to focus on client retention, rather than just growth? Studies indicate that a new client is 7 times more expensive in terms of marketing and advertising dollars than existing clients. The point is that it is much cheaper and more efficient to keep the clients you have than spend every ounce of energy trying to bring new prospects in the door. 

If you do not already track trends in returning business, 2011 is an ideal time to start. After all, nothing speaks to customer satisfaction more than repeat business. Even more than tracking it, look for the things that increase the pace of returning business over time. 

Perhaps, like those executives in the United Airlines commercial, you can forgo e-mail, faxes and phone calls, and, just once in a while, put in the time to travel even great distances for a handshake.

Questions? Comments? Concerns? Raise it for discussion on Facebook, Twitter, or LinkedIn.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

My wife is a product of Oregon.   So is her favorite beer, Bridgeport Coho Pacific Extra Pale Ale. Years ago, when she first made the move to join me in Maryland, I tried to surprise her with a case of Oregon’s finest. Unfortunately, the brewery did not ship product farther east than Colorado. It was not willing to make an exception in my case. 

Maryland law required that I first obtain a distributor’s license to facilitate the transaction. I did not qualify for one. I tried to get a few of our retail stores interested in serving as my proxy, but no one would bite. And as much as I revere Baltimore’s Natty Boh roots and tradition, the two products were hardly interchangeable. 

My memory of this failed gift came flooding back to me yesterday when I read Scott Calvert’s article in the Baltimore Sun reporting on the possible loosening of Maryland’s prohibition against direct shipment of alcoholic beverages. The Sun cited Maryland’s wine industry lobbyists as basing their opposition to direct-shipping on two arguments: (1) that direct shipment to consumers would make it easier for minors to obtain wine; and (2) aggressive out-of-state competition would imperil Maryland’s own wine retailing industry. 

We’ll leave the first argument by the wayside, saying only that on its face it makes no sense, given that how alcohol gets into the dining room liquor cabinet is much less significant an issue than the parentally-imposed controls over how it gets out.

It’s the second argument that attracted my attention.  According to the Sun, the Maryland wine industry lobby favors the existing statutory environment because it limits competition.   Now, I completely understand why an industry lobbying group would want to insulate its members from competition. In fact, I’m certain that there are very few businesses in the country that wouldn’t benefit from a little statutorily-imposed exclusivity.  

But that’s hardly the point.

The point is that a business in our economic system should be constructed to beat the competition, rather than rely on the law to do it for them. If a company is not able to articulate to its prospective customers at least one (and ideally three) clear benefits to doing business with it as opposed to its competition, then it deserves to lose those potential customers. Price, service, selection, trust, relationships, knowledgeable sales staff, value-added services, an expanded product line…something. These are the elements of successful competition – regardless of industry.

Friend of the firm, Mitch Pressman of Chesapeake Wine Company was exactly on point when he was quoted in the Sun article as saying that he welcomed the competition. He welcomed anything that would bring about an increased interest in his product. And it is precisely his confidence in his business, staff, selection, knowledge, etc., rather than a reliance on antiquated statutory protections, that positions him to overcome the competition. 

And that’s the way it should be.

Questions? Comments? Concerns? Raise it for discussion on Facebook, Twitter, or LinkedIn.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last week, I found myself reading up on Chanukah -- the Jewish Festival of Lights -- as my family and I prepared for the holiday.  As I looked for a new way to talk about the meaning of the holiday with my children, I began to realize the business lessons to be drawn from the symbolism used in the celebration.

Each night, a new candle is lit on the menorah.  On the first night, only the shamas (literally "servant") or highest candle is lit, along with one other, symbolizing the first night.  On the second night, the shamas is used to light two candles, and so on.  

It is written that the celebration is really about overcoming darkness, whether it be physical or spiritual.  A parallel can be drawn to business condition.  Particularly in these economic times, every business -- successful or not -- must fight to overcome inertia, old/bad practices, routine, or complacency.  Every business leader has to work each day to embrace and master new challenges, sometimes radically altering the way his or her company had done business for years before.

Overcoming the weight...and yes darkness...that constitutes resistance to change is a very real and daunting challenge.   The first light on the menorah, therefore, symbolizes how one candle, representing even the smallest positive change, is enough to overcome a world of night and darkness.

The lighting of the second candle shows how the light represented by that one small prior act now spreads.  This is a reminder that a single act -- a single positive change -- while not sufficient to accomplish a significant goal, can lay the foundation for more change.  The second light shows that we must redouble our efforts, even after the success of the last initiative.  

The lesson of the third light is consistency.  As the saying goes: "We did it once because we were inspired and a second time because we were encouraged by the first. This third time, we push back at the darkness because we are committed."  It is this third effort that expresses persistence and commitment to dispel darkness with light.

Upon reaching the fourth light on the menorah, we would find that we are halfway to fulfillment of our purpose.  This is point at which many worthwhile efforts find themselves sidetracked by distractions.  It is here that a leader must help the organization maintain focus by constantly asking the question:  "Does this help me achieve my goal?"

On the fifth night, we have achieved a majority.  The balance has been shifted from the old (darkness) to the new (light).  This is the most dangerous point in any process -- when the goal is in sight and people can become complascent, knowing that the path is now downhill.  Should the team spend too much time reveling in its accomplishments, it will ultimately fall short of its goal.  So it is here that the leader must demonstrate the importance of bringing light (change) to even the most remote corners of the company.  It is not enough to achieve a majority -- the goal must be completely fulfilled.

It is the sixth and seventh nights that are the richest in symbolism.  The Judeo-Christian heritage teaches that the world was created in six days.  By reaching the symbolic sixth night of any initiative, the leader has maintained a path long enough to bring about monumental change.  This is the time to check benchmarks.

Traditionally, the seventh day is a time of reflection.  Consequently, even though we may be in view of the goal, we have not quite reached it.  Near (but not at) the endpoint is a time to take stock.   Enough has been accomplished for us to review progress and make course adjustments to continue on. 

Finally, we reach the eighth night -- the time at which we have accomplished our goal of bringing about significant change.  Over the years, I have learned that nearly every culture has a holiday or festival that revolves around lights, whether electric (Christmas), candles (Chanukah, Kwanzaa and the season of Advent) or even lanterns in certain Asian traditions.  These festivals almost always seem to take place at the darkest time of year and serve to remind us of hope and of our own ability to spread light where there is none.

In the tradition of Chanukah, the use of the menorah through the eight nights of the festival, the teaching is that miracles can happen even though the road is long and arduous. 

In the management of any business, it strikes me that the teaching is the same. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link