Do You Really Want That Shiny Object?

Episode 104: Do You Really Want That Shiny Object?

Introduction:

This week, Laura Zander tells Shawn Busse and Jay Goltz about her eight-month roller coaster ride pursuing an acquisition. The deal would bring a new brand and profitable revenue at a reasonable price. To Laura, the creative challenge and opportunity are exciting—“really, really exciting”—but the financials are a concern. “Do I do this?” she asks. “Is it worth it?” And then there’s the broker, whose numbers don’t add up and who wants to collect his fee—including his piece of the earnout—immediately. Plus: Shawn explains how the rise of inexpensive design contractors forced his company to become a better business.

— Loren Feldman

Guests:

Laura Zander is co-founder and CEO of Jimmy Beans Wool.

Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.

Shawn Busse is co-founder and CEO of Kinesis.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Episode Transcript:

Loren Feldman:
Welcome Shawn, Jay, and Laura. Great to have you here today. Laura, we haven’t been able to talk to you in a while, because you’ve been busy chasing another acquisition. How’s that going?

Laura Zander:
Oh, what a great roller coaster ride. It has been a six-month, eight-month journey. You know, I was approached by a broker who said that there was someone in our space who was looking to get out. And I told him, “No.” I said, “I’m not interested, I don’t want to take something else on.” I’m finally starting to be able to get my life back. Huck is 12 years old, starting to spend some time with him, blah, blah, blah. So I said no probably four or five times. And then I talked to my team about it, and we had just moved into a new building, and it’s just too much, and it just wasn’t worth it.

Loren Feldman:
Laura, you said this business is in your space. You’re in a number of spaces. Which space are you referring to?

Laura Zander:
Well, in the yarn industry. I don’t want to get too specific, because it is a small industry, but it’s an area that we now have some experience with, and it’s a family-run business. So anyway, after a few months, this January or February, I finally kind of was beat down and was just like, “Look, sure, we’ll take it, but this is all we can afford to pay for it. This is all we’re willing to pay for it. We don’t want to go into debt to buy this.”

We don’t want to take the risk, because we just don’t know. It’s a business that’s been declining for a while. And so we think that we can turn it around but we didn’t want to put the rest of the businesses at risk, as well as a ton of money, blah, blah, blah.

And there’s definitely an ego play and an ego part of this, that, “Oh my gosh. I could be the hero again. And I could jump in, and I could flex my muscles and use our team, and we could show what we could really do.” So there was an ego part of it. There was also an intellectual challenge. For the last couple of years, particularly the last year, as we’ve really built the team that is managing the business in Texas—the last like six to nine months or so—that’s been going really well. And so I’m feeling pretty empty, and I’m like, “What do I have to do?”

Loren Feldman:
Empty?

Laura Zander:
Yeah!

Loren Feldman:
What does that mean?

Laura Zander:
Well, I’m just feeling a little purposeless. I don’t have challenges. I haven’t created challenges. I mean, the teams are running really well. And they’re running really well on their own, and they don’t need me. And so I’m like, “Hmm, what’s my purpose? What am I supposed to be doing?”

I went and visited Jay one time, and I saw that he does crossword puzzles—I don’t know if he does crosswords—but he reads the obituaries, and he goes into the office, and he’s just there. And I’m like, “Oh, so is this my job? Just to kind of be there and be supportive and a cheerleader?”

Anyway, having a bit of a midlife work crisis where—and crisis is too strong of a word. I don’t mean it that way. I just mean, this opportunity was like, “Huh, okay, maybe this is something I could dig my brain or dig my claws into and really take on and make an impact and try to turn this around.” And it was really exciting to think about. Really, really exciting.

Jay Goltz:
What she has described, I’ve lived through numerous times—that whole thing with, “Oh, I can do more!” And, “Oh, what a good deal! Oh, I’ve gotta take advantage of this!” She described exactly where I’ve been.

Loren Feldman:
Laura, can you tell us whether this company was more like your company in Texas, which makes yarn, or more like Jimmy Beans Wool, which sells it over the internet? I just want to understand why it appealed to you, and what it would have done for your business.

Laura Zander:
It would have increased revenue. Yeah, so we would have increased revenue. It’s in the yarn industry, so there’s obviously the creative side of it—designing patterns. It’s selling yarn, selling designs or creating designs, selling and just working with a whole industry. Again, a super small industry. So there’s a lot of crossover there, a lot of people who do all kinds of things. There’s wholesale, there’s e-commerce, there’s retail.

Loren Feldman:
Can you give us some sense of why this was worth buying, as opposed to emulating? Is it a brand?

Laura Zander:
There’s a brand, there’s a presence, there’s a customer list, there’s their relationships, there’s intellectual property, stuff that they’ve created over the years that’s been fantastic and would be really helpful. This business would have been helpful to us to all aspects of our business, partially financially—hopefully, if we could get it back on track—but also creatively. It would tap into a customer base that we’re not currently tapped into.

If you use the hotel analogy, Jimmy Beans is a very standard kind of Fairfield Inn Marriott. It’s nice, but it’s not the top end, it’s not the bottom end. Madelinetosh is this very, very quirky kind of brand, so it’s more Joie de Vivre, the boutique hotels that are interesting and fun. And this brand was neither of those. And so it would introduce us to a different audience that crosses over some.

Again, the financial side of it obviously has to work. Otherwise, it’s just not worth it. The creative side was really appealing and interesting, and I thought that our current team, our current employees, would really enjoy working on something different and fresh, because they’re creatives, and it’s something that’s made a mark on the yarn industry, and we didn’t want it to go away. There’s a little part of that.

Jay Goltz:
It became a really good deal. A really, really, really appealing deal. Like, my God, how do I not do this deal? It didn’t start out that way. So that’s the point: We get sucked into these things.

Laura Zander:
Yeah, that’s a great point.

Shawn Busse:
Okay, so it sounds like there was a real advantage, maybe financially—especially because the cost of money is low right now. Sounds like it would have expanded your market share. That’s a good thing. What was your take on culture fit and alignment between your organization and their organization?

Laura Zander:
That is something that started to get a little more complicated at the end, but it’s not a huge company. That wasn’t a primary concern. We would absorb a lot of it. We would be able to save a lot of money by doing things kind of our way and doing things in-house. So even if the revenue was the same amount, we could take it from not being profitable to being super profitable—not super profitable, but profitable.

They have relied, over the years, on a lot of consultants. And looking through their books, and getting to know them and the people who they work with, I am just reminded of how many consultants there are who come out of the woodworks who charge ridiculous prices and don’t do anything to really help the business. And so by not spending hundreds of thousands of dollars on things that they don’t need—and they don’t realize that they actually intuitively have the intelligence to do a lot of this stuff themselves—I think that we could make it a much healthier business.

Shawn Busse:
I’ve hired really terrible consultants, and I’ve hired really fantastic consultants. And I’m curious how you’re able to discern between that by looking at the P&L.

Laura Zander:
The P&L is a story, and I’m looking at the P&L for years and years and years, and you see where spending is increasing and decreasing. And I don’t know, I can just read it. You can tell exactly what’s happening. You can tell—

Loren Feldman:
Are you saying you saw the expense, but you didn’t see any results from the consulting work?

Laura Zander:
Yeah.

Shawn Busse:
What kind of consulting was it?

Laura Zander:
All kinds. I mean, multiple avenues of consulting: from HR to legal to marketing to website to accounting. And I just think they’re being taken advantage of, honestly.

Loren Feldman:
Laura, when you said that it was like a six- or eight-month roller coaster, did that time pass because of what you described—the deal getting better, and you getting more enticed, and more interested? Or were there other things that happened?

Laura Zander:
That’s a good question. I think the length of time and the reason that it took so long to go through this process—honestly, I think that’s probably normal. That’s been the case with some of the other stuff that we’ve done. There’s just back and forth. But a lot of that part of it was me being presented with the numbers in the beginning and questioning the numbers and finding out the numbers aren’t accurate—the numbers that the broker put together. And so then I’m like, “Well, if you can’t give me accurate numbers to begin with, how do I trust any of the numbers down the road?” Me saying, “No, not interested.” “Okay, well, let me come back with some better numbers.” [Laughter]

Shawn Busse:
Different numbers!

Laura Zander:
Yes.

Shawn Busse:
I’ll go get the other numbers.

Laura Zander:
Yeah.

Jay Goltz:
She’s got a punchline to tell here, and this isn’t it.

Loren Feldman:
Laura, can you tell us, how did you figure out that the numbers weren’t right?

Laura Zander:
I don’t know. I just know. I mean, you just look at it.

Loren Feldman:
They didn’t look legit.

Laura Zander:
No, they’re just not right. They’re like, Here’s what our average purchase is,” and after 20 years, I know what the average yarn consumer spends. I mean, I’ve seen all kinds of data. I know all kinds of shops. I know all kinds of manufacturers. I mean, I know what the range is.

Loren Feldman:
You just looked at them, and on their face knew that they didn’t make sense.

Laura Zander:
Absolutely.

Shawn Busse:
Did you feel like they were inflated, Laura? I mean, like, no way this is their average customer value.

Laura Zander:
No! On that specific number, no, it was the reverse. It was way too low. But then it becomes things like—and I’m just making numbers up—but we have 10 customers. We have 10 people on our email newsletter list, so we have 10 customers. And I’m like, “10 people on your newsletter list doesn’t mean you have 10 customers. You’re telling me that every single one of those people on your email newsletter list buys from you every year? Like, define “customer” for me.” So it just was a lack of understanding, and I don’t know what I’m doing either, but I can compare it to the data.

Jay Goltz:
This isn’t even like they were necessarily trying to deceive her. Probably they just had bad internal people who were giving them bad numbers. I mean, I get them here once in a while, then I think, “Wait, this can’t be right. Oh, I forgot to put the blah, blah, blah.” It’s just bad numbers.

Laura Zander:
It was just bad numbers, which to me was indicative of a lack of understanding of the business, primarily from the broker side—but from the broker side and from the owner side, as well.

Shawn Busse:
If you’re not comfortable saying this, that’s totally legit, but is this a sub-$2 million business?

Laura Zander:
It is now, yes.

Shawn Busse:
Yeah, okay. The reason I ask is there’s this kind of echelon of business operation that I think Jay understands really well—the $250,000 to $2 million business, or even $1 million business—where it’s just so hard to get good advice. It’s so hard to know what you’re doing. You’re struggling to just sort of make it in the world.

Jay Goltz:
And you’re doing everything yourself. It’s almost a profession. You never quite got the hiring and management infrastructure. You don’t have to. You can be running around doing everything.

Laura Zander:
And that’s part of what was attractive is that we have the infrastructure on both sides. The people who own this business, I adore them, and I respect them in a lot of ways. They have a lot of talents that I don’t have or will never have. And so that was part of the interest, is that there was a lot of synergy and complementary skills, but from an infrastructure [perspective], they were in a bad spot, because they’re just too small for some things and too big for other things.

Shawn Busse:
It’s kind of like when Paul talks about the independent cabinet maker in his industry, there are just so many of those types of owners. And they might do stuff with cash, and they’re not paying themselves a fair wage, and they’re putting things on the business that shouldn’t be. Like their Netflix subscription is a business expense, and all kinds of weird stuff.

Laura Zander:
Yep, totally. So the roller coaster really happened after I’m like, “Look, we’ll take it on, but again, we’re not taking any risks. We’re not taking on any debt. I’m not taking a loan out. Here’s how much money we have in the bank. You can have this, and then we’ll pay you over the next few years a percentage of sales.” And the broker came to us and said, “We need to close this.” And we’re thinking, “We’re gonna close in May,” or whatever. I mean, we had so much stuff going on in February and March. That’s like the busy season for our world.

And he came to me March first-ish, I think, and said, “We need to close this sooner, rather than later.” And I’m like, “Uhhh, okay.” I’m like, “Are you thinking 60 days?” And he’s like, “Uhhhh.” I’m like, “30 days?” He’s like, “No, 15.” And I’m like, “Well, shit.”

Not to get too personal, but Doug was about to go out of town for two weeks. We have a trade show that we’re going to. I’ve got this kid who somebody’s supposed to watch. Apparently 12 years old, he’s not supposed to stay at home by himself for a week. So, I’m like, “Okay.” He’s like, “You know, it just needs to happen. It needs to happen. It’s got to happen in the next 15 days.”

Shawn Busse:
And what was his reason?

Laura Zander:
What’s interesting is the reason that he gave me. So I went and visited, and he’s telling me that they really want—they need to close this sooner rather than later. And I get there, and they’re like, “Uh, we thought you wanted to close sooner rather than later.”

Shawn Busse:
Oh! Is that the punch line? It feels like a punch line.

Jay Goltz:
No, no, that’s the sub-punch line.

Laura Zander:
So I lost it just a little bit. So then I find out some more details on the engagements that they have made with consultants and with people who are helping. And I’m seeing them being taken advantage of. And they’re great people, and I’m really frustrated. And so I’m like, “It’s not right.” The broker wanted to be paid on the down payment. Basically, he wanted to be paid on the cash that we were going to give, plus future royalties for the next five years. But he wanted to be paid that day. And I’m just like…

Shawn Busse:
Is that the punch line?

Jay Goltz:
No.

Shawn Busse:
Oh, no!

Laura Zander:
He had this super-inflated number to make it look like they’re getting a really great deal. And I’m like, “I’m not going to promise that these are the sales that we can do and that these are the royalties we can generate. I’m not going to do it. I don’t feel good about it. I don’t like it.”

Loren Feldman:
Did you challenge him?

Laura Zander:
Yeah.

Loren Feldman:
And how did he respond?

Laura Zander:
Well, it turned into, they didn’t end up talking to their broker anymore. So then I became the negotiator, and so I’m negotiating between them and their broker on his fees and the legal stuff, and blah, blah, blah. It just turned into a shit show. It just got really, really, really messy.

We decided on the 15th, we’re like, “You know what? No, we’ve got to pause. We can’t do this. Like, it doesn’t feel right. We don’t even really know what our agreement is.” We’ve sent stuff to their lawyers. We’ve sent stuff to our lawyers. So we decided we’re going to push it back to the first, and then we get close to the first, and the way that the deal was structured, the broker had not created—it just got really complicated.

And our accountants were like, “No, this does not work. I would not recommend this. I would not suggest entering into this type of agreement,” blah, blah, blah, blah, blah. Their lawyer put something in at the last minute, and he’s just trying to protect them. I mean, it wasn’t malicious or deceptive. It was, now they have this lawyer who’s jumping in and doing all these things, because the broker didn’t really take care of all these things and didn’t communicate it, because he just wants his check.

Jay Goltz:
Wait, you left a part out. I’ve been waiting for you to tell the one part that I think is relevant. This is also not the punch line—the guy hung up on them. Tell them that part. Because I think that really gives you the flavor of just what’s going on here.

Laura Zander:
Yeah, so you know, they decide that they’re going to have a Zoom with their broker, and I’m invited to be there to discuss his fee and how this is going to work out. And they start to argue during this Zoom, and at some point, the broker just hangs up, but he’s the one who was the host of the Zoom. So he just gets pissed off, and he hangs up. And I’m like, “Whoa!” Like, the whole Zoom just goes away.

Jay Goltz:
I mean, that’s just so incredibly unprofessional that it’s just like he didn’t deserve to get a commission. This is terrible. Who does that?

Laura Zander:
Yeah, I know. Apparently, they’ve been working together for a couple years, so who knows what the relationship has been before that? I mean, I’ve only got my perspective. But my perspective was, they’re being sold. They’re being told that they’re going to make X number of dollars at the end of the day, and I’m not comfortable with that, because I don’t think that’s realistic. And he is wanting to get paid on those X dollars. And they’re being told that they have to pay taxes on that dollar figure that he is going to get paid on, right from the start, or that could be tax evasion, because that’s what the deal is worth. And now I’ve got to pay, now I’ve got to depreciate, blah, blah, blah, blah, blah.

It was not structured well. I mean, it just wasn’t structured well. And so we just decided, you know, we got on a call, and we’re like, “We’re just going to pause. Let’s take a pause and think about this for a few days.” And then we came back, and they’re just like, “You know what? We don’t really want to sell anyway. We want to figure it out ourselves. And let’s partner. We have a great relationship, so let’s partner in some other ways down the line.”

And I’ve offered. I’m like, “Look, I will come up there,” because we spent a ton of time together. And I’m like, “I know your P&L. I know what you guys are doing. I can help you make money. Let me come up there. I can tell you where to cut your spending, where to increase it.” I mean, that’s what I’m decent at.

Loren Feldman:
Would you be doing that because you’re a nice person, or is there a business interest in your doing that?

Laura Zander:
I mean, I don’t know that I’m a nice person, but… [Laughter]

Loren Feldman:
Let’s take a vote!

Jay Goltz:
I believe you’ve left the punch line out to this. You simply don’t need the aggravation from this.

Laura Zander:
Yes.

Jay Goltz:
Am I wrong?

Laura Zander:
No, you’re not wrong. And that’s throughout this whole process, for six months, I’ve called Jay, and I’m like, “Okay, you’ve got the crystal ball. You’re 20 years farther down the road than I am. You know what it’s like. Your kid is 20 years older than mine is? Do I do this? Is it worth it?”

Loren Feldman:
But it sounds like they were the ones who said no.

Laura Zander:
No, we decided together. So I called Jay again, as usual. Thank God, he doesn’t charge me by the hour. But I called him, and I’m like, “What do I do?” You know, there’s a part of me that wants this challenge and is really interested in it. It is a good business decision. But there’s another part of me that—I just want to go for a run this summer. Like, I finally have gotten back in shape. I’m starting to cook again. I might decorate my house. We’ve lived in this house and haven’t put a picture up.

Jay Goltz:
Ouch. No pictures, which means no frames. That’s messed up.

Laura Zander:
So I’m like, “What do I do? Is it worth it?” I mean, sure, we’ll make some extra money. And Jay’s, just like, “You have enough money, you’re fine. Spend the time with your son. Spend the time with your son, because if you don’t, you’re gonna regret it. And you only have six years left with him.”

Loren Feldman:
Before he goes to college.

Laura Zander:
Yeah.

Jay Goltz:
This isn’t a case of she needs this to be successful. She’s successful. She just is. So it was very easy for me, because I’ve been through it, and I’m living through the 20-years-later regrets of, “Gee, I coulda, shoulda, woulda.” I think that was the punch line. The punch line is: She really doesn’t need this. It’s not as simple as it looked in the beginning, and it’s just going to make her life more difficult.

Laura Zander:
Yeah, and the benefit to it doesn’t outweigh the cost.

Shawn Busse:
What’s really cool about this, Laura, is, if I think back to all the moments in my business career where something has been really hard or bad, oftentimes, those are the times when I look back and go, “Wow, I’m really fortunate that that happened to me.” And I think that this has the potential—five years from now, 10 years from now, who knows—where you could have a new relationship that’s deeper and more meaningful. You could have helped this company out. And they may come around to you again, but in a way better state where you know their numbers, they know their numbers, and this jerk loser of a broker is not in the picture.

Loren Feldman:
Laura, you’ve bought a number of businesses in the past. And I know that on at least one of them, you had a very difficult situation with someone who was advising you on your end of the acquisition. I guess I’m asking you: Do you think this is a problem that smaller businesses face trying to do acquisitions?

Laura Zander:
Yes, and I think it’s not just M&A. It’s in all the spaces that small business owners attract other small business owners who don’t go work for Goldman Sachs and maybe sometimes don’t know what they’re doing. And there are good ones. I mean, there are good consultants, and there are good M&A guys. It’s just more challenging to find them.

Jay Goltz:
Especially when you’re smaller, because if they’re that smart, they’re not dealing with you and me. They’re dealing with $200 million companies and making a fortune.

Shawn Busse:
I think Laura talks about a larger problem in the small business space, which is, it’s very difficult to have a small business customer be profitable. And so what happens is, is that the larger firms that might have the acumen and skill generally won’t take on the work. If they do take on the work, they give it to the B team or the C team, because they’re taking it just because they can add a little bit more revenue—not because it’s their right fit customer. And then you get the other situation where if somebody’s in that space all the time, they often haven’t figured out a good model to make it profitable. So they get pretty weak employees or inexperienced employees working for them, and so then the work product is pretty poor. It’s a real challenge.

Jay Goltz:
I have had that exact situation numerous times. I believe that’s just the nature of the beast. And I would like to add to this segment because I think in the big picture, here’s the message: There’s a book written by the guy that started the Vanguard fund called Enough, and there’s a scene he talks about.

They’re having a party at this huge hedge fund mansion. The guy’s got a helicopter pad and swimming pools. It’s an unbelievable spread. And there are two guys there. One is Kurt Vonnegut, the writer, and Joseph Heller, who wrote Catch 22. And Joseph Heller says to Kurt Vonnegut, “Can you believe this house? Did you see the helicopter pad?” And he goes, “Yeah, but I’ve got something that this guy will never have.” “What’s that?” “Enough.” And that’s the name of the book. And the fact is, Laura has enough. And I’m not saying she should stop growing. But when you have enough, it should change the way you think about things.

Loren Feldman:
How do you know Laura has enough?

Jay Goltz:
Because I know what she has. She’s got enough. She’s there. Her business is big enough. Laura will never be wanting for money. She’s in good shape. I’m not saying she should stop working. I’m not saying she should stop growing it, but to go take on something that’s going to add nothing but aggravation to her life and very little money just is bad alignment. It just doesn’t make any sense.

Loren Feldman:
Laura, do you have enough?

Laura Zander:
Yes, we have enough. Doug and I are savers. We’ve been savers since we met. You know, we’re thrifty. We haven’t bought a sofa. We don’t have furniture.

Jay Goltz:
Ugh, first you had to go after picture framing now. Now you’re not buying sofas either. Wow.

Laura Zander:
So we live a very spartan lifestyle. We have a nice house. But we have enough. You know, I’m not wanting for anything.

Loren Feldman:
Laura, my last question on this, and then we’re gonna go to another topic. But are you at all concerned that you’re going to have second thoughts about this?

Laura Zander:
No.

Loren Feldman:
All right, let’s take a quick break to hear from our sponsor, and then I want to talk about the difference between hiring employees and hiring contractors and how that keeps evolving.

[Message from our sponsor, Work Better Now]

Loren Feldman:
And we’re back. So the rules have been changing a lot on contractors, and I’m curious if any of you feel your businesses have been affected by that.

Shawn Busse:
I don’t think right now I’m feeling the impact of it. That impact happened years ago. When Kinesis started—for lack of a better description—we were a graphic design and brand development shop. And this is 2000, so the advent of the personal computer and desktop publishing was sort of in its early days. I mean, I got my start using X-ACTO knives, all right?

So it used to be that those who worked on brand and design were really artists who found a commercial job, and then the commoditization of design began in earnest as the internet took over. And you started to see sort of the first wave, which was stock photography. So you had an outsourcing of what used to be a really highly creative expert field into sort of cheap and high volume. And then graphic design started to get commoditized, whether that was overseas work or contractors or templates. So it’s been happening in my industry for a long time.

Loren Feldman:
What did you have to do to adapt?

Shawn Busse:
You really had to become much more bespoke. You could no longer just be a production company, right? You could no longer just crank out newsletters and make three-page folders. You actually had to help companies solve much harder strategic problems that couldn’t be answered over the Internet through a really inexpensive contractor in some other country. You really had to become a strategist. You could no longer just be a graphic designer.

Jay Goltz:
I mean, you hit the nail on the head. When it turned into a commodity, you needed to get into stuff that wasn’t a commodity.

Shawn Busse:
Yeah, I mean, that’s been our journey—to become much more of a strategic partner. And we still do that work, but it’s in service to the strategy. It’s in service to the business model iteration of companies. It’s in service to growth and positioning in different ways.

It’s sort of like the industry in large has become Walmart and Target. You know, cheap, everybody can get it. If you want to be friendly, you could say it’s been democratized. And so what we’ve had to become is, we’ve had to become—for lack of a better comparison—Jay’s framing shop. We’ve had to become that company where you come to us with a specific need, and you’re not going to get it solved by going to Target or Walmart.

Loren Feldman:
It sounds like it forced you to be a better business.

Shawn Busse:
Oh, absolutely. Absolutely. No question. But it’s had a lot of consequences.

Loren Feldman:
What are you referring to?

Shawn Busse:
Well, I would just say that the last 40 years of globalization, just sort of on a macro level, it has taken a lot of jobs and made them far, far, far less valuable. A lot of jobs are no longer a path to sort of middle-class existence. So those jobs, they’ve really become compressed and pushed overseas. So we’ve had to go upstream to make it work.

Jay Goltz:
It’s as simple as, things aren’t made here anymore. I used to get picture frame molding that was made in the United States. Now it’s not. Well, now because of the internet, they’ve figured out a way of, “Oh, wait, we don’t need to pay a graphic designer $60 an hour. We can pay $14 an hour for someone wherever they are.” They’ve outsourced, just like manufacturing. The internet has made a global competition, and it’s going to the lowest-priced people in the world.

Loren Feldman:
Have you done that, too, Shawn? Have you hired contractors where you once might have had employees?

Shawn Busse:
We work with contractors. Not extensively, like a lot of agencies do, because we’ve gone into the strategic realm. I need my entire team to understand the business as if we are an employee of the business. But how we think of contractors is not as cost savings. We think of it as expertise.

So if we need a client to have really great photography of their team, illustrating the culture and what it’s like to work there, there is no stock photo that can capture that. So we need a photographer. We’ve got to bring in somebody who’s actually really good at capturing that. And it’s expensive, but it’s like a totally different product than going into Target or Walmart. So it’s good for us in that way, but a lot of folks do use contractors as a cost savings in our related industries.

Loren Feldman:
There are some contractors who really do enjoy the freedom that being a free agent affords them. And there are other contractors who look a little less romantic, like maybe being an Uber driver. It sounds like you’re working more with the first type, the kind of people who have an expertise and benefit from being able to sell that expertise to multiple places.

Shawn Busse:
Yeah, that’s been our strategy. And part of it is that we want somebody who has actually decided they’ve embraced that lifestyle, because honestly, you build a relationship with them much like you would as an employee. And so I can go to Brian and say, “Hey, Brian, I’ve got a photo shoot in three months. Can you make sure you’re available?” And he will, because we’ve committed to him for years. And so that’s a very different kind of contractor relationship than what I would call a highly transactional one that you see, I would say, more often than not.

Jay Goltz:
You know what, I can only deal with my own business, and I can tell you that all businesses are not the same. And if you want to provide a better product and a better service, it’s going to be by, most likely, having your own employees who you’ve trained, who you’ve kept, who are on the same mission with you. And trying to go ahead and piece together a bunch of freelancers to do that, I just think you’re getting a different level of end product.

And in some cases, maybe it’s fine. But it’s funny how business is business, whether you’re framing pictures or doing what Shawn does. Yeah, I do a better job framing pictures than going to a big chain that’s got a bunch of minimum wage people who have been trained for about three hours.

Shawn Busse:
Yeah, I mean, sometimes it’s a functional problem. So coming out of the recession, I watched just marketer after marketer get fired. And so the model we built in response to that, ironically, was a contractor model. So we would go to small businesses and say, “Look, you had a marketing person. You had one person. But the truth is that one person can’t do all of the marketing things that are needed from strategy to execution to social. You actually need a team of people. You can’t afford a team of people. You can’t vet all these people on these freelance websites and find good ones, let alone corral them together. So hire us. We have a team. It’ll cost you a little bit more than that one person, but you’ll get like 10X quality.” And that model was killer. We grew 30-40 percent. We were kind of on the J trajectory in those days.

Jay Goltz:
No, that makes perfect sense. As a business owner, I didn’t understand. You go on the internet. “Oh, I’ll hire someone who knows how to do the internet.” No, it’s like six jobs. Literally. It’s the photographer. It’s the graphic designer. You need people who can do each one of those six things, and there’s very few people on Earth, if there are any, who are going to do all of them well.

Loren Feldman:
All right, we’re just about out of time. I want to come back to Laura one more time and kind of the topic of whether you have enough or not. Last week, it was Shawn, Jay, and Paul, and I asked them about their philosophy about taking money out of the business when they have been able to, versus reinvesting it all in the business. And given where this conversation has gone today, I’d like to ask you the same question. Have you been able to take money out of the business?

Laura Zander:
Yeah, yeah, yeah. But then we put it back in if we need to.

Jay Goltz:
That goes without saying.

Laura Zander:
Yeah, it just goes both ways. So yeah, there have been years where we’ve taken stuff out.

Loren Feldman:
What do you do with it when you take it out?

Laura Zander:
We invest it. You know, mutual funds, whatever.

Loren Feldman:
Do you have a college fund for Huck?

Laura Zander:
Yeah, we started that when he was born. So that’s done. Yeah, Doug’s really good with money. Like I said, we’re really frugal in a lot of ways. We will take money out, and then if we need to, we will put money right back in. So when we bought the business in Texas, that was all of our liquidity, personally.

Jay Goltz:
I had no cash until the last year or two. For years, I put it all back in, and I don’t regret it. And I wouldn’t go and preach to someone, “Oh, you’ve got to have some money.” If you can do it, great.

Loren Feldman:
It’s a worthy goal.

Jay Goltz:
Certainly it is, but if your business is growing and money’s going into inventory and receivables and equipment, and your business is successful—I don’t regret what I did. Do I think the end goal should be to get more balance? Yeah, absolutely. But that’s easier said than done sometimes.

Shawn Busse:
Well, there’s also a really interesting conversation to be had around how you can build the model to, ideally, mitigate the cash flow problems. The typical business, especially B2B, they’ll sell a service, and then they get some crazy terms like net 30, or net 60. So then cash is just a nightmare for those businesses. And what a lot of businesses are starting to figure out is: How do we get the money faster so that we can eliminate that growth bottleneck? And I know that’s a different thing in the space you’re in, Jay.

Jay Goltz:
No, it isn’t. For instance, we tell people, “Would you like to pay for the whole thing now or half?” We get 50-percent deposits. Like, that’s the way it goes. I think you’re right. I think that some consulting firms have figured out they need to get a retainer on the front-end and that might solve their cash flow problems. And if the person won’t do it, then maybe you just got to find someone who will.

Loren Feldman:
All right, my thanks to Shawn Busse, Jay Goltz, and Laura Zander. As always, guys, thanks for sharing.

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