Managing the Unexpected Risks of Entrepreneurship

Introduction:

This week, Paul Downs and Jay Goltz talk about the risks they didn’t see coming. While everyone knows there’s a risk that a business can fail because it just doesn’t work, there are lots of other, less obvious risks. These are not the risks you lose sleep over, but they’re real, and if you don’t manage them, you can expose yourself needlessly to a slew of problems. Because most people learn about these risks the hard way, Jay and Paul set out to create a top 10 list of them, but I think—for those of you keeping score at home—we actually hit 11. Which led Jay to caution: “I by no means am telling anybody, ‘Oh my God, I don’t sleep at night. I’m worried about all these things.’ I’m not worried about them. I just keep an eye on them.” Wait, says Paul. That’s another one: “The risk is that you let this thing live in your head and that it destroys your ability to focus on what you should focus on.” Okay, so that makes 12. And by all means, please let us know which ones we missed.

— Loren Feldman

Guests:

Paul Downs is CEO of Paul Downs Cabinetmakers.

Jay Goltz is CEO of The Goltz Group.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome, Paul and Jay. I’ve got something slightly different in store today. I don’t know what we should talk about, and I thought I would just throw it open to you veterans and see what we come up with. What’s on your minds?

Jay Goltz:
So, my topic of the day could be stuff that you wouldn’t necessarily know. What are all of the risks that we face every single day that I would have never been able to make a list of 30 years ago that have come to pass, that I recognize there’s probably 10 different things that we have to keep an eye on to manage our risk?

Paul Downs:
That’s a good topic. I mean, one that I’ve been worrying about are the federal cyber security protocols described by NIST 800-171 P, which anybody doing business with the Department of Defense needs to comply with. And these are extremely complicated and expensive things to deal with. And I’m kind of on the fence about whether I actually am subject to this or not, because it’s certain kinds of information that get handled that require you to have these protocols. And other kinds of information that we mostly deal with, you don’t need it. That’s a risk—the whole cyber-security thing.

Loren Feldman:
What you just described, does that fall under the rubric of managing risk? Or the rubric of jumping through the hoops you have to jump through to do business with the government?

Paul Downs:
Well, the government is asking us to jump through hoops because there is actually a risk. I think that we’re all aware of the things that can happen when you’ve got the internet attached to your business, which is, you’re subject to phishing attacks and various kinds of scams and your employees wasting time on the internet or selling gift cards to strangers. You know, there’s 10 million things that the internet brings. It’s a bigger attack surface on your company than you would have ever had like when I started. All I had to worry about was a padlock on the door.

Jay Goltz:
I had a computer guy once tell me—and he was dead serious when he said this—that the number one risk to bigger companies is one of the executives has their kid come to work with them on a Saturday, and they leave them in the office by themselves on the computer. And they go to deal with something, and the kid goes on the computer and goes on to some sites they shouldn’t be going to. And the next thing you know, the entire company has been attacked. And he says it happens all the time. So,you’re right. It’s a way bigger platform to get attacked. So that’s certainly way up there on the list, just the whole cyber security.

Loren Feldman:
It doesn’t have to be your kid, though—your employees do that kind of stuff all the time.

Jay Goltz:
Yeah, absolutely. I’m just going, that’s one you don’t think about.

Paul Downs:
You train your employees, but you don’t train their kids. And I do have a policy where people can bring their children to the office, and we don’t necessarily invite them to access our servers, but they’re in our network with their iPads or whatever. I’m not really aware exactly how a kid’s iPad would take us down, but there’s probably a way.

Jay Goltz:
Well, that’s one. Should we move on to 2, 3, 4, and up to 10?

Loren Feldman:
Well, what’s your biggest concern right now, in terms of managing risk, Jay?

Jay Goltz:
I wouldn’t say it’s necessarily my biggest concern, but it’s just ongoing: People need to realize that you’ve got employee-lawsuit potential at any time. And you need to be aware of what the laws are for what you can ask in an interview and what you can’t ask. I understand that most companies can’t afford a full-time HR director, but that doesn’t mean that you don’t need to be aware of what the hiring laws are. So I think it would be in everyone’s best interest to go to a seminar, to maybe hire a labor attorney for a few hours to go through it. There are some basic things that you could get in some serious legal jeopardy with, like I said, just interviewing people. There’s lots of stuff you can’t ask people in an interview that people are not aware of.

Paul Downs:
You know, there’s one tool you can use prior to an interview that’s a relatively recent thing, which is just using a ChatGPT-style AI interface to say, “Hey, I’m in this state. What can I ask/not ask on an interview question?” You’ll get an answer in about two seconds.

Jay Goltz:
Will it be a right answer?

Paul Downs:
It’ll be right enough for something like that. Where ChatGPT is looking at settled law, I would trust it more than something like ChatGPT’s opinion of the Eagles’ quarterback or something where it just could be made up in any old way.

Loren Feldman:
I’ve heard that conversation about what you can do in a job interview over and over again. I’m not saying it doesn’t happen and I’m not saying it’s not important, but I don’t think I’ve ever heard of a lawsuit specifically over an issue like asking somebody about their salary history, which is no longer legal in many states, that kind of thing. How do you assess that risk? Are you aware of lawsuits like that?

Jay Goltz:
There clearly are. I haven’t had one, so it’s not that, but I’m sure they are out there. The point is, why expose yourself at all? I mean, you just should be careful, and the law keeps changing.

Loren Feldman:
We’re talking about managing risk. I’m trying to figure out—

Jay Goltz:
But we’re also talking about how society has gotten more litigious, that people now have friends who go, “Oh, you should sue them.” I mean, if you would have complained about an interview before or getting fired, your friend would go, “That’s terrible.” Now the first thing they’re going to say is, “Oh, you should sue them.” I mean, the newspaper is filled with lawsuits regularly about this kind of thing.

Paul Downs:
Can I reframe this conversation in a different way? Which is that, hiring is one of the things that you have to do as a business owner. And there’s going to be a point, if you start a little, tiny business, and you’re sort of operating totally however you feel like it, and you start to grow and you start to add people, there’s a point where you have to build procedures to do things that you have to do over and over again. And when you don’t do that, you’re increasing your risk of whatever the task is.

So, hiring could be one of those. Firing could be another one. Internal operations, evaluations. There’s a million different things that, if you have not sat down one day and said, “This is how I want this to go. Each one of these should have these steps. These are the boundaries,” you’re just at risk of, A) if you tell somebody to do it without a procedure in place, they may do whatever the hell they think. Or you may do that if you’re in a bad mood. And then if you add to that the likelihood that as you get more and more employees—and even if you don’t have a big crew at any given time, just being in business. Like, I’ve been in business almost 40 years, and I think that if you added up all the employees I’ve ever had, it’s 200-some at this point, even though I only have 28 now.

So, the more people you’re encountering, the higher the chance you’re going to get that bad apple. And I had a brush with that in the last two years, because I hired an employee who turned out to be sort of a grumbly person. And I knew her previous employers, and had asked them. I always call about references, just like Jay tells me to. And they gave me the goods and the bads and kind of hinted at, “This person is a grumbler.” But we needed someone, and they all said she was a good craftsperson and I’m like, “Great.” So we got her in here, and sure enough, she turned out to be a grumbler. And eventually she quit.

But I had always been very careful to make sure that all interactions were just about the job. And when she got to her next employer, that person anonymously emailed me and said, “Boy, she’s been complaining about you. Watch out.” But nothing actually has happened from it, because I had been kind of like, “Let’s make sure that we’re managing somebody fairly all the way through.”

And I think that that’s just an example of how not thinking about your operations is a risk. When you do things by the seat of the pants, that’s risky. And when you design procedures and manage and train and act like a big person, like a grown-up, you’re running a company. You have to do these things, even if they may not be what brought you into the business. Like, I like to make things out of wood. I spend zero hours a week doing that now, and all of it is spreadsheets and management.

Jay Goltz:
That’s kind of the point. That’s most people’s story, and the point is, this is called 21 Hats. Those are two of the hats: hiring and firing. When I do speeches, I say, “None of us went to boss school,” and everyone would laugh. But it’s true. If you went to boss school, they’d tell you, “Here’s some outlines for hiring. Here’s some outlines for checking references,” and I agree with everything you said. The one word you didn’t say was needlessly exposing yourself. It’s needlessly exposing yourself. A little bit of energy on the front end, you can avoid putting yourself out there.

So, hiring is the number two exposure and, three, you’d better understand the laws about firing. And to be fair, part of my perspective is my daughter-in-law is a labor attorney, so I hear the stories from her, and they’re pretty horrifying. And I’ve helped her out as a lawyer, helping coach her, because some of the stuff is so easily avoidable. You just say to yourself, “They did what?” I mean, stupidly said stuff that just came back to haunt them. So I do think it’s worth—whether it’s buying a book, going to a seminar—if you’re hiring people, you should get a little training on that.

None of these things are everyday horrible, but if you add them all together, you’ve got some exposure to risk. And to get back to your point, Loren, you’d say, “Well, how much do you hear about that?” I would say, add all 10 of these exposures together. Yeah, I bet you, once a year, something happens. I mean, that is the reality. So if it’s not one thing, it’s the other thing, and we need to try to stay ahead of it.

Paul Downs:
So, managing employees is actually a big risk. I would say another one is managing customer risk. We do a lot of business with various municipalities, and a lot of times, the terms of the deal are going to be: We’re basically going to finance it. Now, when it’s the federal government who tells me that, I’m like, “Fine, I know you’re going to pay me.” I’ve been down this road.

When it’s a little city in Arizona, their human services department issues a PO, and you kind of hope for the best. But then, at the end of the day, you may or may not be able to easily get paid, because the one person who issued the PO has now quit, and everybody else hated them. And there’s a lot of things that can go wrong, even with things that look like they’re good, and can leave you hanging out there after you’ve done work.

Jay Goltz:
So, make that number four, which is a very good one: giving credit. That’s a huge risk, and you can’t be naive with that. You need to understand how to manage that. And should you be giving them credit in the first place and getting a credit app signed, knowing who’s responsible? And basically, of these 10 things, I’m going to say, I don’t know that there’s any one of these 10 that I haven’t had a problem with over the years. Maybe only once in 46 years, but each one of these is another exposure. So, receivables is a very good one. That’s four.

Loren Feldman:
What did you figure out?

Jay Goltz:
I make sure my employees know, before someone gets credit, there needs to be a credit app filled out. And either the controller needs to sign off, or if it’s some gigantic company, just have me sign it. I’ll sign it, but somebody needs to sign off on it, because you just don’t give credit to any company that shows up and says, “Oh, I want to get 30 days.”

Paul Downs:
We have much less problem with companies, honestly. It’s not not getting paid, it’s when you get paid. And what is trickier is if you’re dealing with municipal and government authorities, because they have a budgeting process. They issue you a PO. It’s not like they’re defrauding you. It’s just that the wheels of payment may be very, very slow.

Jay Goltz:
Okay, well, I’m in retail. I frame thousands of pictures a year. There’s a rule I’ve had for many, many, many years: Everybody leaves a deposit. I mean, we’re not going to start framing a picture and not get a deposit. And if the customer goes, “Well, you’ve got my artwork.” Yeah, we can’t sell your art. We don’t have those arguments, and customers just pay.

And I’ve told many frame shops, when I do speeches at the frame show: You need to start getting deposits. Because the problem is, sometimes they bring something to get framed. It costs more than they thought, and then they change their mind later. And they just never pick it up, and you’re sitting there with their art forever, and it’s bad. So getting paid, I would put that as number four, for sure. Getting paid, that’s a good one.

Paul Downs:
My very first conversation with a government buyer was with a guy from the Navy, and this was back, maybe 2004. And we talked about a project, and I gave him a quote, and he’s like, “Great, what are your terms?” I say, “Well, we get a 50-percent deposit.” Boom, phone goes out. We’re the Navy. We don’t pay a deposit.

Jay Goltz:
No, I got it.

Paul Downs:
Nobody in the federal government does. So if I didn’t get my head around that, I wouldn’t do any of the business that I do. The business would be half the size it is. Because not only does being willing to accept those terms open up new markets for you, but it’s a basis of future growth when you get word of mouth, which doesn’t work great in the furniture industry, but it works great in some contexts, particularly military.

Jay Goltz:
Here’s a subtle thing that you wouldn’t wouldn’t have known: This was years ago, and some places don’t take American Express because they charge more, and I decided I was going to take it. And I didn’t used to, so I started taking American Express. And right after I started doing it, a customer actually said, “Oh, I’m so glad to see you’re taking American Express now. I used to just bring in my personal framing, and now I can bring in the company framing.” Because all she had was the American Express card. So I tell people: The difference in rate between American Express and Visa/MasterCard, it’s not that much. I am confident you’re losing business if you don’t take American Express. That’s one of those subtle things you figure out along the way, so it’s about managing your risk. So that was four. We ready for five?

Paul Downs:
Yeah. Insurance, right?

Jay Goltz:
Insurance has gotten very expensive, way more expensive than it used to be, and my insurance bill is hundreds of thousands of dollars. I just sat down with the broker, and I realized I’m over-insured. I’ve got too much insurance for too much exposure, and I wasn’t paying enough attention to it. And you really need to drill down every year. How much inventory do you really have?

For instance, the one I caught was: Oh, well, they’ve got $500,000 of insurance for art that’s in the van. I said, “I couldn’t fit $500,000 worth of framing and art on a van.” I cut it to 100, so there’s a few thousand bucks. And then my sprinkler in my building is 100 years old, so they’re not counting it as a sprinkler building. It’s costing me a fortune, but the cost of putting in the sprinkler’s a lot. It’s a job. Again, it’s one of the 21 Hats: insurance. It’s something you need to manage.

Paul Downs:
I think one that people might want to look for in insurance, that I ran into this last year, is the policies that I buy in Pennsylvania, we get a premium estimate at the beginning of the year, and then they run an audit procedure.

Jay Goltz:
That’s for workman’s comp, right?

Paul Downs:
For workman’s comp, and also for liability. They want to see what your actual sales were. And what I found is that I got a big bill at the end of my audit last year, and I was like, “What the hell is this?” And I looked carefully and they had misclassified all my employees as being in a carpentry situation, as opposed to a furniture manufacturing situation. And what that meant is the workman’s comp premium for carpenters was something like 58 bucks per hundred, and the workman’s comp for furniture manufacturing is $2.30 per hundred.

Jay Goltz:
Which is still high, compared to other stuff, because I’m in that world too. I had to take people out of woodworking, to what you’re talking about, and say, “Wait, they’re cutting mats. That’s not woodworking.” And it was a huge number. I took a bunch of employees and said, “Okay, they’re not woodworking.” That’s another thing.

And then I don’t think to this day, there’s still a category called picture framing. So every picture framer in the country has a different insurance person sticking it under some category. And maybe you’re not paying attention to it, so that’s absolutely something worth looking at.

Paul Downs:
Yeah, I mean, the risk is that when you initially set up your company, and if they’re doing any kind of production, you want to check and see what the insurance agent said your labor class was .Because you’re paying very, very different rates on workman’s comp, depending on what they think that job is.

Jay Goltz:
Office workers is like a half a percent. And to your point, woodworking is five-and-a-half percent. Well, if they put it in the wrong category, it might not be a million dollars, but you might be blowing $300 a year, $500 a year, on each employee, and it adds up.

Loren Feldman:
I highlighted an item in the Morning Report recently that it’s become routine for families with kids to have $20,000 car insurance bills. I’m wondering if there’s a similar impact on businesses that have to own a number of cars?

Jay Goltz:
Given I just looked at it about 20 minutes ago, I’ve got 12 vehicles. Not the problem. The insurance on all of my vehicles is 33 grand. Yeah, 12 vehicles.

Paul Downs:
Actually, I just switched a vehicle that I use sort of both ways to company coverage, because it turned out that I got, for the same money, much more liability and this and that and the other thing, that I was not getting from my private insurer. So, I usually ride my bike to work. That’s my main travel. When I travel in my car, when I get in my car anywhere, it’s almost always business travel. And so, with a straight face, I can say, “Yeah, the business could cover this car.” And so I’m paying 1,200 bucks either way. But, one, I’m getting $5 million insurance and liability and every kind of bling on it. And the other one was limited tort, which is basically nothing. And so that’s something that’s worth looking at.

Loren Feldman:
What about health insurance?

Jay Goltz:
Huge exposure.

Loren Feldman:
Do you know what’s going to happen for next year?

Jay Goltz:
It keeps going up, and if you have someone who works for you—

Loren Feldman:
I know it has been going up. Have you actually gotten a package?

Paul Downs:
We haven’t gotten ours yet.

Jay Goltz:
Yes, but the point is, I’m big enough that I have a person who does this. They’re in HR and they deal with it. Most companies don’t have an HR department. Well, what if you hire somebody, and the person who’s in charge of the insurance—it could be the owner. It could be the owner’s assistant—you’ve got someone who really isn’t skilled in it, and what if they forget? What if they forget to change someone’s insurance to family or something, and then something terrible happens? It could be a nightmare.

So, health insurance is absolutely a huge risk. Is someone staying up with the policies and making sure that everyone understands what they have and they’re signed up? I actually think I’ve got a little insurance for something on that. I think there’s an insurance you have if something gets messed up with that. But that’s another huge—now, is that going to happen every year? No, it might not happen for 20 or 30, years, but it certainly could happen so add that to the list: health insurance.

Paul Downs:
Yeah, health insurance is very complicated, and I took the opportunity when I was writing for you, Loren, to really dig into it. And so I have a pretty good understanding of what I’m buying, but it’s not an easy market, because the big insurers will basically lie to you about what their offering is. And they also collude within a market to make sure that you can never directly compare the products of two different companies. At least, that’s how it works in Pennsylvania.

Loren Feldman:
One of the things I’ve been curious about: You read all these stories about the new weight-loss drugs and how expensive they are and how a lot of policies do not cover them. But some do, and at least at larger companies, you have a lot of employees who are demanding that their large employer cover those drugs. Has this been an issue for you guys at all?

Jay Goltz:
I haven’t.

Paul Downs:
No, my employees walk an average of six miles a day on the shop floor.

Jay Goltz:
What about their kids and wives and husbands, though?

Paul Downs:
Well, I have one who’s on the larger side, and he tried the drugs for a while. You know, I actually don’t know—I think he was covered by his wife’s policy, so it didn’t show up for us. But I have a feeling that this is something that’s going to work itself out over the next 10 years, that the companies that are producing these drugs are going to do everything they can to keep the price up. And because there’s such a demand for them, there’s going to be political pressure to bring the price down, and it’s just going to work itself out some way.

Loren Feldman:
Jay, you have 130-plus employees. Why do you think it hasn’t been an issue for you?

Jay Goltz:
First of all, maybe it is. I haven’t checked lately. I haven’t heard about it. I’ll have to get back to you on that one. I don’t know. I don’t think we’ve had any issues. And maybe if it’s not covered, it’s not covered. So, I don’t know why I would have heard about it. I mean, if somebody is out there who did try to get the drug, and it’s not covered by insurance, I don’t know why I would have heard about it. They just would have not done it or something. But here, let’s move on to the next one. What’s the best way of burning your building down? What do you think?

Paul Downs:
The best way? Set it on fire.

Jay Goltz:
You could be the greatest business person in the world, and do everything right, and like, all it’s going to take is somebody, “Oh, my feet are cold,” and they plug their space heater into three extension cords wound around the thing, and the next thing you know, your building burns down. Space heaters are extremely—especially in a place where they’re plugging them into cords. I’m not a fireman, but I would guess that that’s one of the leading ways of burning your building down. This is a problem.

I have got a big building that, you know, the heat isn’t exactly right. And sometimes it’s too hot in one area, and too cold in others, and I have to regularly go check to make sure no one’s sticking a heater in. And then, “Oh, I unplug it at night.” Yeah, most of the time. It’s a problem. It’s a potential—everything you have could go up in smoke because one person plugged a heater into three extension cords. And so that’s a quickie, but something to keep an eye on.

Paul Downs:
Well, we run the space heaters all winter because my office is freezing, but we do have sprinklers in every office too.

Jay Goltz:
Okay, but at night, does someone go around and make sure they’re all unplugged?

Paul Downs:
I usually do. Not unplugged. Everybody knows that they should turn them off.

Jay Goltz:
But the question is, do they?

Paul Downs:
They do.

Jay Goltz:
Okay, you’re managing it. No, no, I got it. The point is, you are managing it, and that’s what you need to do.

Paul Downs:
I think that all of my staff is aware that we’re in a room that’s completely filled with dry wood and veneer, and it would burn like a pile of gasoline if anything happened. We have had fires started in a couple of machines. There’s certain machining operations where the sawdust gets packed down as the tooling hits it, and that can heat up and cause a fire, which happens to a lot of shops.

Loren Feldman:
Do you have to pay extra for your insurance because of what you just described?

Paul Downs:
No, I mean, my insurance guys have been in here because it’s a sprinkler building, and we keep the places clean. I mean, when we have insurance walk-throughs, everybody is like, “Wow, this place is sparkling compared to most shops.” And so, I don’t believe I’m being downgraded on it. My insurance just isn’t—let me see what I paid for everything last year. It’s just not a huge percentage of our—

Jay Goltz:
Mine is. My insurance for everything is running about a percentage and a half of my gross sales. That’s workman’s comp, you know, fire insurance, everything. That’s a real number.

Paul Downs:
Yeah, I was 1.02 percent.

Jay Goltz:
Okay, not that far off.

Loren Feldman:
Jay, what do you think it was 10 or 20 years ago?

Jay Goltz:
I know it was less because this sprinkler thing didn’t come up. They tell me my sprinkler system is too old, even though I have a brand new pump. The pipes are old. It has to have gone up. Well, I know what the number is, half a point. It probably used to run 1 percent of sales, and now it’s running one and a half percent of sales.

Can we move on to the next one? I got more. I told you 10. I don’t want to short-change you. The whole, you’ve got a website, and someone goes after you because it’s not ADA-compliant.

Loren Feldman:
We’ve talked about that a couple times.

Paul Downs:
Yeah, after that show, I actually went to my guys and said, “Here, take a look. Fix it.”

Loren Feldman:
And what did they do?

Paul Downs:
Charged me 500 bucks and went through it. I think if I got sued by those people, I would just say, “Listen, for five grand, I’ll write you a check. Get the fuck out of here.”

Jay Goltz:
That’s pretty much how it works. No, they’re trolling for business. That’s pretty much how it works.

Loren Feldman:
I hope you didn’t just invite a lawsuit, Paul. [Laughter]

Paul Downs:
Well, what are you gonna do? They’re out there. You know, the risk is not so much the five grand or the crazy actors out there. The risk is that you let this thing live in your head and it destroys your ability to focus on what you should focus on.

Jay Goltz:
Yeah, I by no means am telling anybody, “Oh my God, I don’t sleep at night. I’m worried about all these things.” I’m not worried about them. I just keep an eye on them. I just—it is out there, though.

All right, so here’s one, which you for sure have: just the workman’s comp. Somebody could get really hurt. I had a guy, years ago, there was a pile of Plexi—like, I don’t know, 20 sheets of Plexiglass, which we use. It fell on him, and he got hurt, and then someone tried to pull him out from under the pile, and they screwed up his rotator cuff because they yanked on his arms. So, like, safety. Now, if you’re in an office, probably not much exposure, but people fall downstairs. Lighting? Are the stairs marked properly? Is there a good banister? Just safety: People get hurt at work.

Paul Downs:
We have an ongoing safety program, and then I also give all new employees a talk about workman’s comp. Like, “Guess what is the most common injury?” And they’re like, “I don’t know.”

Jay Goltz:
Carpal tunnel.

Paul Downs:
No, a new person with a knife in their hand slices themselves up and needs stitches.

Jay Goltz:
Oh, that’s funny you say that, because when I was in college, I cut my finger. I was working in a fuse factory, and I reached in there, and there was a sharp thing. And I immediately, right after getting the job, had to go for stitches.

Paul Downs:
Yeah, so we’ve been, I think we’re up to about 2,200 days without a lost-time injury right now.

Jay Goltz:
Just people changing tires. No one tells them, “Don’t pull the wrench up towards your face when you’re loosening it. Push down.” It happens all the time. You know, you got the wrench on there, and it snaps off—little stuff like that. So, yeah, there’s all kinds of ways of getting hurt. What are we up to, nine?

Paul Downs:
I gotta contribute one. Jay’s been doing all the heavy lifting.

Jay Goltz:
Go ahead.

Paul Downs:
Now, I gotta think. Let’s see, we did customer risk, payment risk, insurance. What are the nine we got, at this point?

Loren Feldman:
I’ll let you know when I publish it.

Paul Downs:
All right, burnout. How about that? That you’re going along, and you just sort of hit the wall, either you or one of your employees. The employee is suddenly quitting. That’s a risk, because you may have built your operations around: This person does this thing so well that I just don’t think about it anymore. You don’t actually know what they’re doing. You don’t actually know how it gets done. And you don’t realize that their performance is degrading or something is going wrong. And then one day, they walk in, they’re like, “See you later.” And then what do you do? That’s a constant risk, one that I mitigate by always making sure that we have two people who can do critical operations.

Jay Goltz:
You have a bench.

Paul Downs:
Yeah, and it’s hard to do that when you’re really small, because the smaller you are as a company, the more likely somebody is doing eight things. And the less likely it is that the boss understands what those people are doing.

Jay Goltz:
All right, let’s make that one number 10, and let me fill in eight and nine.

Loren Feldman:
Well, wait a second. Before you leave that, Paul, have you ever felt like you were hitting that wall?

Paul Downs:
I feel like I bounce off the wall at intervals, and the amplitude and the magnitude of the force of hitting the wall has been lessened as I’ve become a better boss and the company has gotten larger. There is a phase in the growth of a business where you’re trying to do whatever tasks you have to do and manage the business and deal with employees where there’s like a maximum stress. I think it’s about 12 employees for me.

Jay Goltz:
I’m right there with you. That’s when I was just like non-stop. I just couldn’t put out the fires fast enough. And at that point—I was probably in my early 30s—I started to think, “Oh, I guess this is what business is. You’re supposed to put out fires all day long.” And I was wrong.

Paul Downs:
And you may well, at the same time, when you’re in your early 30s, be starting a family. And then you’ve got all that going on.

Jay Goltz:
Yeah, no, I got it. Right where I was at.

Paul Downs:
Now, at age 62, I’m much better at managing the business. The business is bigger. It’s more resilient. We have a better place in the market. We make more money. It’s just that stress can go down, if you do the right things, and if you can get your business over that hump. But there’s going to be a moment when you’re really in it, and it’s just hard to do anything but just get through it.

Jay Goltz:
Stress should go down because you get better at running the place. You hire better people. You keep better people. You train people better, and you start to figure out how to keep them. And I tell people to make them feel better when they’re torturing themselves. This doesn’t take five years. I would say I was, quote-unquote, out of control for probably 15 years. And I didn’t have a mentor.

If I had myself to tell me now, I could have saved myself a lot of grief. And I tell people all the time: It’s largely hiring and firing, largely. My big line that people always like is, “If you’re putting fires out all day long, get rid of the arsonists.” They’re not necessarily bad people. They just can’t do the job, and it’s going to continue to cause you grief. So, hiring and firing properly does decrease the stress dramatically.

Loren Feldman:
So, how many do you think we’ve gotten to, Jay?

Jay Goltz:
I think we’ve got eight, but I’ve got two more easy ones: stealing. People steal. I mean, not a lot, but there are people who steal, and you do need to put some controls in. I knew a law firm that the office manager used her credit card for hundreds of thousands of dollars of charges for her personal house, and they weren’t paying attention to it. So, it does happen, and you need to think about how to keep an eye on it. It’s not like in the old days. It was a cash register, maybe, and you just made sure no one took cash out of the register.

Another business: I knew a guy, his CFO—this was a big company—they leased cars. When someone would turn their lease in early, he would say, “Oh, you know what? I’ll let you out of it. Just send a check to blankety blank,” and he pocketed all the money. He stole like a million dollars over four years from this guy, and he sued his accounting firm because they were supposed to watch it, and he spent another half a million dollars, or some crazy number, in legal fees. And he lost, because the accounting firm had in their agreement that if the owner or the CFO is doing the stealing, they’re not responsible for the audit. So this cost them a lot of money, and that’s the worst example, but there are smaller examples. You need to put some controls in place. Did you have anybody ever steal anything from you?

Paul Downs:
I’m sure I have. I mean—

Loren Feldman:
That you’re aware of?

Paul Downs:
Yes, the ones that I’m aware of are employees falsifying their time sheets. And so that’s an instant fire.

Jay Goltz:
Tools?

Paul Downs:
Tools? We have so many tools in this shop. You wouldn’t believe it. It’s just like your place. There’s just thousands of them. And so I’ve come to the conclusion that it’s actually cheaper to just let some stuff disappear than to actually implement all the procedures that would be required to manage that and prevent it. And I’m not sure it would prevent it anyway. We have, as far as I know, a pretty honest group of people, and so it’s never—it’s not zero, but it’s not anything that bothers me all that much. I think people take stuff home and just forget they have it or something.

Loren Feldman:
Have your attitudes toward risk changed a lot through the years?

Paul Downs:
I would say, I’m willing to take small losses more, because in the overall context of the size of the business, it’s peanuts. And the other thing is that you just get crustier. You kind of have to. You have to learn not to let every single thing bother you, and you have to be kind of cold-hearted about an evaluation of: Am I going to make a big deal about this thing or that thing? And I don’t really remember what I used to think about these risks. A lot of them I just wasn’t aware of, or they just didn’t exist back when I started. But I’ve become, I think, more tolerant of it because I’m better at managing it.

Jay Goltz:
You just learn to take things in stride, like, okay, it is what it is. I used to get all bent out of shape. “Oh my God, someone…” It’s like, you have to deal with it. That’s the point. If it happens, deal with it. That’s all. So I would say, what I think what we’re both saying is: Yeah, there’s some risk. It’s part of business. Deal with it. That’s all. Spend your time looking for business.

Paul Downs:
I think that the other part is to try to get your business in a place where it’s supporting you to the extent that you can take a small loss. If a $5,000 go-away check to somebody who’s hassling you is going to put you out of business, you’ve got a bigger problem than that person. And so trying to make sure that you’re building a prosperous, capable, resilient organization is the actual answer to all these risks. And that means you have to do a bunch of small things constantly. You have to be a manager, as opposed to just the brilliant leader or boss or whatever you went into the business thinking it was going to be.

At a certain point, somebody has to manage the organization, and at different sizes, that becomes a different answer to that question of: How do we manage this organization? As I said, at about 12 employees, you’re at the peak of the boss being stuck in it. Now, where I am, at 28 employees, I’ve been able to get out of all my operational roles. So I don’t really have too much more to do, besides sort of keep an eye on things and do the occasional HR stuff.

Jay Goltz:
Let me pay that off a little bit, because I 100 percent agree with you. And the reason is that once you start getting more than the 12, all of a sudden, you can pay someone more to be a manager who you couldn’t pay when you had eight employees. So yes, you now have a critical mass to where you can hire somebody to take some of the responsibilities from you, whereas that’s difficult when you only have seven employees. So yeah, that’s what happens. And then when you get to my size, I’ve got people in charge of every area, so I’m not doing a whole lot but doing interesting podcasts.

Paul Downs:
You get to be the Eye of Sauron. You just focus on whatever you focus on, and it’s nice. I like it. This is the best place to be when you’re running a business, is get it to a certain point. And okay, it took me a long, long time to get there, but that’s not everybody.

Jay Goltz:
Tell me how old you were when you’d say, “All right, I’ve got this under control.” How old were you?

Paul Downs:
I would say it was about 2018-2019. It wasn’t that long ago.

Loren Feldman:
So if it was five years ago, you were in your mid to late 50s.

Paul Downs:
Yeah, I mean, that’s sort of when I felt like: Okay, I’ve seen a lot. I’ve done a lot. I’ve gotten good advice. I’ve learned what to implement and what not, and I’ve learned how to do the basic things I need to do with the business.

Jay Goltz:
And you’ve made a lot of mistakes that you learned from.

Paul Downs:
Oh, of course. I mean, for decades. And that was because I started from a place of complete ignorance. And it took me a long time to fill in the gaps.

Jay Goltz:
But that’s because we didn’t have the benefit of 21 Hats.

Paul Downs:
No, that’s true.

Jay Goltz:
Now that 21 Hats is here, people can cut that learning curve way down.

Paul Downs:
I absolutely agree with that.

Loren Feldman:
And on this list that you guys have generated, all of the risks you’ve mentioned, I would say, they’re sort of the ancillary risks that inevitably come up if you’re running a business. But you haven’t mentioned anything related to the basic fundamental entrepreneurial risk of starting and building a business.

Jay Goltz:
Everybody knows those. I would argue that the 10 things we listed, most people, including me, would have never even thought about when they started their business. So, that’s why we’re trying to fill in the blanks.

Loren Feldman:
Do you think about that differently? Does it all fall into the same category of risk, or is entrepreneurial risk one type of risk that you think about completely differently than these?

Paul Downs:
Everybody comes to it from a different place, too. When I started my business, I was a kid. I had no obligations. And so I’ve been sort of boiling the frog as I went along. The risks for me starting a business in 1985 were pretty much zero, like it either was going to go or it wasn’t. And what do I have to lose? Nothing.

And so if you have quit your corporate job and just emptied out your 401(k), and you bought a bagel shop or something, now that’s a risk. Because you don’t really know whether you know what you’re doing, or whether it’s going to work. And I think that one risk we haven’t talked about, too—and it’s a huge one—is: Does your business fit within the broader trends of what’s happening in the economy? In other words, are you fighting an uphill battle against vast forces that are arrayed against your product, service, offer?

Jay Goltz:
Are you selling fax machines?

Paul Downs:
Exactly. And I’ve benefited in the last few years from a real broad trend in my industry, which is, my competitors’ workforces are aging out. And so there just aren’t that many people who can do what we do. The number of my competitors goes down every day. And so we’re sort of like the default guys for a lot of projects, and that’s a tailwind that’s happening.

But if I was starting a woodshop today, I would have a whole different way of thinking about that, which is: Where are the people I’m going to need? And now I’ve been able to get myself into a place in the industry where we’re one of the most attractive places to work, so we’re sucking away workforce from other people. But if you’re starting from nothing and trying to establish credibility, that’s difficult.

Loren Feldman:
Now that you have something to protect—I mean, you’re not that kid who is just getting started with no obligations—do you look very differently at investing in your business? Do you think about that risk in a different way?

Jay Goltz:
Well, that’s funny you say that, because in my insurance meeting, I realized that if everything burned down, it’s very different at my age than when I was 40. I’d have to think twice: What am I going to do with the money from the insurance company? So yeah, I absolutely have changed the way I look at risk and about investing in stuff, and I don’t need as much insurance as I used to. And I have to tell you, it kind of snuck up on me.

Loren Feldman:
Because you could walk away if you wanted to, at this point?

Jay Goltz:
Now I could, but I couldn’t 20 years ago.

Paul Downs:
Yeah, I mean, I’m thinking about sort of the intersection of risk in your private and your business life, too. So I’m taking a big risk right now in spending a fair amount of money renovating my home so that it’s set up to be a place where my wife and I can age in place over the next 25 years. And that’s taking a large amount of my available cash, but I’m assuming that my business is going to support me over the next 10 years, that I know how to run it in a way that will get me all that cash back and then some, and then I’ll hopefully be able to sell the business.

So when you own a business, you not only have an expanded set of risks, but you also have a device that creates wealth, hopefully. And I think that when you get to Jay’s age or my age, hopefully you’ve built a wealth-producing asset that is somewhat predictably producing resources for you to deploy any way you want over the future.

Jay Goltz:
Or you have wealth, or you put enough money away somehow.

Paul Downs:
Now, I’ve never been able to do what you did, which was segment out a real estate investment from a business. Like, that just hasn’t—a lot of reasons, but I’m still renting.

Jay Goltz:
Well, you didn’t have to. I had to. I was growing, and I can’t tell you I was that smart that I had some kind of global plan. I just, “Oh, I need a building. Oh, there’s a building.” So I bought it.

Paul Downs:
It’s pretty clear that any business you can start, if you can own some real estate along with it, that’s hedging your risk.

Jay Goltz:
I was going to make that number 11, which is: landlord. Your landlord, that’s a risk. Better to own the building: SBA loan, 10 percent down. Can’t say it enough.

Paul Downs:
If you can find a building you can afford. We’ve done the math on what it would cost to build or move, and it’s way more than it costs me to rent right now. So I’m just like: shrug. I’m paying that landlord whatever I’m paying them.

Loren Feldman:
You know, I had a feeling we would figure out some way to spend an hour chatting. Thank you both.

Paul Downs:
Yeah, get the old crusty guys here and let them rip.

Loren Feldman:
My thanks to Paul Downs and Jay Goltz. I appreciate you taking the time and sharing. Have a good week, everybody.