The Game Has to End at Some Point

Episode 94: The Game Has to End at Some Point

Introduction:

This week, Shawn Busse, Paul Downs, and Jay Goltz talk about their evolving succession plans. There are lots of options—selling the business, turning it over to a family member, selling it to an employee stock ownership plan, holding a going-out-of-business sale, just walking away—and they all come with advantages and disadvantages. Shawn, Paul, and Jay take us through their current thinking and also tell us whether they’ve prepared their businesses for the possibility that they could be incapacitated. Plus: Would any of them consider instituting a four-day work week? And we can report that this podcast now has its first B Corp. Who knows what a B Corp is?

— Loren Feldman

Guests:

Paul Downs is founder and CEO of Paul Downs Cabinetmakers.

Shawn Busse is co-founder and CEO of Kinesis.

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

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Episode Transcript:

Loren Feldman:
Welcome Shawn, Paul, and Jay. Great to have you all here. I want to revisit a topic we’ve hit upon a few times, which is succession—both in terms of what your longer-range plans are, but also the inevitable what-if-a-truck-hit-you-tomorrow question. In part, I’m wondering if Paul and Jay have made any progress since we last talked about this. But I’d like to start with you, Shawn. You and I talked a bit in the fall, and I know you were kind of thinking about pulling back a bit from the day-to-day. Can you tell us what you were thinking?

Shawn Busse:
Yeah, thanks for putting me on the spot.

Loren Feldman:
Anytime. That’s what I’m here for.

Jay Goltz:
You probably should lie down for this one with a shrink.

Shawn Busse:
Yeah, well, I got started early in this business. I’ve been doing it 22 years, and done some great things with it, and have seen others rise into leadership positions, and gotten a lot of joy out of seeing their success. And just starting to think about creating opportunities for other people to move into positions of more and more leadership. And then also my long-term plan of: What do you do with a business?

The options are typically to sell it, you walk away from it—that often happens, and it just sort of dissolves—or you can ESOP it, another option you all have talked about in the past. And I just started thinking about those different ideas. I turned 50 this year, so that was kind of meaningful, in terms of thinking about what lies ahead. So yeah, you could probably hear some of the ambivalence or uncertainty in my voice, because these are big decisions and complex. I’m still in the early stages of thinking about that and putting in place the pieces to make it possible to be less of a linchpin to the business.

Loren Feldman:
Have you taken any steps in that direction?

Shawn Busse:
Yeah, I mean, I got started probably 10 years ago, when I was introduced to the idea that there’s a difference between a business and a job. And I think a lot of business owners have jobs that they’ve created for themselves. And for me, I started to think about the success of a business was one in which you could step away, and it will continue to operate without you.

The first stage of that was really getting out of doing the day-to-day work with clients, and I’ve been pretty successful at that. And now the primary role I have in the business is sales, as well as kind of organizing the CEO and strategy stuff. So I’ve been on the journey, but this next phase—which is getting out of sales—is super hard. And then building a leadership team to step in behind me and eventually allow it so that I make fewer of the decisions, that’s where I’m at today.

Loren Feldman:
Have you figured out what the long-range goal is? Do you know which one of those options you would prefer, if you can make it happen?

Shawn Busse:
Yeah, I think the one that’s most intriguing to me is finding a way to pass it on to employees and allow for a transition to the employee base. I think selling a business is applauded a lot in our society, but the outcomes I see are often not as optimal from a culture standpoint, from a purpose of the business. So I’m looking for an internal transition, if that’s possible.

Jay Goltz:
On a practical basis, smaller companies—I’ve seen numerous studies—80 percent of businesses don’t get to the second generation. So you’re right. They’re applauded when they sell. The reality is, most businesses just go away—the smaller ones. So I think trying to sell your business is probably the least likely. Try to transition to your employees? Sure. Why wouldn’t you do that?

That sounds like a good plan, which then layers into that. Do you consider an ESOP, which is not necessarily a leadership thing? But it’s interesting, because I’ve gone to numerous seminars lately, and I never even knew anything about them. So I think the word you’re looking for—because I’m 15 years ahead of you—is you’re looking for some potential solutions, because I don’t think you can get to a conclusion. Like I have a couple of potential conclusions, but I don’t have it knocked down yet. But at least I’ve got some possibilities. You’re looking for the possibilities, I think.

Shawn Busse:
Yeah, thanks for framing it that way, Jay. That’s really helpful. I feel like I’m starting early. I think a lot of owners wait until they’re in their 60’s or even in their 70’s, and then the door starts to close. And the options are fewer and fewer, because they haven’t put things in place. So I don’t want it to be like we’re driving, and then we go off a cliff of, “Here we go team: Here’s the business. Good luck.” I want folks to have time to prepare and grow into the roles that are necessary to be successful.

Jay Goltz:
So I just went to another seminar. I’ve sat through three or four ESOP seminars for an hour each. But in the last one, the guy said something really smart. He said, “If you’re thinking about an ESOP, you should plan it years in advance.” I mean, this isn’t something where you think, “Next year, I’m going to do it.” It’s not too early to say, “I think in five years, I’m going to do it, or 10 years.” So I think you’re smart for thinking about it. Because yeah, the game has to come to an end at some point.

Paul Downs:
Shawn, I have a question for you: What’s the average length of employment in your industry?

Shawn Busse:
Do you want me to answer that per my industry or per my business?

Paul Downs:
Industry, and the reason I’m asking that is because I’ve watched my son progress through the software industry, sort of the dotcom blah, blah, blah. And it’s astonishing to me that he expects to be in a new position every 18 months to two years, and that’s just totally normal there. And there’s no such thing as loyalty. It’s all transactional.

I just wonder: One of the things about an ESOP is it sort of assumes that your employees sort of want to stay at this company for the rest of their lives or for some significant period of time. And is that a good fit? How many employees want to do that? How many bosses think of their employees that way? There’s something about the model, which I am deeply uncomfortable with. And part of it would be: Why would you expect people to think that your little company is the best place for them for the rest of time?

Jay Goltz:
Well, you don’t have to. No one’s putting a gun to their head. They’re doing ESOP. If the people leave, they leave. So there’s no obligation on the employee part of this whole thing.

Paul Downs:
You’re asking them, basically, to make some kind of significant financial investment.

Jay Goltz:
No, no. I’m telling you, I’ve sat through these. It’s not what you think, what I used to think.

Paul Downs:
Nobody has, there’s no—

Jay Goltz:
No, they’re not doing a thing. They’re sitting back, and you’re taking stock, and you’re putting it into a trust for them. And they’re not putting a dime into it, which was quite shocking.

Paul Downs:
So then you leave the company to be run by people who have no skin in the game? Like, how does that work?

Jay Goltz:
No, no. It has nothing to do with—you could still be running the company. They’re not mutually exclusive. This isn’t a leadership transition. It’s a way of hooking some people in, having them participate, getting a little more hopefully performance out of people, helping people who have been with you for years. It’s a little complicated, but they’re not putting anything into it.

And then if you do it for five years, and you think, “This really stinks,” you could just buy it back. It is reversible. So I’m not selling ESOPs. I’m half-half. I think I could totally see where this could be a great solution. And I could totally see where, for some people, it makes no sense.

Loren Feldman:
Paul, just to answer your question, I think Jay’s got it right. Correct me if I’m wrong, Jay, but there are big tax advantages to this. The portion of the company that’s owned by the ESOP doesn’t pay any federal taxes.

Jay Goltz:
Yes.

Loren Feldman:
The money that the company generates goes into the fund to buy the shares for the employees. They end up increasing the share of the company that they own over time. But also, as Jay says, that doesn’t mean that they’re in a leadership position.

Jay Goltz:
No, the government put this together with some people who had this idea, and I think these people still actually run an organization to do ESOPs. It’s a way of spreading it around. And yeah, when you first told me about this, Loren, if you recall, I go, “Loren, that can’t be true.” It’s true. It’s hard to believe. It’s true!

Instead of paying federal income tax of—let’s say you were going to pay 300 grand this year—that money for that portion goes into their trust, and they end up buying the company. And then when they cash out, they have to pay the tax on it. But it’s not too good to be true. It’s true.

It doesn’t mean that it makes sense for everybody. Because in my case, I’m thinking, “Well, why do I need to do that? I could just take the profit myself and pay the tax on it.” So I don’t know. I’m definitely not, “Gee is this good or bad?” I absolutely can understand where, for some places, this is just incredibly good. And I’m sure there are cases where it makes no sense whatsoever.

Paul Downs:
Well, what percentage of businesses do it?

Loren Feldman:
Zero!

Jay Goltz:
No, I have an answer to that. Because, you know, I thought that a year ago, and I’ve been playing around with this for a year, and I asked one of the guys. I said, “Less than one percent of companies in America”—I don’t want to say the wrong number. It was a very small number when you consider how many businesses there are. And I said to this one big shot, “Why are there so few companies that do ESOPs?” He goes, “Because they go to their accountant, and their accountant rolls their eyes and goes, “Oh, it’s too complicated.” And that’s the end of the conversation.

I’m going to give you the other part that I figured out over the last year. These people are horrible at selling themselves. Horrible! I’ve sat through seminars, I said to myself, “You couldn’t have done a better job repelling me from this idea if you tried.” One of them, he said at the end, “It’s really important the firm you hire to help you do this. So get the best you can afford.” “Oh, well, I can afford about 300 bucks. So I’m going to use the guy on the corner who sells insurance. He’s a notary public, and he does ESOPs.” Like, what a stupid thing! Instead of saying, “This is very important who you use. You should really pick them carefully, and don’t be as consumed with the price, because they’ll more than pay for themselves.”

I mean, I don’t want to slam accountants and lawyers, but accountants and lawyers generally don’t make good marketers. So I’ve realized, if they were better at this, Paul, you would know a lot about this. I would have known a lot about this. They’re not even out there. I only know about it because Loren told me about it and put me on a podcast with these guys.

Shawn Busse:
Jay’s right about that. It’s kind of a boutique space that is not well-communicated, in terms of the value proposition and the opportunity. Getting back to Paul’s question about turnover and tenure, and, “Are people committed?” I’m really fortunate, I have incredible tenure. And I think the majority of folks there really see Kinesis as something special.

I know every owner likes to think that about themselves. But we just celebrated a 17-year anniversary of one employee, a 10-year of another, a four-year of another. So we really don’t match the quote-unquote industry, in that regard. Why I’m interested in ESOPs is that I feel like small business is such an incredible engine for wealth creation, that to be able to share that with the folks who’ve helped build the business is just a really compelling idea.

Jay Goltz:
Part of it is—which I don’t need—you can take a big check out. Banks have special divisions in the bank to do ESOPs. They love doing this. The bank will lend the company the money to pay the owner if the owner wants to get some money out of the company, and the owner can stay around. In my case, I don’t really need the cash. So that’s one reason why I’m not running to do it, but I could totally see where somebody could go, “Hey, if I can pull a million bucks out of my company, still go to work every day, still run it, and take that money and stick it into something more liquid,” I’m sure that’s an incredible tool to use.

Loren Feldman:
There is one other factor in why there aren’t more of these, I believe, and that is that if you have a business that can be sold, it’s very unlikely that you’re going to get the best price through an ESOP.

Jay Goltz:
Wait, I don’t think that’s true. That’s debatable. I think that it depends what business you’re in.

Loren Feldman:
If you have a strategic buyer, there’s a really good chance that somebody else will put in more.

Jay Goltz:
But you have to add on: a strategic buyer in a very hot space. For instance, this one that I sat through, the guy’s in the pet care industry. This is interesting news: Mars candy has put a gazillion dollars into the pet care industry, and no one knows it. But they’re buying these gigantic veterinary practices for big multiples.

So I asked the question, “Could you have gotten more money from a strategic buyer?” And he said, “Well, actually, I think I could have gotten twice as much money, but I got enough.” Okay, so the guy running the seminar then says, “Well, there are other things that can make up for that delta,” and he never finishes it. Like, really? I would have said, “Okay, that’s true in this case, but that’s very unusual that you can get twice as much money,” and I think that’s the case. So if you’re in a hot space where they’re buying up a bunch of companies, yes, that might be an issue. But there are lots of companies that, from what I’ve seen, they wouldn’t get more money from the outside.

Shawn Busse:
And the important thing is: If you have a really well-run business, the return on that investment outperforms a ton of other things you could put that money into.

Jay Goltz:
Absolutely.

Shawn Busse:
So the value proposition of an ESOP is: If you have a stable, well-run business that’s producing good profits over time, the actual money you’re going to get over time has the potential to be more than an acquisition. Because you do an acquisition, you pay a bunch of taxes on it, and then you’re done. You’re not getting any more money, so then you’ve got to take that money and invest it in something else. I think you could make the argument that, if you have a really-well run business, and it’s producing great returns—and this is something you have control over, right? You have control over this investment, versus stock markets, real estate, speculative stuff.

Loren Feldman:
Let’s take a quick break to hear from our sponsor, Work Better Now.

[Message from our sponsor, Work Better Now]

Loren Feldman:
We’re back! Getting back to succession, Paul, I think the last time we discussed this with you—correct me if I’m wrong—but I think your succession plan was kind of not to think about it too much. Do I have that right? And have you thought about it any more since then?

Paul Downs:
That’s a solid foundation for my planning process. [Laughter]

Jay Goltz:
Excellent.

Paul Downs:
Yeah, I’ve thought about it more because I’m about to turn 60. As Jay observed, when you hit 60, you start worrying about these things. And I am starting my 37th year in the business, and when I get to 65, I would like the option to do not this—even though I enjoy it every day, and I’m not sure what will be as much fun. But I would still like to have less encumbrance. And so I’m thinking about it.

My goal is actually to sell the company to somebody. I think that we could find a strategic buyer, particularly five years from now. And I’ve seen in my Vistage group, we’ve had four sell-outs this year from strategic buyers ranging from 20 million to 120 million. And these are guys who started off with small companies and just really worked them well.

Loren Feldman:
Are any of them small manufacturing companies?

Paul Downs:
One, yeah. Sam Saxton, who I talked about in my book, he started about the same time I did in Vistage in 2012. And he had a company that was doing, I think, 3 million. He pumped it up to 22 million over the course of the next nine years and sold it for 27-plus million. And they made custom spiral stairs. He is just really a good businessman, and he had a very interesting marketing scheme. And he was able to attract a group of investors who specialize in taking companies from that size to sort of the next step up.

One thing that’s become apparent in talking to people who have sold and talking to the others in my group is that the ability to sell a business starts at maybe 5 million a year. It gets more of an easy step at 10 million a year. And there are different kinds of investors who specialize in different size steps, so the 10 to 50 people are one group of investors. The 50 to whatever group are the next group of investors. And it’s a whole process to run the value of a company up.

Jay Goltz:
I believe that’s true, what you just said. I also believe that the multiple goes—not believe, this is what I’ve been told—up the bigger you get. The multiple on a $10 million company is much bigger than on a 3 million, and 20 is bigger than 10.

Paul Downs:
That really is driven, as far as we can tell, by sector. So the two most mind-boggling deals that I’m aware of—one was in the pharma space. The owner went to market with a company expecting to get 9 million, I believe, and ended up with a 45 million all-cash offer, closed it within 90 days. And then there’s another guy who’s also in the financial services space. He does back-end servicing for hedge funds and other banks, and he has a company valuation of over 100 million.

Jay Goltz:
So none of these guys—I want to be clear—none of these guys were in the picture-framing industry?

Paul Downs:
That’s where they’re going next, Jay.

Jay Goltz:
That’s what I thought. I’m ahead of it.

Paul Downs:
Look out, here they come.

Shawn Busse:
Paul, I’m kind of curious, I’ve listened to you for a long time. My sense is, you’re in that kind of sub $5 million range?

Paul Downs:
Yeah, we may hit five this year. We were about 4.2 last year. And so it’s just getting to the point where it’s starting to be viable, and so my focus on the next five years is to optimize and expand and hit that 10 million mark, and then see what happens. Now, what happens if I get hit by a truck? Maybe that’s the next question?

Loren Feldman:
Go for it.

Paul Downs:
It would be bad. It would be bad. And I’m not sure what the solution is right today.

Jay Goltz:
I have a solution. When I say this, people think I’m making a joke, and I’m not making a joke at all. If you’re in this situation, I bought a big life insurance policy. I’ve gotta tell you, I sleep better at night. No matter what happens, if I did get run over by a truck, my wife’s fine. There’s plenty of life insurance here. So I do believe that life insurance could be part of one strategy as a backup plan.

Paul Downs:
Yeah, obviously I have some life insurance, but just the thought of… I’m hit by a truck, someone needs to come in and just make sense of it. Now. I’m trying to document that, to the extent I can. I don’t think that I’m anywhere near like what William Vanderbloemen is doing. It’s at least in my mind, and I have information arranged in a way that it would be possible to get into the accounts and what have you, if necessary. And that information is shared with my son, actually, and my wife. I think my son would be the one who is competent enough to get through the issues of just accessing all of the things and getting past the, “How do you get two-factor authentication to work if the phone is at the bottom of the ocean?” or something like that. He could manage that.

Jay Goltz:
So just out of curiosity, the guy with the staircase company that you said went from three to over 22. He started the company?

Paul Downs:
No, he acquired it. He’s an interesting case. I’ll just briefly tell his story: He came from resources. His father was a very successful entrepreneur. And this gentleman, the younger son, was always motivated to kind of match where his father had been. So he started his first business right when he got out of college. He went to South Dakota and put up 50 houses, and apparently did well enough with that to come back and buy the manufacturing company that he purchased, and then he drove it hard. He was a hard guy to work for. Not a bad guy, but just had a very, very clear vision and really worked on executing it, and did a great job. So good for him.

Loren Feldman:
Paul, have you thought about what exactly you need to do over the next five years if you do want to sell the business?

Paul Downs:
Yeah, a lot of it is, I’m at the moment acting as the general manager, and for 24 employees and 4 million, that works fine. So a lot of it is just getting the overall volume high enough so that we can have a layer of management below me, like an actual general manager who’s not me. And we have a very well-documented set of practices—in other words, how the business operates. It doesn’t need me holding the steering wheel every minute of the day. The people who work here know what to do, and we have all of our processes worked out. So I think it’s something that could be scaled up and could be operated by an outside investor. And I just want to make sure that our financial performance meets the standards required to sell it to that kind of investor.

Jay Goltz:
I have to believe there’s a wood furniture custom builder in the United States who would see this as an incredible plug-in to their business to get into a whole new market. So yeah, I do think that’s sellable, even at the stage it is now.

Paul Downs:
I mean, particularly, we also operate differently. We’re the Google people in our industry, and nobody else is. So anybody who wanted to acquire that kind of channel would want to buy us, and I think that’s really what I’m aiming for.

Loren Feldman:
Has anybody ever approached you?

Paul Downs:
You get the usual garbage emails and what have you. But serious strategic buyers? No, not yet. I think we’re under their radar at the moment.

Loren Feldman:
Shawn, have you thought about the hit-by-a-truck question?

Shawn Busse:
Yeah, I mean, I’ve kind of operated the business like that for the last half of it, like, “How do we make sure that it can sustain if I’m not there?” And I thought about that for every role in the company too, making sure that there’s nobody who’s so important that, if they don’t show up, things just really fall apart. Yeah, I mean, if I were to not show up tomorrow, I think the business would do great.

Loren Feldman:
Was that your goal? Did you set out to get to this point?

Shawn Busse:
Yeah, I think so. We work with small businesses, right? So you often see what I call the benevolent-dictator model, which is where the owner of the business is the linchpin to everything that goes on in the business. And that can make you feel really important and needed. It’s efficient. It’s a really efficient way to run a business. But it’s hard to take vacations.

Jay Goltz:
Well, it’s constraining. You can’t make $10 million like that. Maybe you can do $4 million like that.

Paul Downs:
I think it would be even hard to do 4 million successfully, honestly. I mean, it depends on the business. But in my case, no, I don’t want to be in the middle of everything that’s going on. There’s no way.

Jay Goltz:
Paul, you said something I just want to note. You said, “Well, obviously, I have life insurance.” I can tell you for a fact—because my good friend owns a big insurance agency—most people at 60 years old do not have life insurance. That’s the reality. So that’s why I say…

Loren Feldman:
Most?

Jay Goltz:
Most, absolutely. I can get you some statistics. The kids get out of the house, they’re done. They don’t have any more life insurance.

Paul Downs:
Well, I have a special needs child, so that’s also an issue.

Jay Goltz:
No, I know. Okay, so for you, right, that makes sense. But I’m just saying, insurance is still pretty cheap. I mean, even at my age, at 65, I could still buy a $2 million, 10-year policy for like seven grand a year. It’s still doable, even when you get older, and if you own a business, I think it might make sense. Because in my case, a lot of my assets are tied up in the business, versus I was squirreling away my 401(k) plan my whole life because I’m a lawyer, and I just built up this big balance. It did take the pressure off of me considerably, that I don’t have to worry about it as much, so I’m just telling people.

Shawn Busse:
That’s actually really good advice. I had to buy life insurance when I bought out my business partner. That was part of the deal so that she knew she would be made whole if I were to die. And I’ve kept it, even though it’s not necessary anymore. And I’ll probably continue to keep it, because that way, there’s resources to replace me.

Jay Goltz:
Absolutely.

Paul Downs:
Did you change the beneficiary?

Shawn Busse:
The beneficiary’s the company. Basically, there’s money there, and things would be able to work itself out.

Loren Feldman:
Jay, you talked a lot about ESOPs, but you’ve considered quite a few different options. I think it’s evolved a little bit since we first started talking about this. Are you leaning toward an ESOP now?

Jay Goltz:
No, it’s out there. It’s a maybe. I have no reason to rush into it. I now have my 32-year-old son working here, and I’ve got a 37-year-old son working here who’s made it very clear that he doesn’t really want to run the company. But the 32-year old seems engaged, and so I’ll see what happens. It’s only been a year.

I’ll tell you what I’m not doing. I don’t see myself selling the company. It just doesn’t make any sense. Even when I opened up a pop-up store in New York for my Jayson Home store—it was probably three or four years already—and I thought, “Gee, if I got the platform bigger, and my numbers up, I can prove I’ve got two successful stores now. I could probably sell it.” And it took me a while to figure out: I’m in such a heavy inventory business. There’s a reason why some businesses just close, and I never understood this. There are some businesses like mine that, if I had a going-out-of-business sale, I could probably generate just as much money as if I sold the company, which isn’t always the case. If you have no inventory, that’s probably not the case.

There are companies that make a ton of money on their going-out-of-business sales, and that’s why they don’t bother selling. Because if you can free up your inventory and still get a good markup on it, it might be just as good. So I’m planning on running it for quite a while, and there’s just nothing more I can do at this stage, other than see how that’s going with my son. So far, so good.

Loren Feldman:
If you did go the ESOP route, that would solve the ownership question but not necessarily the leadership question. What are you thinking for that?

Jay Goltz:
Well, my first thought was, “Oh, I could do an ESOP and pull some money out.” And I now realize: I really don’t need to pull the money out. It’s okay. Why would I think about doing it? Okay, A: I think I would love to be able to have something for my employees when they retire. And if it’s coming out of the federal taxes—instead of paying federal taxes, I can give them some of it—hey, that’s certainly something that sounds good.

Two: I get some cash out. Okay, not a major deal at this point. But all right, that’d be okay. Three: Do I think most people would work a little bit harder knowing that it’s an ESOP? Maybe. I assume that that’s probably the case.

And lastly, being a retailer: Do I think that would be a good marketing thing to be able to say, “Oh, an ESOP company”? Yeah, sure. I think people like buying from ESOP companies. So with all that being said: Why aren’t I doing it? There’s just a lot of administrative time and cost to it, and I’m not sure. It’s easily $75,000 a year just for the administration part, but I just have to figure out whether it’s worthwhile or not. But I’m definitely keeping it as an option, and I continue to go to these webinars because they’re interesting. I think I’ve got most of the info now, but I’m still looking into it.

Loren Feldman:
That was all interesting, Jay, but you didn’t answer my question.

Jay Goltz:
Which is what?

Loren Feldman:
Which is: Have you thought about what you would do as far as leadership if you went the ESOP route?

Jay Goltz:
Well, my son’s here. I would expect to hold on to majority interest, and my kid would run it. I have very capable managers, but I don’t know that any of them have the skill-set to be the CEO. Plus, they’re all getting older. I mean, they’re in their 40’s. I hope to be working in 15 years, so they’re going to be at retirement age. So even the people that are working for me now are not really the people who would be taking it over, whereas my kid’s 32. He’d be all of 47. So maybe the person that could run this company I just hired, and they’re working in the showroom now.

Loren Feldman:
Paul, you referred to William’s plans previously. He’s been in on these discussions, and he’s the one who has clearly given this the most thought and taken the most active steps to try to prepare, either for the truck or for succession. And the other big difference is that he’s had somebody he’s considered a clear number two at his business. I don’t think any of the three of you do. Are any of you concerned about this? Would any of you like to have a number two right now?

Shawn Busse:
I don’t know why you think I don’t have a number two. I mean, I have multiple number twos.

Loren Feldman:
Maybe that’s why I didn’t think you had a number two.

Shawn Bussie
My goal is to build a leadership team of which there are multiple roles and responsibilities in that, and we’re making great headway there. So that’s why I feel like if I were to get hit by a bus tomorrow, I know that the people on the leadership team, either one person could step into my CEO position or all of them could work together to make things happen. I have great confidence in them. For sure.

Loren Feldman:
Paul or Jay?

Jay Goltz:
Well, first of all, I’m confused. He just went from a truck to a bus. I’m trying to figure out whether he’s trying to be more socially-minded with a bus runs over us… But I think that the number two thing is much easier when you’re a $50 million company and you can go pay someone big money. I think when you’re smaller, it’s difficult to have a number two, which is exactly what he just said. I have a bunch of people who are running the company. There’s no one person who’s waiting to take over.

Paul Downs:
I don’t have anybody who has the skill-set. And I’m asked—

Loren Feldman:
Would you like to?

Paul Downs:
Well, not today, since I’m doing it.

Jay Goltz:
This is the problem: Why would they be working for him? If they had that skill-set, why would they be there? My point is they probably wouldn’t. That’s the problem with a smaller business.

Shawn Busse:
At Paul’s shop? Or any shop?

Jay Goltz:
Any $4 million business.

Paul Downs:
I don’t know. I think it’s not necessarily that there isn’t a person who would want to do it. It’s more that I don’t want anybody to do it while I’m doing it. I’m pretty sure I could find someone to do my job. And given what I make doing it, I could offer a market wage. And it’s certainly an interesting job. It’s just not worth it to me at the moment, because it only takes me about four hours a day to run this company, and the rest of the time I do other things. I mean, I’m here. But I wouldn’t want to pay someone to do that.

Jay Goltz:
But that’s the point. It’s not worth paying that person. You’d have to pay a good amount of money. It would cut your salary dramatically.

Paul Downs:
That’s a little bit different than nobody wanting to work at my company.

Jay Goltz:
No, I’m suggesting that that person who would be working in a company would want to make more money, and they probably would have left to go do that. Because you’re not going to want to pay it, because there’s not enough to go around at a smaller company. That’s the inherent problem.

Paul Downs:
Yeah. I agree with that.

Shawn Busse:
I don’t have that problem. I guess I’m confused by the premise.

Jay Goltz:
The premise is—

Jay Goltz:
Okay, so let me explain it shorter than Jay’s gonna do. This company kicks off $300,000 a year, and basically, it gets split between profit and my salary. And if I have to hire someone at $150,000 a year to do my job, there’s just not enough left over for me to sit around.

Jay Goltz:
Well done.

Paul Downs:
There we go. And when we can get to another 6-7 million, whatever, then there’ll be plenty of money for that, because I don’t have infinite desire for income.

Loren Feldman:
Is that part of your plan, Paul, to try to grow that additional… to get to 10 million?

Paul Downs:
Yes, absolutely. Because part of what makes the company more attractive as a sales proposition is the idea that it’s not the owner personally managing it with all of the inside knowledge that I have, that it could successfully be handed off to a management team. And then the owner demonstrates that, and that’s very valuable to the next owner. It’s like, “Okay, he was able to do that,” and it’s still working. I think that that in itself is the big transition, whether you can demonstrate to an outside investor that you’ve already done that handoff once, and it’s worked out.

Jay Goltz:
It’s the difference between a profession and a business. Are you trying to sell your barbershop where you’re the only barber there? That’s not a business. That’s a profession. So you’d have to have people working for you to do the work.

Shawn Busse:
Jay, I’m challenging you a little bit on the fundamental premise. I understand Paul’s situation and the financials behind that. But I can say for my business, for other businesses we work with, that are small—20 people, 25 people, 15 people—there are folks ready to step in and lead the company if the CEO were to step down.

Paul Downs:
Four million in revenue doesn’t necessarily mean you only make what I make, too. I know a guy in my Vistage group who’s got just a different business. Four million in revenue kicks out a million dollars in his pocket, and he could easily hire somebody if he wanted to.

Jay Goltz:
It depends what your margins are. I’m in the product business like Paul is. If you’ve got high-paid people working there because they’re doing your work, well, that’s a different animal. And you don’t have cost of goods sold and all that. So in your business, that’s probably not true. But in a lot of businesses where you’re selling a product or something, it’s not about the people as much. You’re in a professional kind of business where the people—a law firm, accounting firm, same kind of thing—you’ve got high-paid people working there, because that is your product. So, yes, in that case, I’m sure that’s not true. But in other cases where that’s not the case, I think it’s very true. Paul’s a very good example of what I’m talking about. He’d probably have to take a 50-percent pay cut.

Loren Feldman:
Paul, this is probably a topic for another day, but can you just give us a quick sense of what do you think it would take to get to $10 million? Do you think you’d have to make big changes to double your revenue?

Paul Downs:
Well, yeah, I mean, we’d have to have twice as many customers. There you go. Now work back from that, and what would we need to change? Well, we basically need to expand the entire operation. But I think that what’s holding us back is that we’re in a particular way of approaching the market, and most of the people who are buying and selling the product I make do it a different way, and we need to make some inroads into that half of the market. That’s the fundamental problem. Other than that, the scaling of it is, where I have one skilled cabinet maker, now I need two skilled cabinet makers. That’s just math, in terms of the ratios of how many people for a particular amount of revenue.

Jay Goltz:
You would have to grow 14 percent a year for the next five years to double your sales, and that’s not easy.

Paul Downs:
I don’t think that that’s out of line. I mean, for the last 12 years, we’ve grown at 10 percent a year. So it’s not a huge difference.

Jay Goltz:
Well, it’s 40 percent more. It’s a pretty big difference. I’m not saying you can’t do it. It’s just, that’s an ambitious number, 14 percent a year.

Paul Downs:
Well, let me say that it’s probably harder to get from zero to 1 million than it is to get from 4 to five million. And so we’re in a different place in the journey. We’re just way more capable than we were a few years ago, and I’m confident that we can do that. And 14 percent, it’s maybe a stretch for manufacturing where you actually have to build it, but it’s not an unusual growth rate. There’s nothing scary about that.

Shawn Busse:
Paul, you made an assumption like, “Hey, to double our income, we need to double our customers.” Is there any way for you to offer something different that has better margins, increase your prices? Are you constrained by the market? What’s the situation there?

Paul Downs:
If I actually knew the answer to that question, then maybe I wouldn’t have the problem. But my sense is that it’s not much more complicated than that—that our biggest problem is that people don’t know about us. That at the moment, they’re finding us by just doing a Google search, and then they find us. But we don’t really have a brand presence, and in the other half of the market, having a brand presence is pretty important. And we’re in a good position to communicate our value to that half of the market now. We’re a well-established player with an incredible client list and a long track of being able to do the job. So that’s what I’m focusing on for the next few years, is thinking about marketing in a different way.

Loren Feldman:
All right, I want to hit a couple more points before we go, and we’re running short of time. The next thing I want to talk about involves you, Shawn. I believe you’re the first owner of a B Corp to join this podcast, which prompts an interesting question: What’s a B Corp?

Shawn Busse:
Yeah, so I mean, the short answer is it’s a commitment to a triple bottom line: community, environment, stakeholder employees, rather than shareholder primacy. You’re really factoring in other elements to the business besides just, “How much is the bottom line?” You go to a third party who assesses your practices and gives you a score, and you have to meet a certain threshold in order to become a certified B Corp.

Loren Feldman:
And what does it take to do that?

Shawn Busse:
You know, we did it back in 2016 in the beginning, and it’s gotten harder and harder every year. So the process has become more rigorous. It’s a lot of documentation and a lot of policy around how you behave: Do you have, for example, open book management? Do you have clear paths for advancement? What do you do about recycling and the things you throw away? So there are all these different dimensions that then you actually operationalize to illustrate your commitment to more than just the bottom line.

Loren Feldman:
Has this paid off for you? Was it worthwhile?

Shawn Busse:
Yeah, I mean, gosh, I can draw lots of lines to becoming a B Corp that have been pretty powerful. My director of strategy, her job search started with looking at B corps, and she found us through the listing of B corps in Portland. She’s been incredibly impactful in the organization, and then she helped bring in our director of people in operations. So if you just start to connect the dominoes here between becoming a B Corp and the human capital that we have in the company, it’s undeniable.

When we go out to the market and try to hire for positions, we get so many candidates. It’s incredible, and they’re great candidates. A lot of that is your brand position, so just as Paul was talking about his brand position for his customers, I think B Corp is really powerful for employees and recruiting. So I see that as one of the primary values of it.

Jay Goltz:
That’s very interesting, because I thought your answer was going to be, “Well, I kind of think…” No, that’s very tangible. That’s very impressive. And that makes sense. I didn’t know that. Thank you. That was interesting.

Shawn Busse:
Yeah, I don’t really know what industry to put us in, because we’re sort of bridging this gap between consulting and marketing. The turnover rate in those spaces is… two years, three years, is pretty average. And we have remarkable tenure. We’ve had no voluntary turnover in the last two and a half years. It’s really powerful, and I think a lot of folks are just now discovering the need to commit to recruiting. They’ve done it so poorly over the years, and so this is part of that strategy.

Loren Feldman:
Shawn, I can see your point with potential employees finding you through the B Corp list. How do you think it’s affected your existing employees? And why do you think it’s kept them there?

Shawn Busse:
Well, a big component of being a certified B Corp is your employee welfare. The policies you have, the way you operate, how you treat your employees is measured. And so fundamentally, B Corps are going to be better employers hands down. Because they have to actually kind of walk the walk—how’s that go?—walk the talk? Anyway, basically, you’re driving your company to be a more employee-centric organization. And if you become a B Corp, I think that’s just almost inevitable.

Jay Goltz:
Maybe. Or, in my case, my average person’s been here 11 years. I have many people who’ve been here more than 20. I’m running a company that I believe has many of those same things. But I can’t imagine I would go through all the efforts to do the B Corp thing, from what you’re telling me. I don’t think, in my case, it would change the hiring process, but I don’t think it necessarily means if you’re not a B Corp, all you’re doing is worrying about the bottom line and not taking care of your employees.

Shawn Busse:
Oh, yeah, no.

Jay Goltz:
They’re not mutually exclusive.

Shawn Busse:
So one of the values we have from a customer-facing standpoint is we have more and more clients now who are asking us to help them with this process. So they’re like, “Hey, we want to realize the value of this. We believe in this. This matches our values and belief system. How do we do it?” So we’re able to help them on that path. I would say, Jay, there is an advantage, in that you’re now part of a peer group. And so your ability to learn from others who care like you do—that’s pretty powerful.

Jay Goltz:
I’m sure that’s incredibly valuable. My question is: Do you think being in Oregon has anything to do with it? I don’t think it’s a coincidence you’re an Oregon versus you’re in New York.

Shawn Busse:
We’re everywhere, Jay.

Jay Goltz:
Really?

Shawn Busse:
Yeah.

Jay Goltz:
It just fits so well, the Oregon stereotype.

Paul Downs:
Do you have a secret handshake or anything? Like you’re walking down the street you see the guy and you give him a little…

Jay Goltz:
It’s more of a wink. They don’t actually touch each other.

Shawn Busse:
We have tattoos. Lots of tattoos.

Jay Goltz:
I thought B stood for Birkenstocks.

Shawn Busse:
I mean, there are some very famous B Corps. Patagonia is a good example. Ben and Jerry’s ice cream is a good example. There’s a grocery store chain that’s pretty significant here in Oregon, New Seasons Market. So it’s kind of like some big marquee companies that have done it. And then a whole bunch of small folks.

Loren Feldman:
Let me hit you with one more topic before we go. I’ve been reading a lot lately about companies that are interested in switching to a four-day workweek. Best I can tell, there’s a lot more press notice going on about this than actual converts to it. But there have been a number of studies that suggest that companies feel they get more productive doing this and that it could be an interesting benefit to be able to offer employees during The Great Resignation. Have any of the three of you thought about it at all?

Jay Goltz:
No.

Paul Downs:
I want to implement a six-day workweek. [Laughter]

Loren Feldman:
Well, that’s gonna bring the employee applications.

Jay Goltz:
Why not go seven? You’re already there. Why don’t you just do seven?

Paul Downs:
We have a policy of flex time, and I have a number of employees who have arranged a schedule where they’re not doing a full 40, or they’re doing it in four days. So I don’t think it necessarily needs to be a company-wide policy in order to implement it. But we’ve had—

Loren Feldman:
You’ve got a version of it. People can work four days.

Paul Downs:
And most prefer not to. And as far as I can tell, a lot will do five, no problem. And it’s harder to get them to do more, and it’s hard to get them to do less. And I think that, in our case, a lot of it has to do with, the job is just hard. It’s fatiguing. And we offer unlimited overtime, and we have few takers, because it’s just hard work. And at the end of eight and a half hours, you’re worn out and you want to go home. So that’s my take on it.

Loren Feldman:
Anyone else?

Jay Goltz:
We’re sticking with five days. Five days works. Customers actually expect service. I’m open seven days a week, so it’d be very difficult to be doing four days.

Paul Downs:
There’s no way that a factory runs four days. So you could have staggered four-day work weeks, but the transition would be an issue.

Jay Goltz:
But to your point, it’s fatiguing to stand there or sit there in a factory for eight hours. Now it’s 10 hours. That’s not easy at most companies.

Loren Feldman:
Shawn, you’re not a factory. Have you thought about it?

Shawn Busse:
Yeah, I mean, those studies are really interesting. They’re usually of knowledge workers, and you know, that’s our jam. I love a three-day weekend. Everybody does. It’s like you have time to get the personal stuff done and relax. But I don’t know… It would be tough. I think the compromise we’ve made is just lots of flexibility. Just tremendous flexibility where we work. So I’ve got employees on the East Coast now and on the West Coast, and so the time zone difference, folks with children, so when they get their work done, giving them maximum flexibility on that, and then also a very generous PTO program. That’s how we kind of thread that needle. I don’t know if formalizing it… I don’t know. I’d have to think about it.

Loren Feldman:
I think the basic thought behind it is that it doesn’t really matter, in a knowledge economy shop like yours, when the work gets done much of the time. It’s just a question of whether the work gets done, and that flexibility can be attractive to a lot of potential employees.

Shawn Busse:
The one challenge, though, that I see—let’s say you’re a shop like ours. We do a lot of collaboration. So it’s just as important as it is to have flexibility. So, too, is it that there are times when people can connect with each other. That’s a different tension that I think different knowledge workers have to worry about, especially as people are starting to spread out where they work from and our different time zones.

Jay Goltz:
Loren, are you thinking of going to four days? Did you talk to your staff about that?

Loren Feldman:
Well, I’d have to cut down to six first, but I am thinking about it. My thanks to Sean Busse, Paul Downs, and Jay Goltz. As always, guys, thanks for sharing.

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