‘You’re in the Valley of Death’

Introduction:

This week, Shawn Busse, Jay Goltz, and Jennifer Kerhin talk about that difficult transition most growing businesses endure when the owner can no longer handle all of the most important tasks herself but also can’t quite afford to hire the people she needs to lighten her load. It’s part of the reason Jennifer, as she’s told us in previous episodes, has been working 12-hour days, six days a week. It’s a challenging transition, and it has a name: It’s the “valley of death,” says Shawn, who compares it to crossing a desert. We also discuss how big the owners want their businesses to get, why important tools and processes seem to break with every $500,000 of revenue growth, and what constitutes the proper care and feeding of salespeople. Plus: Jay has an idea for owners who are having a hard time selling their businesses. The idea involves selling the business to a key employee in a transaction Jay is calling a WE-SOP. Get it? It’s kind of like an ESOP, but it’s a lease-to-own version of an ESOP. A WE-SOP.

— Loren Feldman

Guests:

Jennifer Kerhin is CEO of SB Expos and Events.

Shawn Busse is CEO of Kinesis.

Jay Goltz is CEO of The Goltz Group.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Shawn, Jay, and Jennifer. It’s great to have you all here. I want to start today by picking up on a conversation we had at our event in Chicago. The first thing we did in our peer-group conversation there was to kind of take turns suggesting conversation topics. And then we voted on the ones that we found most intriguing. And the topic that got the most votes and that we spent the most time discussing was one, I think, you suggested, Jennifer, which was: How big do you want to be? Am I right? Was that your suggestion?

Jennifer Kerhin:
It was. And there’s that age-old discussion with business owners, if you look at top-line or bottom-line, right? And so when you think about how big, are you thinking how big your annual revenues should be? Or how much money do you want to take home? And how big is enough?

Loren Feldman:
What prompted you to ask the question? Was there a decision you had to make that was looming that prompted that? Why were you thinking about it?

Jennifer Kerhin:
Our company’s in fast growth, from a revenue standpoint right now. And so I’m spending a lot of time on shoring up operations. Our theme for the year is scalable structure. And so I’m not putting a lot of review on the bottom line, on our profits—not that they’re bad, but I’m not focusing on that. I’m focusing on how to create structure, which takes a little more investment.

And then I started to think, “Well, how much do I invest at this stage?” Because am I investing to create a $10 million company? A $20 million company? Or should I look at it in stages? Should I say, “Okay, I need to invest enough to get $5 million, and then I’m probably having to do another investment to get to $10 million”?

Then someone at that table said something so interesting that I play over and over. They said, “Every half a million dollars in revenue, something breaks in your company operational-wise that you’re gonna have to fix.” And I can’t tell you how many times I think about that. So overall it’s: Where do I put my priorities for the future? And it depends on how big I want to be.

Jay Goltz:
See, I never in all of the—well, not never; now I do—but in the old days, I never thought about how I just kept working to grow and grow. And I didn’t think there was enough. And now, I absolutely believe, at least for me, there is such a thing as enough, which means I don’t need to work any harder. It’s doing just fine. Everything’s good. And I do think it’s a good conversation to have. One of your issues is, you would like to not have to work as hard.

So I would say there is a size of a business that you get to that you can now afford to pay the operations person, the accounting person, and the marketing person. And you don’t have to do the work. And you can’t do that at a $2-$3 million company, usually, because you can’t pay them enough.

So I do think there’s a sweet spot, for lack of another word. And in your case, I don’t know, maybe it’s $8 million bucks, because then you could afford to pay people to do all those things, and you’d be making a lot of money. What’s a lot of money? A 10 percent bottom line? I mean, that’s a lot of money, I think. But I do think it’s worthy of thinking about, especially at your stage.

Loren Feldman:
Shawn, you have the advantage of having had your own experiences, but also seeing inside a lot of the businesses that are your clients’. I’m curious, do you have a sense of what’s more common: Do most business owners kind of just see what happens and grow however much they grow? Or do they think about setting a goal and trying to hit it?

Shawn Busse:
I think I’ve seen both, maybe in equal measure. Although I will say, I am most skeptical when somebody comes to me, and the first thing they say is, “I want to become a $50 million business” Like, if that’s the mission, I find it’s often hard to find motivation around that. And that’s a different thing than what Jay described, which is: I want to grow the business. So I usually see the three camps being: I pick a number, it’s a random number, it’s often a number that people pick because there’s some sort of ego attached to it.

Loren Feldman:
It’s a big round number. For some, it’s $100 million.

Shawn Busse:
Right, so $100 million or a billion. And I usually am not very inspired by that. The second group is probably the Jay group, which is like, “I want to grow because the thing I’m doing I’m excited about. I believe in it. I know it creates opportunities.” And then the third group is just really interested in the work and maybe aren’t that fixated on future state. So it’s really all over the map, Loren.

Jay Goltz:
I knew a guy—he wanted to hit $100 million, and he went bust. I mean, what’s this whole thing with hitting $50 million? The fact of the matter is, most people do not have the wherewithal, the money, the smarts, whatever it is. That’s very difficult, to build a $50 million company. That’s like anyone playing track at the high school going, “I want to be in the Olympics.” Yeah, maybe. But that’s a long shot. But getting to $10 million. Okay. Is that success?

Shawn Busse:
I mean, the statistics are like 4 percent can get to a million, and like 0.4 percent can get to $5 million. So yeah, 10 is actually very, very difficult.

Jay Goltz:
Okay, yeah. And in my case, I was told that less than 1 percent of companies have more than 100 employees. So I’m already in the less-than-1-percent thing. But the point is, the good news is—now, obviously, it depends what business you’re in—but I think if you had a business that was doing, I don’t know, $6, $7, $8 million, you can make a lot of money and have an extremely competent staff that you pay well, so that you can do like me and golf four days a week and go for a massage on the fifth day. [Laughter]

Jennifer Kerhin:
One issue is, yes, to figure out where you want to be personally. But the second part is, where do you invest in your structure to support today, but also tomorrow? So understanding: How much money do you really want to invest? To Jay’s point, my issue is, I need to get some balance back, to take off some of it. How much do I invest in my accounting? Do I hire a controller and a bookkeeper internally? That takes off a lot of effort on me. But that’s a hefty salary to do that. That’s sort of the question I’m going with, is investment.

Jay Goltz:
The hefty salary is you doing your own accounting. That’s a hefty salary. You’re doing the work of somebody who should be making a fraction of what you’re making there. That’s a hefty salary. So that one’s an easy one.

Shawn Busse:
So Jennifer, you’re a professional services business?

Jennifer Kerhin:
Yeah, we are convention management and trade-show sales.

Shawn Busse:
So it’s people-powered.

Jennifer Kerhin:
Yes.

Shawn Busse:
And so you’re at the $3 million mark, somewhere in that range?

Jennifer Kerhin:
Yes.

Shawn Busse:
And I think you said in the last show I was listening to around 30 people?

Jennifer Kerhin:
Yes.

Shawn Busse:
You’re in the valley of death.

Jennifer Kerhin:
I’ve heard that before, Shawn.

Loren Feldman:
What does that mean, Shawn?

Shawn Busse:
So, she’s big enough to where systems matter, and she needs talented people. And she needs to offload the work, like Jay is talking about. But not yet quite big enough—and the next number is probably $4 or 5 million—where it starts to stabilize again. Valley of death is really hard.

Jay Goltz:
And you know what? I have to tell you, that was my life for 5-10 years. When you’re smaller, you can do everything yourself. No problem. I don’t care, you do it all yourself. Then you start to get really busy, and then you get to where you’re starting to get a little overwhelmed. But you can’t go and buy a 10th of an employee. So now you’re overwhelmed for a while. And there’s that period, which I guess you’re calling, whatever you just called it, is going from: I can’t afford somebody but I’m overwhelmed until you finally can get over the hump of, “Okay, now it makes sense.” Yeah, and I absolutely lived through that, and it’s difficult.

Jennifer Kerhin:
My mentor said the same thing. She said the $2 to 5 million for us—

Shawn Busse:
It’s brutal.

Jennifer Kerhin:
It’s the valley of death. She said, “Once you get to $5 million”—she said even maybe four and a half million for me—“life’s gonna change a lot.” But that means I have to put the systems and structure in place now.

Jay Goltz:
Can we change the word from valley of death? That’s not real inspiring. I don’t think you’re gonna die. I think it’s a matter of: It’s the valley of being overworked. But I don’t know that it’s the valley of death.

Shawn Busse:
Here’s why I think it’s an apt metaphor. It kind of goes back to the pioneer days. If you’re going across a desert, you’ve got to have a lot of resources, a lot of water, a lot of food. Because by the time you get to the other side of that desert, you’re about out. And it’s like, if you get halfway and you turn around, that’s pretty deadly too. It’s that between zone, where you have to have a lot of resources. You’ve got to really bulk up. And I think to Jennifer’s point, you’ve got to reinvent all your systems, which costs money. I bet your margins are shrinking like crazy with all this growth.

Jennifer Kerhin:
Yes.

Shawn Busse:
You’re probably in the single-digit realm at this point, and maybe you were in double digits before all the growth. Is that true?

Jennifer Kerhin:
I’m not quite in single digits yet. But it’s a downward number. And I’m prepared for it, because I’m investing in systems and structure to be a $5 million company and to give myself not working six days a week. I like your desert metaphor.

Shawn Busse:
Well, I’ve got more bad news for you. I think your margins are artificial, because you are doing the work of two or three people. And so those salaries are not in your P&L.

Jennifer Kerhin:
Good point.

Shawn Busse:
So your margins are probably… You need more professional people at this point. So that’s the hard part. You’ve got to make those hires.

Jay Goltz:
You’re the woman in the salon who’s cutting the hair of 30-40 people a week. You’re right. You’re a profession to some degree, like he’s saying. But there are some tools here that usually you don’t hear about. One of the tools is, perhaps you just raise your prices 5 percent and put some more margin in there.

Because if you’re growing that fast, and you’ve got the demand, I believe that that is one of the number one mistakes entrepreneurs make, is they don’t charge enough. And that’s always been my number one problem. So that would take the pressure off. All of a sudden, you can go hire somebody now, because you’re going to take in another 150,000 bucks, and it works.

Loren Feldman:
Do you think you could do that, Jennifer?

Jennifer Kerhin:
Yeah, I think so. I think as we get new clients—it’s hard with legacy clients, right? But with new clients, absolutely.

Shawn Busse:
That’s great. I love what Jay said, because I see that over and over. And I made that mistake for many years too, way undercharging. How long have you been at this, Jennifer?

Jennifer Kerhin:
I got my first employee in 2014. But I started, you know, in a basement with a cell phone, in 2009.

Shawn Busse:
Okay, so 14, but it sounds like this growth has been relatively recent. Is that true?

Jennifer Kerhin:
Yeah, in the last 18 months, two years.

Shawn Busse:
I mean, to grow that fast, you should pat yourself on the back. I mean, we’re talking about: valley of death! You’re not hiring enough people! Like, you’re kicking ass. I mean, you’re doing some great stuff.

Jay Goltz:
All right, I’m gonna call it the valley of opportunity, because she’s gonna make some adjustments, and life’s going to get much easier. And she’s going to have better margins. And this is just a time to reboot.

But the beauty is, there is a number out there where you could make more money than you could—I’m not talking about you need to buy a $5 million house in Aspen—but like, reasonably, you can make a lot of money, not be working that hard, and have a manageable amount of people and grief. And I think you can do that at… I don’t know, six, seven, e ight million dollars? And so, there is light at the end of the tunnel.

Loren Feldman:
Jennifer, have you answered your question? Do you know how big you want to be?

Jennifer Kerhin:
I think I’m not going to measure it by numbers. I’m going to measure it by time. For me, it’s working less. I think what Shawn just said opened my eyes. A little aha! epiphany is that my margins are less, if I count the time that really should be other people. That was a little aha! moment. So I think big, small, what I want to get to is where I am taking a few calls a week, like Jay. I like that. And to do that, I have to put people and systems in place and have a healthy profit margin. So less how big, and more of what the structure I need.

Jay Goltz:
I think if you were doing $6 million, and you just did what I call a model income statement and said, “Okay, well, how many people would that be?” I’ve got to think that would work. Now here’s the rub of being an entrepreneur that a lot of people don’t think about: If you’re a lawyer or a doctor or anyone who makes a lot of money, and you make 700 grand a year, you get a paycheck. And you go to your advisor, and you put it in the stock market, whatever. Or you go and buy an expensive whatever. You spend the money.

If you’re a business owner, and you make 600-700 grand a year, the question is: How much of that do you have to leave in the business? And it might be half, and then the money you leave in the business, you’ve still gotta pay income tax on that.

And that is why I’ve never had a lot of cash, because between the taxes and the reinvestment, it just keeps going back in and back in. And it’s okay, because the value of the business is still there. But you have to factor in when you say, “How much money do I want to make?” There’s a difference between how much money you made, quote-unquote, and how much money you took out. There’s definitely a difference in that, because you’re gonna have to keep investing in it.

Shawn Busse:
So Jennifer doesn’t have inventory, but she does have cash flow, like receivables, potentially. Do you get paid upfront, Jennifer? Or do you get paid after you do the work?

Jennifer Kerhin:
I get paid on a monthly basis. One, I love what I do. I love the associations I work with. I love the association world. And the way we get paid is a scope of services divided by 12 for each month. So I have pretty great cash flow.

Shawn Busse:
Nice!

Jay Goltz:
Here’s my concern for you, which is only because I’ve talked to you before, so I know what you’re doing. You’re trying to do this virtually. And I am very concerned that that is going to prove to be very difficult—to continue hiring, training, mentoring, monitoring, managing, leading.

Jennifer Kerhin:
I think for what we do—convention planning and the type of travel and how often we travel—I am not as concerned about that. I think the training part, especially for recent college graduates, is something I’m gonna have to look at. Because when you go fully remote, you need an excellent training program. And we’re not quite there. We have a good one, but it’s not excellent yet. But I’m not worried in the long-term. I can work on that.

Loren Feldman:
Jennifer did also tell us last time that she’s been able to hire quality people who she might not have been able to hire previously, when she was restricted to her particular area.

Jay Goltz:
For sure. It opens up the market to many more people. But I’m just saying, there is going to be the one out of 10 who don’t get their act together. Shawn, when you hire 10 people, how many of them work out?

Shawn Busse:
Before the pandemic, I would say 90 percent.

Jay Goltz:
Wow, that’s excellent.

Shawn Busse:
In the pandemic, and hiring remotely, our failure rate rent went up significantly. It was super depressing. But I think Jennifer is unique, in that—if I understand you correctly Jennifer—your people have to kind of go all over the country. And so you’ve kind of woven into your business model the opportunity to get together. Is that fair?

Jennifer Kerhin:
Absolutely, yes. We’re on show site at least once a month, sometimes three times a month, for these conventions. We’re having dinner, meeting them, deciding when you’re on show site: Who’s great at problem solving. Who’s better at pre-planning and writing that into our systems? Yeah, so it’s a little bit different, because we see each other often throughout the year.

Loren Feldman:
Jennifer, can we go back to what you said before about the notion that every half a million dollars in growth, something breaks? Can you talk about how that’s applied to you?

Jennifer Kerhin:
Sure. So I started thinking about that coming back from that conference in Chicago. And I thought, “Huh, okay, so the first half a million dollars of revenue, great.” But then, what I realized is, we were doing sales using Excel spreadsheets. And that wasn’t working. So then I invested in Salesforce. And then the next half a million dollars, I realized that we didn’t have a good project management system. So as we hired our first staff, we had no way to manage tasks. Then we hired—we’re now on sort of round two—an initial project management software. Then, not even another half a million, but probably $300,000 later, I had used QuickBooks, which was great.

But I had the need to upgrade my systems of how I did it, how my chart of accounts was. So I’m starting to think back, I’m like, “Wow.” And it’s just a product of growth. It’s maybe not so much that it breaks; it’s that what worked for you at that level is not the system that you can take to the next level.

Jay Goltz:
Well, it’s called growing pains. You’re going through growing pains. But here’s the one that you might not have had yet that’s going to be the big one, that’s going to be very troublesome. The person you hired, when you had four people, is maybe going to grow along with you, or maybe they’re going to get peaked out. And you’re either going to have to bring someone in to manage them, which is not going to make them happy, or they’re just gonna get in over their head. Shawn, correct me if I’m wrong—I don’t think there’s a business around that doesn’t outgrow people, and it’s painful. You with me on that, Shawn?

Shawn Busse:
Definitely seen it many times. What’s kind of the average age of your employee, Jennifer?

Jennifer Kerhin:
I would say 35 to 45.

Shawn Busse:
Oh, interesting. Okay. There’s some kind of magic trick in your P&L. Because your ratio of revenue to people is what, maybe $3 million to 30 people? That’s what, $100,000 per employee?

Jay Goltz:
Well, she has no cost of goods sold.

Shawn Busse:
No, but it doesn’t work. Are there part-time people there?

Jennifer Kerhin:
There are. I was about to say, full-time equivalents, we’re looking at 24.

Shawn Busse:
Okay. All right. Thank you. When I first heard that, I’m like, “She’s not making any money, like at full-time.” But that makes sense.

Jennifer Kerhin:
Yeah. And we’re doing about $3.5-3.4 million this year. So you add a little bit more revenue, a little less people. Is it amazing, Shawn? No, but it’s good.

Shawn Busse:
Yeah, that’s $142,000 per person. That’s a ratio I’ve tracked for many years. I think Paul Downs has talked about this. And in the service business, you probably need to be a little higher. What that tells me is, you’re doing too many jobs and maybe not paying yourself a market-based wage.

Jennifer Kerhin:
I think, too, my problem is fine-tuning scope a little bit better to ensure that we’re getting paid adequately for the scope of work we’re doing.

Shawn Busse:
Oh, yeah. Okay.

Loren Feldman:
So Jennifer, are you going to start raising your prices?

Jennifer Kerhin:
It’s minimizing scope, to be honest. I think it’s less about prices. It’s more of, I think our prices per hour or okay. It’s the, “Hey, I thought this would take 10 hours and it took 50.” That’s where I have to focus more energy.

Jay Goltz:
Well, that’s one problem. The other one, I’m going to guess, is you’re going to figure out if you haven’t already that some customers you just can’t make money on. Period. End of the story. They just require more tension, more time, more than they’re willing to pay. And it’s part of life. Sometimes, you just have to lose them. I don’t do it a lot. I almost never do it. But there have certainly been cases where we’ve just realized this just isn’t worth all the trouble. You got any of those?

Jennifer Kerhin:
I used to. I don’t think anymore. I think I got a lot better at that, Jay, of realizing from a time standpoint. Our scope issue isn’t really client-based. Our clients now are wonderful. Our issue is more the technology needed. It’s, “We thought it would only take 10 hours.” And what we’re realizing is, “This was way more complicated from a technical standpoint, and we need 50 hours.” And that’s me not understanding this post-COVID world of doing virtual and hybrid events.

Shawn Busse:
Oh, right, it’s more complicated.

Jennifer Kerhin:
It’s way more complicated. This is something that nobody knows how to do. It got created two years ago. We’re all still learning. That’s the problem, I’m saying. Our clients are fantastic. It’s that the technology is brand new.

Jay Goltz:
See, that’s actually an opportunity, because you’re smart, and you’re gonna figure it out better than other people do. And that’s why you’ve been able to grow the business, because you’re better at figuring this stuff out. People who have been doing the same thing for the last 30 years might not be as apt to be able to navigate it. Maybe they’re just gonna retire.

Jennifer Kerhin:
Well, to that point, Jay, we figured it out. We haven’t figured it out from scope and price, but we figured out the tech work now. But in order to then do a better job of the business model, in terms of charging by scope, one of the things I’ve realized—and you pointed this out recently—is that we need a much stronger brand presence. And we need to explain our story much better.

We’re not your parents’ meeting planners or your old school trade-show sales. We are a hybrid convention planning and trade-show sales company. And my brand, my marketing, does not reflect that, which I need to fix, which is another investment. Right now, I’m investing heavily into a new website, into exhibiting this year. That, hopefully, will be paying off in 2024, but it’s a significant investment now, because what happened in the past two years, it wasn’t reflective.

Jay Goltz:
No, that makes perfect sense. And I think that will make a huge difference. Because you are, in fact, bringing something to the market—some of the stuff that you’re bringing to the market didn’t even exist. You’re bringing it to the market, because Zoom calls didn’t exist 10 years ago. So you’re repackaging and inventing a whole new selling proposition, as they say.

Loren Feldman:
All right, next topic. Shawn, you’ve talked more than once here about how COVID threw your marketing off. In particular, you used to rely on events to bring in prospects. And obviously, that got interrupted. You recently hired a salesperson. What prompted that? How’s it going?

Shawn Busse:
Yeah, so I had been cultivating a business development person internally for many years, somebody who had gone from an operations role. Actually, they’d gone from more of a customer-facing role to an internal-operations role. And then I was developing her in business development and taking over a lot of the things I had done. That was going splendidly until 2020, and the pandemic just really messed that whole thing up.

The pandemic just really made her job very, very difficult, for a number of reasons. But I think a big one being that she was not able to be successful in her job in the pandemic. She ultimately left the company. And as a 10-year run at Kinesis, I owe her a big debt of gratitude, and she was a great employee. But I needed to find a way to replace that role, because I have a whole transition plan that I’m working on, and a big, hard part of that transition plan is getting out of the business-development job.

Jay Goltz:
So what is she doing today, out of curiosity? I’m curious to see where she went to work.

Shawn Busse:
She went to work for a very large digital agency, 300 employees—so, very different from Kinesis—and, you know, got the big title and the whole thing.

Jay Goltz:
Wait, so that’s what I want to know. What’s her title now?

Shawn Busse:
I think it’s chief brand officer. I think it’s something like that.

Jay Goltz:
Okay, because this is what I’ve just heard, which I find interesting: Loren starts it out by going, “You wanted to bring in a salesperson.” And then you said a business-development person, which is not necessarily the same thing. And now she’s got a job as the chief brand officer, which isn’t like either of the other two.

So that’s what’s interesting about hiring someone to do this role. Do you need a salesperson, which is very different from somebody who—there’s an overlap there—but this is where it gets tricky. And I’ve learned the hard way. I’m a retailer and I was used to hiring inside salespeople. And when I went to hire outside salespeople, I never understood the difference because I’d never been in that world. And I hired lovely, wonderful people you’d love to have lunch with. The only problem was they couldn’t find any business.

Loren Feldman:
Jay, just to make sure everybody understands: inside salesperson, meaning somebody who works in a store, and deals with customers who come in?

Jay Goltz:
They work in the store, customers walk in, and they take care of them. They’re lovely, they’re nice, they do a great job. Versus selling artwork to corporations. Someone needs to go out there, identify, knock on doors, make phone calls, make presentations. It’s very, very, very different.

Loren Feldman:
And that’s the shift that Shawn just made. Right, Shawn? You’re going to somebody who’s knocking on doors now. Correct?

Shawn Busse:
Well, yeah, and Jay highlights a really common pitfall, which is that the ability to convert a warm prospect versus to generate new business is a very different skill. So I would say that with my former employee, she started out more—and I did this intentionally; inside sales is an easier—I’m going to insult some people—but it’s an easier job.

Jay Goltz:
There’s no question it’s an easier job. I don’t think it insults anyone.

Shawn Busse:
And so, I started her off, I would go get the thing. And then I would kind of work with her to give her pieces of the sales process. And then over time, she would take on more and more and more. And then before the pandemic, she was actually doing outside sales. And she was actually pretty good at it. But then the problem was, the pandemic took away her ability to meet people face-to-face and in-person, which was how she did that work. So the new hire is exclusively outside sales.

Jennifer Kerhin:
Shawn, how do you get most of your leads?

Shawn Busse:
So like Loren was saying, before the pandemic, we would do a lot of speaking engagements, a lot of workshops, a lot of thought leadership out in the physical world. And then we would build relationships with centers of influence and get referrals. So, a combination of word-of-mouth refer and then thought leadership. And that was enough to grow the business, very predictably, 10 percent a year.

Jay Goltz:
So this new salesperson, let’s pretend this is “Glengarry Glen Ross,” the famous sales movie. Are you handing them the leads? “Where’s my leads?” Are you handing them a shoebox of leads when they come in in the morning? Or are you saying, “Go out and figure it out.” That’s what I want to know.

Shawn Busse:
Probably in between those two extremes. So what we’re doing is, we’re teaching him fundamentals. What’s an ideal fit customer? What’s the right fit? What’s the wrong fit? What are the signs and indicators? What is our value proposition? What are the services we offer? So we’re spending a lot of energy to train him and get him up to speed.

He’s a very senior person. He’s got an MBA. He worked at the Business Journal for many years. He’s managed and coached sales teams. He’s done sales. He’s really good. And I’ve known him for a long time. So I’m able to not have to do a lot of hand-holding with Rob, which is great. And he’s very thoughtful and smart.

Jennifer Kerhin:
But Shawn, is he the thought leader, or are you?

Shawn Busse:
No, I am still in that role. But that’s changing because I’ve also promoted some folks internally who are now developing themselves as thought leaders.

Jay Goltz:
Okay, so they’re starting a coup. They’re planning the coup, basically. [Laughter]

Shawn Busse:
A coup that I started.

Jennifer Kerhin:
So he would take the leads that develop from other people’s thought leadership.

Shawn Busse:
At this point, no. At this point, I’m going to take them. What I want him to do—his sole job—is to identify prospective customers and to actually do outreach and connect to them. That’s a totally different approach than what we’ve used over the last few years.

Jennifer Kerhin:
So how does he intend to do that?

Shawn Busse:
It’s a combination. So there’s market intelligence, so using tools like LinkedIn, using our CRM, going through our newsletter signups. Basically, we do targeted strategic sales outreach. We’re not doing spray and pray. We’re not cold-emailing thousands of people.

Loren Feldman:
Like former prospects, former customers?

Shawn Busse:
Yup, former prospects, former customers. We’re looking for referrals, connections, and having meetings with them.

Loren Feldman:
Shawn, have you had any previous experience hiring a salesperson? Have you ever tried this before?

Shawn Busse:
Many years ago, maybe 13-14 years ago when I just had no idea what I was doing, we hired a salesperson. It was a total failure. We didn’t know what our value proposition was. We didn’t know what our unique ability was. We didn’t know who our target customer was.

We hired a salesperson who had been successful at selling products for which there was a clear market fit. I was hoping he could do consultative sales, which is a totally different business approach. So a total failure, and we own the responsibility for that. The better perspective I have is probably through the eyes of my clients. I have seen so many clients try this, fail at it. Some succeed, and I’ve learned a lot through their experiences over the years.

Loren Feldman:
Jennifer, have you gone down this road?

Jennifer Kerhin:
We hired our first business-development person-slash-salesperson—I’m thinking now, probably more of the business-development person—18 months ago. She is a thought leader herself. She comes from this industry and has years of experience. That’s why I was asking you this question, Shawn.

Because of the growth, half her time, though, honestly, is spent on supporting me in operations, because of her strength. And to be honest, I couldn’t take any more business. So I don’t need her business-development side. Thought leadership is how we grew too. But I started to think, “To get to the next level, I need to move beyond that.” And I’m thinking, “What’s that next level of marketing?” Sales, obviously, outreach of sales, Shawn, like your person’s going to do, but what’s the next part? And that’s where I’m going, thinking.

Shawn Busse:
For companies like ours, Jennifer, I’m always interested in things like: What’s the asymmetric outcome? You know, what is the thing I can do that has not incremental results but actually a steep slope?

I have a client, for example, where he actually started his own association, which I’m like, “Wow, that’s really cool.” You know, he started an association for a very narrow niche for which there is no association. But it’s like, those are the employees he wants to hire. Those are the clients he wants to get. I’m just, like, “Ah, that’s super smart.” That’s the kind of like the asymmetric thing I’m looking for.

Jennifer Kerhin:
Yeah, we can have a whole podcast episode on creating your own association. I can tell you, I have a lot of stories about that.

Shawn Busse:
That would be awesome.

Loren Feldman:
Interesting, we may have to come back to that. Going back to your salesperson, I’m curious: How did you structure your arrangement with him? Is it primarily commission or salary, or both?

Shawn Busse:
Yeah, there’s a small commission. I have seen over the years that if you weigh things too heavily on the commission side, you get really bad unintended consequences. So I’d say it’s probably 70/30, salary versus commission. Mostly, I’m really looking to align incentives. And what I mean by that is, you don’t want to hire a salesperson who brings you just any client, because then you start to waste your time with either tire-kickers or bad-fit customers or clients that make it hell on your team.

Loren Feldman:
Those are the unintended consequences you’re talking about.

Shawn Busse:
Exactly, so primarily salary. The unique thing I’ve done with this situation is that this person—because I’ve known him for a long time—has a situation where he really needs part-time work right now. And I don’t want to get into details why that is, because that’s personal, but it is allowing me to kind of evaluate this without such a major financial commitment that you normally have to make with a salesperson.

Jay Goltz:
You know what, you just answered the question, which I was thinking, “Should I bring it up?” So it’s a little brutal, but my question was gonna be—and I say it to myself—why would someone come to work for you or for me? I mean, back, especially 20, 30 years ago, in hindsight, I think, “They could be selling Herman Miller furniture or something. They could be selling carpeting. They can be selling so many other things that are easier and have way bigger numbers than selling artwork.”

So I recognize, in hindsight, I’m not going to get the best and brightest salespeople that are out there in that world, unless there’s a reason. And you just gave us the reason he wants to work. He wants flexible hours. And that makes perfect sense.

And I also would say, if you ask me about the compensation, I’m right on the same money with you. I think the 70/30 thing’s right in the neighborhood. Because you go too much on the commission side, you’re gonna get the kind of person who you’re not going to want to work with.

Shawn Busse:
Yeah, totally.

Jennifer Kerhin:
Shawn, do you tier your commission? Like if you get a new person, obviously, the hunter/farmer status. But what if that person repeats business? Are you still giving him a commission off of repeat business?

Shawn Busse:
Yeah, that’s a great question. And we structured it so that there’s a real positive outcome for clients staying with us and continuing the journey. There’s a small commission when a client starts, and then they actually get paid out incrementally over the years the client’s with us. So I’m really trying to align it.

We want clients to stay with us for many years. And if he builds this right, and he brings clients to stay with us for many years, it’s a compounding effect for him, where the commission side of it grows over time as clients stay with us. Because ours is a relationship business, and if you bring in the wrong people, then I start to have employee turnover. And I can’t have that. That is toxic for a business like ours. So you’ve got to bring in the right customers, and you don’t want to incentivize a salesperson to bring in just anybody so that they can make their mortgage payment.

Jay Goltz:
Do you want to hire that guy that says in the interview: “Oh, I could sell snow to Eskimos?”

Shawn Busse:
Oh, gosh.

Jay Goltz:
Yeah, that’s what I say. No, I don’t want that person here.

Shawn Busse:
No. Right, right.

Jennifer Kerhin:
Shawn, we did the same thing. I tiered it so that there’s a higher percentage for the first contract. And renewals are still a percentage to keep that—what do they call it, that long tail—for the sales personnel so that that person stays. And you have the right kind of client that will stay and repeat with you, that everybody’s happy with. And then that salesperson gets a percentage of that.

Jay Goltz:
But on the other side, you also don’t want to structure it so that if they work really hard for two, three, four years and get a good book of business, that they can just coast because the business is coming in. You want to have them have the need to go out and find some new customers. So there does need to be some nuance in that.

Jennifer Kerhin:
I’ll worry about that when I get to the $5 million. [Laughter]

Shawn Busse:
I mean, Jay makes a good point, in that I see this in the insurance industry a lot. You know, where these insurance agents worked really hard in their early career and then they have this book of business. And then they’re like the laziest people you’ve ever met. Because there’s just a lot of commission in that world. Sorry, insurance brokers, but yeah.

Loren Feldman:
All right, one more topic. Jay, you’ve told us here previously that you’ve tried to help the owner of a frame business sell his business. As I recall, it’s a fairly common situation that we’re hearing a lot about these days: a Baby Boomer owner who’s ready to move on, but hasn’t been able to find a buyer. And I gather you came up with kind of an intriguing suggestion for him. Can you tell us about that?

Jay Goltz:
First of all, he’s got a very successful—way more successful than most—framing business. And he owns a building, and he wants to sell it. And he hired the business broker. And I just coincidentally ran into him. And he told me the story. And this was after he had already listed it, and it had been six months, and he wasn’t getting any bites. He’s asking for a good amount of money for the business. And it’s worth it.

Okay, so then he’s got someone else that’s looking at it. The broker found someone who wants to be an absentee owner. And I realized, I think I came up with a new plan for him, which he’s excited about, I think. He’s got some key employees there, or at least one key employee. And I said, “Why don’t you work out a deal where you make them the president of the company, train them better, give them more money, and then in four years, sell them the company? And then they’ll have some money put away from the money you paid them. And then you can pay it out. Everybody wins.”

Loren Feldman:
But is this an employee that has the money to buy?

Jay Goltz:
No, no, that’s the point.

Shawn Busse:
No, he has to finance it.

Jay Goltz:
That’s the whole point. This is the typical situation in businesses. You’ve got lovely, wonderful, dedicated employees who don’t have the money to buy the business. Now, I think a mistake would be to say, “Hey, why don’t you buy the business? You can pay me out over four years.” They’ve got nothing in it. I mean, if anything goes wrong, you’ve got a problem. Now you just gave away your business to someone—versus: “Work it for four years, and I’ll pay you more money. And then I’ll sell it to you.”

Loren Feldman:
A significant amount more? I mean, you’re not talking about a 10% raise.

Jay Goltz:
I’ll give you a real number. Not in this case, but if you’ve got a key employee who’s making $60,000 a year, you raise them to $90,000. And you take it out of what you’re making. But if you’ve got a profitable business, that shouldn’t be a problem. And then they’ve got some money to pay you back, because here’s what’s interesting to me. The typical small business—they throw around the word EBITDA: earnings before interest, taxes, depreciation—the typical small business can only sell for maybe—Shawn, you probably know—what, three and a half, four times? Maybe?

Shawn Busse:
Maybe. It depends on the industry.

Jay Goltz:
But not 10. This isn’t a computer business. Okay, so my point is, you’re gonna sell it. You’re gonna get paid, maybe three, four times earnings. Well, if you can hold on to the business for four more years, you’re gonna get that money out of your business. And then by the time you go to sell it to the employee, you could give them a really nice deal. They can pay you for another couple years. Everybody wins, is the point. Whereas if you just try to sell to someone who’s working there, and they don’t put any money in, I just think that’s a mistake. I don’t understand why anybody would want to take that exposure.

Jennifer Kerhin:
Jay, you’re talking about training an employee to be the president?

Jay Goltz:
Yes.

Jennifer Kerhin:
Is that what I’m hearing?

Jay Goltz:
Yes.

Jennifer Kerhin:
Okay, so you give them the title, and you say, “I’ll hold your hand, provide training and coaching for you to be president.”

Jay Goltz:
Maybe, “You go to a community college to get an accounting class, just one class, just get some background in accounting”—which most people don’t have—“I will train you how to do those pieces of the puzzle that you’re not doing that I’m doing now.” Yes.

Jennifer Kerhin:
Okay, okay. And how long do you think, if you took someone who wanted to be president—first of all, that’s hard to find; most employees are like, “See you later”—with the ultimate goal of it’s kind of like lease-to-own, right?

Jay Goltz:
Yes. Yes. Yes.

Jennifer Kerhin:
You’re the president for a couple years, moving with the expectation you’d move into buying the business. Is that what I’m hearing?

Jay Goltz:
Yes. But here’s the beauty of this. First of all, we’re not talking about a business with 30 employees. My guess is you probably could find a buyer for that business. The problem is with the smaller businesses, it’s harder to find. So here’s the beauty of this. They do it for three, four years. You’re still there to back them up, and they change their mind. They don’t want any part of it. Okay. You’re no worse off than you were before, except that you got four more years of earnings in your bank. It’s a win-win.

They changed their mind. It’s not a problem, because you successfully ran the business for another three or four years. And I’m telling you, this is compared to most people, they just close. Done. I don’t have the statistics, but I can tell you in the frame business, for sure, 80 or 90 percent of frame businesses just go away. I know because I have a wholesale business. I sell to them. We don’t get many people calling up and going, “Hi, I want to introduce you to the new owner of my frame shop.” They usually just go away. It’s probably 90-some percent.

I’m thinking that most small businesses, from what I’ve seen, just close one day, and I think this could be a solution. Or go bring somebody in with the deal, hire them, bring them into the business and say, “Here’s the deal. Work for me for three or four years, and I will give you an opportunity to buy the business.” What a great opportunity for somebody!

Shawn Busse:
I’m curious, Jay, have you looked into—because to me, I go to the mindset of deferred compensation, because you are taking a little bit of a risk as an owner. Because you’re making all these investments in this person, and if after five years they change their mind, now you’re at zero again.

Jay Goltz:
No, no, no, you missed it! I’ve got five years of earnings in the bank from running the business. I got my money out.

Shawn Busse:
You’re also now 70. Now you do not have a transition plan. And now you’re kind of starting over.

Jay Goltz:
No, no. You just close the business. Be done. You got your money out. No, you got your money out. That’s the whole point of this. You got your money out. It’s like a maybe installment plan. You either got your money out, or you got your money out and now you can sell to someone else for less money. But that’s the whole point of this, that you did get some money out of the business.

Loren Feldman:
Jay, are you thinking that if this works as intended that the owner is sort of selling the business twice? You get your money out over those four years—

Jay Goltz:
To a degree, sure. And no one’s getting cheated here.

Jennifer Kerhin:
So this week, I was on show site with three employees. They’re newer. I don’t know them very well. And at one dinner, one of them asked me, “So Jen, tell us what you do on a daily or weekly basis.” And I told them what I do in a week. They all looked horrified. And one of them said, ‘You could not pay me enough money to do this job.” [Laughter]

Jay Goltz:
I would tell people what I was doing. They’d start laughing like I’m making a joke or something. They have no idea. I bought my house in 1984. I had three charge cards to the max. I mean, it’s not always pretty. I’ve borrowed against my house 20 times. This isn’t what most normal people do.

Jennifer Kerhin:
Yeah, but the question, Jay, is, to your point with the framing guy: What does that job description look like for the president? Like, is he really telling this employee all the nitty gritty of the stuff you have to do as a president?

Jay Goltz:
But there might be three employees in a business, and they’re already doing most of it. And then if the owner goes on vacation for two weeks, what aren’t they doing? We know what they’re not doing. They’re not putting payroll through. They’re not doing the accounting. Maybe they’re involved with hiring, maybe they’re not.

I mean, there are certainly some pieces they’re not doing. I’m not talking about taking the guy from the loading dock and going, “Hey, do you want to take over the business?” I’m talking about taking a key person who’s in your business, who’s taking care of customers, who’s doing most of the work now. If you don’t have that person, that’s another story.

Loren Feldman:
Could you bring somebody in from the outside and do the same deal?

Jay Goltz:
Yes, I have another friend who that’s what I’m working with him on. He doesn’t have that key person. And he’s got a very successful business. And I said, “We need to get you to hire someone and tell them on the front end, ‘Here’s the deal: Come to work here for whatever the number is, and I’ll give you an opportunity to buy it—but no obligation.’”

Shawn Busse:
I’m just trying to understand the model of it. So you said, “Oh, give them a raise from 60 to 90k.” Okay, so that’s 30,000. So over four years, that’s $120,000—but that’s pre-tax.

Jay Goltz:
Okay, they’ve got 90 grand, plus they’ve got some interest. They’ve got 100 grand now. Yeah, they got 100 grand. They give you the 100, and they pay out another 100.

Shawn Busse:
That’s enough to buy this business?

Jay Goltz:
No, they pay out over the next two years, but now at least they’ve got some money in it. Plus, you’ve been living with them for three to four years, and it’s working. That’s the beauty of this. Nothing’s perfect. This is all compared to: You don’t have someone standing at the front door giving you a check for 300 or 400 grand. Like I said, I’ve seen all these businesses just close over the years.

Shawn Busse:
They’re too small. Nobody wants to buy that business.

Jay Goltz:
I had a frame place call me. She’s in a small town, and I said, “What did you make last year?” She said, “80,000.” I said, “Oh, that’s not bad.” “Oh, that was my gross. And it’s my husband and I.”

Shawn Busse:
Oh, gosh.

Jay Goltz:
Yeah. Do the math on that. Her husband and she are paying themselves $10 an hour to run this business. I said, “Look, you’re 72. Congratulations, you did something you love for many years, and you made a living, and good for you. But it’s not sellable.”

Loren Feldman:
We’ve got to go in a minute. Jay, one more question. You’ve talked here a lot about your own thinking about succession and how it’s evolved and ESOPs and all that we’ve been through—

Jay Goltz:
I’m calling this a WE-SOP. This is a WE-SOP I’m talking about. [Laughter]

Loren Feldman:
I like that. Well, that’s my question: Is a version of this feasible for you? I mean, obviously you’ve got kids in the business, but you’re not sure they want to take it over. If they don’t, could something like this work for you?

Jay Goltz:
Possibly. I mean, I think my kids are in it to win it. And I think they’re gonna be around, but if I’m around, and I’m coming to work every day in 20 years, and they say, “You know what?” Could I possibly? Yeah, sure. I think this could work for anybody—not anybody. It could work for a lot of people.

I just think it’s a shame that businesses just close and go away. And the problem is the business owner really didn’t have the financial acumen, or they don’t listen to 21 Hats. They don’t have any perspective, and they never thought about some other options. They do their job. They do a nice job. It comes time to retiring, they close the store, and it happens every day.

Loren Feldman:
All right, my thanks to Sean Busse, Jay Goltz, and Jennifer Kerhin—and to our sponsor, the Great Game of Business, which helps businesses use an open-book management system to build healthier companies. You can learn more at Greatgame.com. Thanks, everybody.