You’re Shutting Down a Profitable Business?

Introduction:

This week, Mel Gravely brings closure to a story he’s been sharing in pieces over the past year. You may recall that he bought a facilities maintenance company a couple years ago that he was convinced he could scale—only to discover that it was hemorrhaging money. Mel dug in, diagnosed the problem, fixed it, bought out his partners, turned the company profitable—and then decided to shut it down. Why close a business that’s making money? Mel explains the surprising answer, along with three lessons he says he learned. He also joins Jay Goltz in a candid discussion of the painful flipside of hiring: When, and how, does it make sense to lay off employees? As Jay points out, it’s far easier to find advice about adding people than about letting them go, even though it’s a calculation many owners are facing today. Plus: A would-be entrepreneur preparing to launch a business with two friends admits he’s feeling scared. He wants to know whether that fear ever goes away. Mel and Jay think he’s asking the wrong question.

— Loren Feldman

Guests:

Mel Gravely is chairman of Triversity Construction.

Jay Goltz is CEO of The Goltz Group.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Jay and Mel. It’s great to have you here. Mel, you know how much I hate to make you guys talk about what it’s like when things don’t work out the way they’re supposed to, but I’m going to make an exception today, just for you. I know you have some news to share about your side business, a facilities maintenance business that you’ve talked about here a couple of times before. But for those who may not have been listening, could you give us a little background? Maybe explain, again, how you managed to buy a business that everyone told you not to buy.

Mel Gravely:
Yeah, well, Loren, you shouldn’t feel bad, because I have perfected the art of explaining things that didn’t go well, so that just means I’ve had a lot of practice. [Laughter] So, not a problem at all. Let me just give you a little chronology, a little background, and I think it’ll help contextualize where we are today.

But I’ll start with the end of the story. On July 31, I ceased operations of this company that I bought back in March of 2023. And it is a facilities maintenance, facilities management company. Think: everything that a facility needs, but not including the environmental things. So we didn’t do janitorial or things like that, but lawn care, snow removal, gutter cleaning, patch and paints, small refreshes of conference rooms. I am a B-to-B entrepreneur. That is what I know the best. I’m not a business-to-consumer guy. So that’s the context of who I am and what this business was.

I bought a controlling interest in March of 2023. Controlling interest was 60 percent. I had a partner who owned 40 percent. They were in the deal ahead of time. They stayed in the deal after I bought the controlling interest. So why did I do it? I bought it because it’s an execution business. And I love execution businesses, because if you do your job every day, you get to stay. I bought it because of the contractual longevity of it. You were signing multi-year contracts with large, complex customers. And I bought it because we self-performed the work. So I actually had people with tool belts on and paint brushes, and they were doing the work, which increases margin, but also gives you control over quality.

So we were managing the work and doing the work, and I like that model, and I saw a path to scale, because they had primarily one customer. They really had two, but primarily one customer. It was a large, complex customer that I knew we could use to resell this solution around the country to other large, complex companies. So what did I buy? I bought the 60 percent. We got one customer. I had partners who were experts in this business. They ran a separate company of their own, targeted on different customers than we were targeted on, but they had the expertise in the business: How do you price it? How do you model it? How do you execute? So those are the things that, when I got it, that I bought.

Loren Feldman:
Or what you thought you bought?

Mel Gravely:
Yeah, well, it really was what I bought. But the challenge is what I knew but didn’t recognize: This business that I now was a partner in was previously owned by two other businesses. So they were using this business to optimize their returns. No one was managing the returns of this business that I bought into. I knew it was owned by two companies. I didn’t know that’s what they were doing.

Loren Feldman:
It was kind of a loss leader?

Mel Gravely:
No, not a loss leader. They were renting people, for example, to this business. Each business was renting people to this business, and they were charging an upcharge to rent the people. So the two businesses were making money. They weren’t as focused on whether the business I bought was making money—if that makes any sense to you. And so the fact that it didn’t have very good financial records, if any at all, was a challenge.

So let’s talk about what happened. Almost after day one, I realized that I had partners who weren’t interested in scaling the business. They were having their own internal conflict. They had gone from generation one to generation two. There were four young individuals who were first-time business owners. They had been in the seat for six months prior to me buying in, and they just struggled with themselves. So it made them unavailable to help us scale this.

Number two, by May, we had put together the financial statements that they did not have when we bought them and realized that they lost money in 2022, the year before we bought it, to the tune of close to a million dollars. And year to date, through May, they were on track to lose another million that year. They were at about another half-million-dollar loss through May of 2023, the year we bought it.

And meanwhile, the partners are just really going after it. They’re having different challenges. And so what I did while they were struggling is, I went about trying to get this thing back to profitability. I like to do this. We went to the customer, and we said, “Hey, here’s the open book. Here’s everything that’s going on.” And, by the way, when we got the financials together, Loren, Jay, I saw something I’d never seen before: negative gross margin. I didn’t know that that was possible. It really means that we were paying the customer to do work for them. We were losing close to $2,700 a day, paying the customer to come there and do work.

So how did that happen? Labor costs have gone up 22 percent since Covid. Our bill rate to the customer had gone up 4 percent. The customer had asked us to assign additional management staff and safety staff in various locations for things that they wanted to happen. We did that with no means of recouping it. And it was just a challenge. So we went in front of the customer. It took us months, but we renegotiated a deal, the terms of our contract. They were very willing to do that when they saw the evidence, and by July, we had a business model we thought would work. So we ended 2023 profitable.

We went into 2024, but again, by this time, our partners are really struggling to get along with each other. They decided that the only way out was to sell their business. So they packaged it and put it on the market. I was concerned about being left with a new owner I didn’t know, a new partner I didn’t know, so I put mine on the market next to theirs, and we decided we’d sell them together. So for the next six months, we were trying to sell these businesses. We finally got a buyer and worked on that for a few more months. The deal fell through at the last minute. By this point, it’s just a drain on relationships. It’s a drain emotionally on people. We’ve got a profitable business now, so I decide I’m going to double down, and we’re just going to run it. My partners continue to struggle with each other.

Meanwhile, what I haven’t talked about is the emotional roller coaster this is putting myself and my wife in, because we had to put another million dollars into the business. As 60-percent owner, I put in 600 grand. My partners put in four just to get the balance sheet back right. And so we’re hanging out there financially, and I’m not sleeping, and it’s pretty stressful. And my wife just finally says to me, “I don’t care what it costs. Just get out.” And I thought: Man, super clarity. Her point is that, at some point, it’s just time to get out. So I’ve got a profitable business. My wife is done. She’s just like, “I’m finished with this. Get out.” So I pulled our advisors around, tax advisors, lawyers, my team at Triversity Construction, and we came up with a plan.

Loren Feldman:
Mel, remind us, Triversity is your main business that you, in the past year, stepped back from, moving from CEO to chairman. Someone else is running the business, but it’s a much larger business.

Mel Gravely:
It’s a much larger business. The business I’m talking about today is… last year, we did about $8 million. Triversity will do $170 million. So they’re much larger and a very, very talented team. So we pulled all that together, and we came up with a strategy. So I bought my partners out for less money than they had put in in that last tranche. So they put in 400 grand, and I bought them out for less than that. So I’ve got some positive equity from that. We’ve got a profitable business with equity on the balance sheet. And we just decided to bare-bones this thing and run to the finish line and close it in July.

So I announced that to the customer in March to give them time to plan. They asked me for an extra month, because I wanted to go through June, which was my current contract year. We went through July to give them an extra month because they needed a little bit more time. And we just stripped all the cost out of it, ran very lean so we could maximize profitability. They went through an RFP process, picked another supplier. We worked on a transition with that supplier. They hired all of my people, except for two, and now we’re in the cleanup phase. So cleanup phase, meaning making sure all the invoices are right, making sure everyone’s paid. But I think, based on the projections that I’ve got in front of me, that we should be able to come out of this thing, and I still have a shirt. It may not be on my back, but I still have a shirt. [Laughter] So that’s the chronology of it, and we should be done with this by the end of the year, completely, we think.

Loren Feldman:
How did you make the decision to just close it down, as opposed to taking another crack at selling it?

Mel Gravely:
Yeah, I did take a quick drive-by on selling it to people who were familiar with this customer, particularly. You know, when you’ve got one customer, when you’ve got a contract that is, on paper, ending this coming June—which we would have re-signed but I hadn’t re-signed it yet—and you’ve got payment terms that are 120 days, you’re not a very attractive buy target.

Jay Goltz:
I mean, it’s a question of: You know, what are these people buying? And what you just described isn’t very appealing, is the point.

Mel Gravely:
Yeah, the only thing that we had going for us at that point was we had gotten it to the right level of profitability, where it should be, both gross margin and net margin. But with the contract looming that you’d have to re-sign immediately, it just made it tough. Now, I believe that the right buyer, I could have walked into the customer and said, “This is the right person to take this forward. Let’s re-sign the contract now.” We could have done that as terms of the deal, but it’s just, by that point, Loren, you’re just emotionally drained. So I did a quick drive-by. People said, “No, I’m not really interested”—even after seeing the books. And we just put this exit strategy together.

Jay Goltz:
Unfortunately, I totally get it: been there, done that.

Mel Gravely:
Yeah, I think sometimes it’s just time.

Loren Feldman:
How did the customer respond this time? Did they try to make any kind of arrangements with you like they did the previous time that would have made it more palatable for you?

Mel Gravely:
Yeah, they did. They wanted me to stay, and the biggest reason is, I think we’ve been a super transparent vendor for them. And our ratings were in the high 90s across our scorecard consistently. This team just delivers for the customer. And so, they did want us to stay, but at that point, you couldn’t talk me out of following my wife’s instructions, which were, “Get out of there, and I don’t care what it costs.” My wife is a very—her love language is financial security. When my wife says, “Get out and I don’t care what it costs,” that means it’s time to get out and she doesn’t care what it costs.

Loren Feldman:
I think anyone can understand why you chose to make that decision. Had your wife not felt that way, do you think this is what you would have done?

Mel Gravely:
Yeah, probably so, because by that point—remember why I bought it. I bought it because I thought I could scale it. And so, what it would have taken for me to reignite myself, to get excited about that, would have been a lot. And by then, I just don’t know if I had it in me on this business.

There is one scenario that I probably would have stayed: if my team at Triversity Construction would have wanted this business. They are just such a talented group around finance and strategy and execution that it would have given me the back office to feel confident. But when you’ve got a single-customer company, your back office has got to be super lean, and my folks at Triversity have so much going on that they decided this was more of a distraction than it was a strategic opportunity for them.

Jay Goltz:
I think, as an entrepreneur, there’s a couple pieces you left out, one of which is: You’re not 35 years old. [Laughter] If you were 35—

Mel Gravely:
I’m 37! I’m 37!

Jay Goltz:
—and this was your only source of income, you probably would have dug in and fixed it. But I get it. At some point, enough is enough. And you also stated that you weren’t sleeping at night. I assume that means literally, because I’ve been there also, and at some point you just go, “You know what? I just don’t need this aggravation at this stage in my life.” I get that. And like I said, I’m not sure at 35, if you needed the income from this, that you wouldn’t have dug in and did what you had to do. But the fact is, you don’t.

Mel Gravely:
Yeah, Jay, you hit it on the head. I mean, number one, at 35 I probably had a different level of energy. Number two, you’re right, I mean, I never got any money from this business. So we weren’t living on any income from it, because I’ve never taken any income from that business. So we didn’t have to have it. There’s no doubt there’s a kind of level of privilege or choice or option that I had, that if I had either less resources or was younger, I might not have had.

Jay Goltz:
The worst saying I’ve ever heard—it’s the only one I can think of that’s misread—is when people go, “Never, never, never give up.” That was from Churchill. They leave out the last line. It’s, “Never give in, never, never, never, in nothing great or small, large or petty, never give in—except for convictions of honor and good sense.” They leave that off. So, never give in, unless in good sense—that’s the point. Sometimes it absolutely makes sense to give in. And that quote. How many people have lost zillions of dollars more than they should have, because they brainwash themselves to think, “Oh no, I can’t give in”? So, congratulations.

Mel Gravely:
Yeah, I agree with you. You know, my kids when I die, I’m sure when they’re talking about their dad, they’re going to talk about “sunk cost,” because I use that with them all the time. Whether it’s relationships or investments you’ve made or even a job you’ve got—and for the listeners that don’t know the term “sunk cost,” Google it. I mean, it’s the only thing I remember from business school. And just because you put a lot into something doesn’t mean you should put more into it, whether it’s a relationship or anything else. And this was one of those cases. I just didn’t see it, for all the reasons we discussed.

Loren Feldman:
Mel, you described how, once you made the decision that you were going to shut it down but you had to operate it for several months through July, you tried to strip out as many of the costs as possible. I’m just curious, did you learn anything in that process? Were there things that you were able to do then that maybe you could have been doing all along?

Mel Gravely:
No, no. Everything we cut out of it were things that you would need to sustain it if you were going to go long-term. This is a pretty skinny business. Again, I think we got it right-sized. It was built to do what it was doing, and it was doing it well. I mean, the fact that we were profitable that first year, a full year after we took it over, and then profitable again last year, and doing quite well this year is a testament. So, no, I think we probably picked up a couple of hundred thousand dollars of savings, but we couldn’t have sustained that if I was going to keep running.

Jay Goltz:
Don’t you think one of the entrepreneurial lessons from this—because I’ve also been in this situation—is getting involved with other people? And years ago, somebody wanted to buy my company. This was 30 years ago, and I flew down south to their headquarters, and I watched the family dynamics. And I said to myself, “This is one screwed up family dynamic, and I want nothing to do with it.” So I didn’t even consider it. In hindsight, do you think that was one of the mistakes, that you didn’t know what you were getting involved with with the family?

Mel Gravely:
Yeah, Jay, it’s like, we almost set this thing up for the audience. We really didn’t, but I wrote down the three things I learned, and the number one and number two and the number three thing on my list is the partners. Triversity has partners, too, and it’s been a wonderful ride. We sometimes get in the middle of the street and scrap like cats and dogs, but we’re committed as partners. Everybody’s bringing value. They’re after the same things. These young lads are good people, but they had their own internal struggles. And they hadn’t been in this game before, and so it was freaking them out. It just wasn’t a great partnership. So I would say that’s number one. I’m a believer in partnerships. I just really believe in them. But some people think if you put a good agreement together, that’ll work.

Jay Goltz:
That’s ridiculous.

Mel Gravely:
Yeah, the agreement’s for lawsuits. That’s what that’s for. Once we get to a lawsuit, it’s too late. So I would say: Know, trust, and believe in a functional partner would be number one. It’s like you were reading my notes, Jay.

Jay Goltz:
I’ve lived it. So I get it, and I have to tell you, I don’t have any questions. Everything you said makes perfect sense. I totally get where you’re at. And I really mean it when I say: Congratulations for having the good sense to go, “Yeah, this is not worth the trouble and time.” It’s time to move on.

Mel Gravely:
I appreciate that. You know, when I bought my partners out a couple of months ago, I think I bought them out in March, and people are like, “You’re buying more of this thing? What? You’re going the wrong way.” First of all, I wanted 100 percent of the earnings that we’re about to do for the next few months. So that’s part of the math of getting this done. But the other part was, I didn’t want to talk to anybody about what I was about to do. I didn’t want to have to go and explain it to anyone. I knew I was clear, and I didn’t want any partners around it. I had to worry about the implications of my decisions on them and have them worrying about it either. So having them out of the picture and happy—by the way, they were very pleased for me to buy them out—just made it much easier.

Loren Feldman:
Mel, you told us in the past that your original idea was to have Triversity by this company, but the folks there looked at it, kicked the tires, and said no.

Mel Gravely:
Well, they went along the emotional roller coaster, right? So when I’ve got it and the financials are all screwed up, of course, I go to Triversity, and I say, “Can somebody make these right?” Well, now they’re distracted, making my side hustle right. So they were just worn out, too, Loren. But you were headed somewhere else with that. I apologize.

Loren Feldman:
No, not at all. I was just going to ask, once it was all over, did you get any “I told you sos”? Did anybody say anything?

Mel Gravely:
Well, they think it, but they dare not say it. I will tell you, though, I think they’re all amazed. I think they’re amazed at a couple of things. One, they’re shocked that we got it to profitability. I mean, negative gross margin is pretty bad. So they were shocked we got to profitability. And then they were shocked that this plan to execute on the end—it looks like it actually will work. And so I think they’re surprised about all of that.

Loren Feldman:
Mel, explain the negative gross margin thing. Does that just mean that you’re taking in less money than you’re spending?

Mel Gravely:
Yeah, so if you take all the money that it costs you to deliver the service to the customer, the direct cost to the customer, and you subtract it from what you bill the customer, that number should be positive. And in our case, it was not. It was a negative gross margin of 3 percent, which I’ve never heard of before.

Jay Goltz:
So there’s an old joke about that: I lose five cents on every transaction, but I make it up in volume.

Mel Gravely:
Yeah, I mean, we do 11,000 transactions for this customer a year. 11,000 a year. That means we do a lot of small things. We were losing on 90 percent of those transactions. It was pretty bad, but easy to fix, easy to fix. If I’d had good partners, we’d still be running this business today. I shouldn’t say “If I’d had good partners”—they’re good people. If we’d have had the right partnership—because I don’t want to vilify them—we’d still be running this business today.

Loren Feldman:
I think you told us that was number one on your list of lessons. The other two?

Mel Gravely:
Taxes. We think about them at the back end, and we shouldn’t. I had a lawyer say to me that taxes are a part of the profitability calculation. And I said, “Huh?” He said, “If you’re not doing that upfront, you leave yourself open to some negative tax consequences.” For example, you know, simply structuring your business as a sole proprietor or partnership can drive different tax ramifications from that, especially when you’re doing an acquisition. And I never thought about any of that stuff. It never occurred to me. Everything I look at now, I always say, “Okay, what are the tax implications of that? How am I going to be taxed on that income?” Or, “Is it a capital gains move?” Or, “What deductions might we be able to get?” So my tax advisor is Velcroed to my hip right now, because everything I see, I can’t stop seeing the tax implications. And in our country, it can swing real returns—not just paper returns, but real at-home returns, by a considerable amount.

Loren Feldman:
Do you think that happened in this case? Was that part of the problem?

Mel Gravely:
No, I think it was part of the solution, is where I picked it up. So when we decided to get out, the way I bought out my partners, the attorneys advised me to buy them out in a particular way and buy them out with a particular kind of entity so that we maintained a partnership piece—because if you didn’t, I’d get taxed differently. So it came out in the end.

We were in a cash basis versus accrual basis. I’d never run a cash basis business before, so I didn’t know what the difference was. So the tax people are walking me through the tax implications of cash versus accrual. It’s just a very important part of every investment, and I don’t think we think about it until tax time, and it’s too late.

Loren Feldman:
Interesting. And number three?

Mel Gravely:
Number three is, sometimes you’ve just got nothing left. Sometimes you just got nothing left. And so before you go through—because people keep saying, “Why are you selling a profitable business?” Before you go through and burn relationships or burn yourself out, or drive yourself into a stress headache, Jay is right. I had privilege, the privilege of options, to be able to say, “It’s time.”

But even if the options were less, even if I had to go back and get a job, sometimes you just don’t have it. So before you spend your 401(k) or borrow money from your best friend that you’re never going to pay him back, or whatever those things are, I think you gotta step back and make sure you’re the person who’s supposed to run this. And in this case, I was not.

Jay Goltz:
And there’s nothing wrong with that. That’s the point of the story.

Mel Gravely:
Well, I had to get over some ego bumps. But so far, there’s not been a newspaper article about it, which I’m expecting any day now. I’m a pretty high-profile person in town. There was a series of articles when I bought it. We’ll see if I can get out of it quietly.

Loren Feldman:
Hopefully they won’t hear about this podcast.

Mel Gravely:
It’ll be okay with me. You know, if people learn from the lesson—this is not the only one I crashed and burned, Loren. I mean, you know, we could have a series. We could have a podcast series of just the ones that Mel blew. So this is not the only one.

Loren Feldman:
Well, I appreciate your sharing, and we’re going to come back to that, Mel. We may do that series. [Laughter]

Jay Goltz:
You have nothing to be embarrassed about. That’s for sure. It gets back to the man in the arena. When we’re in the arena, some stuff goes wrong. That’s the way it goes. I’m very proud of the fact that I never said everything goes right. You never said everything goes right. Sometimes it doesn’t go right. That’s the way it goes.

Mel Gravely:
Yep. Thank you. I appreciate that.

Loren Feldman:
All right, Jay, so I’m going to give you an opportunity to talk about something that didn’t go quite right, which is: The last time you were on the show, you told us that you had recently reached the point where you had to furlough some workers, some employees.

Jay Goltz:
Well, first of all, let’s not say “had to,” because this is the dilemma: I chose to. I just decided: Should I do the furloughs? Business is down. Labor is high. I really don’t want to lay anyone off. I’ve got excellent people there. The first step is, if anyone’s barely hanging on, you probably should lay them off, but I don’t have any of those.

So, yeah, I decided to do some furloughs, which I’ve done years ago. But everybody knows business is off. The furniture industry is down because people aren’t moving, and everybody in the industry knows it. And I’ve got a little different audience than I used to have when we announced that. It’s like, in the olden days, when you told people you had a furlough, they think, “Okay, that’s better than getting laid off.” That’s not the same now.

Loren Feldman:
Explain the difference. You didn’t lay them off. You reduced their hours, right?

Jay Goltz:
I just said: You’ll get paid for work. Take half a day off. That’s all, you know. I’m not cutting their pay. Just take half a day off. And I didn’t think it was that big a deal.

Loren Feldman:
Wait, wait, you didn’t cut their pay, meaning their hourly pay?

Jay Goltz:
Right, they’re hourly. Well, no, if they were salaried, everybody took, basically, 10 percent. But they’re not working. They got the time off. And I just felt like it was different now, in that, in the olden days, people would feel like, “All right, we can see business is off. That’s better than laying people off. Okay, we’ll tighten our belts.” Now, it’s like, “What do you mean you’re furloughing? Well, I’ve got my expenses.” If you said, “Jay, how did that go?” I don’t know. I mean, I did save some money. No one’s quit.

You know, the new thing, which you’ve written about, I believe, is everybody’s job-hugging. No one’s leaving. I had one of my managers say—which was interesting, and this is a solid guy, extremely solid. He goes, “You know, I’m worried.” He’s in his mid-30s. “These younger people, I’m afraid they’re gonna go looking for jobs. They want to make more and work less.” And I just had to go, “We pay well. Where are they going?” And he said, “Well, I guess you’ve got a point.” I mean, I’m not being brutal about it. It’s just, I felt like I needed to do something. Business is off. And last month was better, so maybe we’ll be done with it. But there’s no question that the typical employee is a little different today than they were 10 years ago.

Loren Feldman:
That’s what I wanted to ask you about, Jay, because you referred to that last time. You said, “The reaction I got was startling compared to the old days. The young people who work here that have never seen this before are looking at me like, “What? Why are we?” And then you said that you realized we’re in a world now that they just”—here’s what you said: “I have been funding this business with hundreds of thousands of dollars to get through this and, like, no one knows about it, no one cares.” And that’s the question that I want to ask you: If no one knows about it, how can you expect them to care?

Jay Goltz:
Well, because they know business is off. They know it’s slower. I mean, they can see it. They know the sales are down. So I would think they know that’s a problem. But I’m not blaming them. I’m just saying, they clearly—

Loren Feldman:
It sounded like you felt some frustration that they were not in it with you.

Jay Goltz:
Well, maybe I screwed up. Maybe I should have been more communicative about it. I’m not putting anything on them. It’s just an unfortunate situation. I did notice, though, that it is a little different. And then part of it is, I’m no longer close to their age. I’m older than their parents, most of them. So I don’t know. I just felt a little different the last time I did it, and maybe it’s because it was 2008 and the world was coming to an end, and everybody knew it. Maybe now it’s more subtle, but they all can see business is slower.

You know, people always ask us, 21 Hats, “Oh, when should I hire people?” I have a new one. The question is: When should you lay people off? That’s a far trickier question, because I’ve got really good, solid people who I’ve trained, who I’ve kept, who have experience. I’m doing everything I can not to lay somebody off, and I haven’t. So I thought that furloughs were a more painless way—and it was just for, it might be for a month or two. Let’s just see what happens. And it didn’t feel painless. That’s all I can say.

Mel Gravely:
Jay, do you have any thoughts of, “I should have just laid off 10 percent”?

Jay Goltz:
No, it’s the frustration. Let’s start with framing. It’s hard to find the right people. I’m looking for hybrids. They’ve got the art thing going, but they’ve also got good business skills. They understand what taking care of customers is. So I find them. How long does it take me to train them properly? The reason why my frame business is so much bigger than the average is because I’ve got really qualified people who know what they’re doing. It takes me six months to get them up to their thing. To go ahead and lay someone like that off, who’s doing a good job?

And then, how do I know, next month, business isn’t going to recover? Which, last month, for example, business was much better last month. So, yeah, it’s not easy—it’s tricky. And on top of the fact, I like all these people. They’re all doing a good job. If they weren’t, I would get rid of the weak, the one that you know, is barely holding on. Okay, yeah, for sure, one should take care of that. But these are all eights, nines, and tens who I got working for me.

Mel Gravely:
Well, that’s a good thing, though.

Jay Goltz:
Yeah, well, and it wasn’t by accident. I mean, that’s kind of the point.

Mel Gravely:
Let me ask you, though, Jay: Loren brought up the point with, how would you expect them to know if they didn’t know, right? I just wonder, what do they know—not just about whether the work’s down or up, but what do they know about the finances of the business? Anything at all? How do you manage that part?

Jay Goltz:
I said to Loren a couple days ago, I go, “You know what? Maybe I screwed up.” Maybe I should have fully embraced this open-book management 30 years ago. I sent some people to one of the seminars on it, and they all came back and said, “Oh, people are mad because they weren’t making enough money.” And I’ve got a complicated business, and I don’t think there’s one business. They’re related, but they’re not related. They’re connected by the design element, but they don’t have anything to do with each other, so it was just really cumbersome. So, no, they don’t know much about it, but they do know business is off 20 percent or whatever for the month.

And I also know, I’ll just say this for the sake of everybody: People want a fearless leader. Nobody wants to see someone going, “Listen, I’m really worried about the business.” You know, this whole new transparency thing? That’s for government. Like, nobody wants to see the boss with his head between his hands going, “Oh my god, I’m afraid we won’t be here next month.” I mean, not good leadership—not that we’re in that position. We’re fine. It’s just, business is off, and I’m trying to get through a couple months until I think it’ll come back to where it was. But, yeah, it’s very tricky. That’s the point. It’s very tricky.

Mel Gravely:
I don’t know how I feel about the textbook approach to open-book management. I go back and forth on that kind of thing. I have found, though, that the more people generally know in good and bad times—but particularly the good times—the better they can handle the down. Because they become a little bit more economically educated, you know.

So I think every business is so different and all of that, but just generally, if there’s a way to share just the basics of income, gross margin, net profit—it’s a little different, because they look at you, and they see net profit, and they think, “Oh, boy, he’s made all that money.” And I know that’s a bit of an exposure, but that’s one thing. The other thing is, you said that this whole era of transparency—I don’t agree with you that it’s just for government. I mean, I think there’s a way to tell people, “Let me tell you what we’re up against,” without making them think I put my hands between my knees.

Jay Goltz:
Okay, there’s some transparency. I’m not arguing that some transparency—I certainly am transparent about some things. But just when people say transparency, I think that implies full transparency, which I think is ridiculous for a business. For a government? Sure. Why not? So, I don’t hide anything. They know what’s going on, and I’m very open about it. And they know the sales are off. The problem is, I think it’s off just temporarily, and it’s going to come back soon.

I mean, I’m fine. I’m stable. I own all the properties. I just felt like I should trim a little bit to get through. So my three options were, go lay somebody off. I don’t want to do that. Like I said, I think it’s going to be coming back. And then somebody could quit next week, which, who knows? I mean, people do quit eventually. Two, do nothing. Okay, that was an option. Or, three, was do a furlough. So I chose the furlough thing.

Mel Gravely:
You know, I respect the heck out of that. And sometimes we’ve got to make decisions, and how people react to them is just how they react. If you pay well, and you took care of people—

Jay Goltz:
And they know it, and they know I do. And I said to the group, I go, “Look, if anybody really gets into a financial bind because of this, come talk to me. I’ll figure it out with you.” I would have lent them some money or something. And they know that. I’m not saying they all hate me now or something—though maybe they do. I don’t think so. It’s just, the 26-year-old of 2025 is not the 26-year-old of 2015. We’re in a much more trying time, basically. And it isn’t overnight, like with 2008. It’s been coming. All you have to do is turn the news on. There’s a lot of anxiety out there, and I totally get that.

Mel Gravely:
Agreed.

Loren Feldman:
A lot of it is directed at big corporations, capitalism in general. And I think owners like you guys get caught up in that a little bit. A young person working on the front line of a business doesn’t necessarily have the sophistication to distinguish. And you have a reputation in Chicago, you’re on a street that’s named after you. They see a very successful group of businesses. And, to them, the fact that sales are down may not mean what it means to you.

Jay Goltz:
Well, and here’s the trickier part for me, which is, unlike most businesses: I’m competing with people who don’t have any health insurance. My competitors don’t offer health insurance. I’m paying a lot of their health insurance. So, like, it’s a real job, quote-unquote, and that’s unusual in the framing industry. Most frame businesses are run by the owner and maybe a couple people. Maybe they offer insurance, maybe they don’t. So it’s not like I’m in the building trades where everybody’s going to be getting insurance, and you’re competing with companies that are also offering insurance. So, I’m trying to find a balance there.

Mel Gravely:
Well, you’re paid the huge dollars to make those tough decisions.

Jay Goltz:
Or not paid the huge dollars.

Mel Gravely:
Exactly. I meant that facetiously, and we chose this way of life. But I really thought what you just walked through was very logical to me.

Jay Goltz:
One of my new things is: You know what? They’ve done a study, and whining has never solved anything. I don’t want to whine about it. Loren asked the question. I’m not whining about it. It is what it is. It’s fine. I’ve got great employees. I’ve got great customers. I own the properties. It will be fine. But it was a little… I was surprised that the reaction was a little different than I would have gotten 10 years ago, I think. And I’m not putting it on anybody. It just is what it is.

Loren Feldman:
Jay, you kind of raised the question: What does it take? Where do you need to be to decide to go ahead and lay people off? Have you figured out an answer to that question?

Jay Goltz:
No, I’m just navigating it as it goes. And like I said, last month was better, and I think business will pick up for the next few months. We’re not talking about even 10 people. I mean, I’ve got 120 people who work for me. There’s no way I could get rid of 10 people, but three? Yeah, I guess. But I’m not doing it. I’m gonna tough it out.

And part of this is, I’ve got one guy retiring next year. So, I mean, at some point… My turnover is extremely low, like way less than 10 percent. So, that’s a blessing. And at times like this, it makes it a little harder, because in some cases, if you had normal turnover, you would just stop hiring. And it would take care of itself. That’s not the case. I haven’t had anyone quit in months, but eventually that’ll happen. So yeah, I’m just taking it as it goes. But I have to be very clear: It’s not that bad. It’s down, but it’s not like it’s down 30-40 percent or something.

Mel Gravely:
I think that’s one of the biggest differences between a business-to-consumer business and a business-to-business business, because I have no idea how you can forecast if you’re not a big company. I don’t know how you can forecast the future well enough, because, like you said, Jay, I mean, people have to be doing some activity to really drive that sales up to a sustainable number. Whereas in B-to-B, I can look out over our projects. I can look at the horizon a little bit more clearly. I probably can’t predict out five years, but I could predict out seven, eight, 12 months.

Jay Goltz:
Well, what’s odd—and I’ve been in this business for 46 years—business goes on unless there’s a recession or something. The fact is, you’d say, “Well, gee, how many people need picture framing this month?” Well, somehow, every year it grows a little bit. It’s kind of interesting. It’s like people getting haircuts. I mean, it just is what it is. If you looked at my graph of sales over the last 30 years, it’s not like it’s going up and down like crazy. It’s pretty consistent. And so it is odd how the world works like that. But most retailers, most retail businesses are fairly stable like that. They can pretty much predict, “Okay, we did X amount this year. We’ll probably do 3 percent more next year.”

Mel Gravely:
So you must be large enough that it’s at a level of scale that smooths out. Like, I’m just picturing a small frame shop. That’s all they do. They don’t have any furniture component. They just do framing. And you’re saying their business would probably be pretty steady if they’re already good at it.

Jay Goltz:
Yeah, the typical frame shop in America—there used to be 25,000, now it’s six—is probably grossing 300 and some thousand a year, and has the owner and maybe one other person, maybe two. And keep in mind: They’re running the frame shop. I haven’t taken care of a customer in 30 years. They’re on the front counter. They’re taking care of the customer. So there’s a little bit of, it’s almost a profession as much as a business. And that’s the nature of the business. There aren’t that many million-dollar frame shops in the United States. I don’t know that there’s 10.

Mel Gravely:
Wow. Okay.

Loren Feldman:
Mel, let me ask you, you’re in an industry that’s kind of notorious for having a labor shortage. Have you ever thought about what it would take, at what point you would start to think about layoffs?

Mel Gravely:
You know, when you asked that question, I thought about the same thing. And the short answer is: No, we haven’t, but mainly because we haven’t had to—other than the moment of freaking out that everybody had around Covid. Everybody froze and freaked, and so we created all kinds of plans of what we would do. No, we haven’t.

What I will tell you, though, is philosophically, we try to pace our growth so that if we do hit a rough period, either because of our business or because of the environment, that we can ride through it carrying more people than we should have, because we didn’t overstaff so much that that it would put us in some kind of jeopardy. Obviously, there are limits to that, Loren. At some point, you’d have to take some action. But we are trying to pace our growth to a point where, if our utilization goes from 85 percent, which is what we plan for, down to 75 percent or 70 percent, we could carry those people for a while until the business or the environment change.

Loren Feldman:
Okay, I sometimes kind of throw case-study type situations at you that I find on the small business subreddit. I’d like to throw one more at you real quick that I think is somewhat relevant to this conversation. Let me read it to you:

“My partner, best friend, and I are all passionate about starting an eco-friendly landscaping business that we hope to officially start in roughly two years. Between the three of us, I’m confident we have the skills and experience to do an excellent job, but I’m worried about not finding enough customers or having the business fail. In general, we aren’t trying to get rich, but eventually we’d need to make a profit to survive, and I’d hate to invest so much time into something that ends up failing. How do you get over this fear, and how did you ensure you got customers to keep yourself afloat?” Do either of you have any thoughts about that?

Jay Goltz:
You know what, I don’t think you find entrepreneurship. I think entrepreneurship finds you. And I’m concerned—I’ve never had that mentality. I always just went out there and worked hard and found customers. If he’s that worried about it, I’m not so sure he should be going into business, frankly. There’s no answer to that.

Mel Gravely:
Yeah, I would agree. I don’t think there’s an answer to the fear, because what you should be feeling now is excitement—but I think the excitement comes from clarity. So I heard the kind of business they want to start. What I’m not so sure I heard—it’s just in a Reddit [post], so who knows, but—super, super, super clarity about who cares.

And I want to know demographics, location. I want to know as much about the who cares as I possibly can, because then I’m going to know where I’m going to find them. I’m going to know what drives their motivation for the product. I’m going to know their ability to pay. I’m going to know a lot about them. So my suggestion would be that they go get really super clear about who the customers are who care about what they’re selling. You never want to care about what you’re selling more than anyone else cares about it, because when you do, you’re going to struggle to find customers.

Jay Goltz:
That’s one good concern. The second good concern is: three partners? From what I know, it usually doesn’t work out. [Laughter]

Loren Feldman:
We were just talking about that.

Jay Goltz:
No, this is that old movie with Mickey Rooney, where he says, “Oh, you’ve got a barn. I’ve got some costumes. Let’s put on a play.” Like, “Oh, let’s start a business. Oh, that would be great.” I just, you know, three partners in a landscaping business? Who’s going to be cutting the lawn? I just don’t know that a landscaping business needs three partners. You make money by hiring people for less money than a partner would make, and that’s where the margin comes in. If you’re all owners, how does that work? How can you charge enough money to have three owners taking care of the landscaping? I just don’t know how that math would work.

Mel Gravely:
So, Jay and I depart in the woods again on this one. I think three partners can absolutely work. I’ve got three partners now, and it works just fine.

Jay Goltz:
And a gigantic business!

Mel Gravely:
Yeah, but it wasn’t gigantic when we started. It was dog doo doo when we started, and it was pretty bad. But I get your point. Here’s the thing, though. I think the partners have got to add value, so they can’t just be friends. And I think when they’re doing the work upfront, when they’re the people providing the work, I think it is a way to bootstrap the financial startup of a business by having the owners do the work. But they’ve got to price it such that others are doing the work.

So they can’t say, “Well, we’re going to work 20 hours, but we’re going to bill the customer for 12.” Well, then you’re not building a good business model. So as long as they’re charging the customer like they would be paying someone to do that work at a market rate scale, they don’t have to take that money, but they’ve got to bill a customer with that money. I think having the partners do the work is a wonderful way to bootstrap the business financially.

Jay Goltz:
Your partners, were they your friends? Were you sitting around in the bar with two friends going, “Hey, let’s start a construction business?” Or did you meet them in the business?

Mel Gravely:
No, I wasn’t. Yeah, I met them in the business. And I agree with you, by the way, that they’ve all got to add value. But if these are all just buddies who decided, after a pint, that this is a good idea, I agree with you. That’s a mess. But if they all add value, the part of them working in the startup, I think it’s a brilliant way to conserve cash. And in a startup, unless you’ve got a lot of money, you want to conserve that cash. They’ve just got to be billing like they’re paying employees to do the work.

Jay Goltz:
That’s assuming that all three of them can afford to take a financial hit in the beginning.

Mel Gravely:
Right. Well, that’s on them.

Jay Goltz:
Yeah, I know, and that’s why I’m saying, my guess is, when push comes to shove and it comes down to quitting their job, I question whether all three say, “Yeah, this is a good idea. Let’s go do it together.”

Mel Gravely:
And then I’ll only have two partners, and so I’ll be down from three to two. And it’ll be okay.

Jay Goltz:
Because they might have a wife who’s going to go, “Yeah, this isn’t making any sense.” Because you know how that goes.

Mel Gravely:
Absolutely, I do. And it always takes at least two times longer than you think it’s going to take, even if you’re a very conservative person. Loren, if they don’t have a clear sight of the customer, this is just a very bad idea. They should do their own lawns and let it be that.

Jay Goltz:
I mean, the question is, how many people wake up and go, “I’m really looking for an eco-friendly landscaper”? Umm…

Mel Gravely:
Honestly, it never crossed my mind.

Jay Goltz:
That’s what I’m saying.

Mel Gravely:
Or maybe there’s a huge demand, and there’s a niche, and the big guys aren’t offering it and all of that. But my gut says: I bet other people are offering it. They’re probably bigger than you are. They offer it as an offering, not their whole thing. But we could be wrong, and I think them getting certain about the audience might be helpful, because Jay and I don’t know anything about the landscaping business.

Loren Feldman:
He asked the question: How do you get over the fear? Suppose he had asked the question: How do you get over the anxiety? Both of you have acknowledged there have been times when you’ve lost sleep at night, which kind of speaks to having anxiety. Do you ever get over the anxiety?

Jay Goltz:
I mean, I’m too dumb to have fear. I thought, “Yeah, this is going to work,” and I jumped in, and I did it. And I think many or maybe most entrepreneurs dig in and aren’t thinking about failing a whole lot. They’re thinking about what they need to do to succeed. That’s why entrepreneurs are weird animals. They’re not normal. They’re clearly not normal. They’re not like most people. People say, “How do you start a business without borrowing against your house or something?” I laugh: “When you figure that out, will you tell me? I’d be interested.” [Laughter]

Mel Gravely:
I agree with Jay.

Jay Goltz:
There we go. That’s how we want to end this. Let’s be in agreement. I tell people all the time, “Don’t think that entrepreneurship is a career.” It’s not normal. We take risks that normal people don’t do. And we’re so confident, we think, “Oh, this is going to work.” We don’t even think about, “Well, what if it doesn’t work?”

Mel Gravely:
It’s the stage they’re in, and the words he’s using that—if we were talking to him, I think we could dig in deeper. But it’s too early to be talking about fear. Fear of what? It should be excitement. So even if you replaced it with the word anxiety, if he’s got anxiety today, I would wonder why. Why is he anxious? And should he be doing it if he’s anxious at this point?

Jay Goltz:
Because he knows the statistics show that, whatever, 80 percent of businesses fail within a few years.

Loren Feldman:
There’s good reason to have some fear.

Mel Gravely:
Well, fear is just the wrong—I mean, yes, you do realize that there’s a chance this doesn’t work. But he said three things in there that concern me. One was, how do you ever get over the fear? Another one is, we don’t really need to make money. We’ve just, at some point, got to—

Jay Goltz:
No, no. “We don’t want to get rich.” Like, there’s something wrong with that.

Mel Gravely:
Yeah, I mean, so I just—all of those words just said “job” to me.

Jay Goltz:
I’m with you 100 percent.

Mel Gravely:
A job is so much easier than this.

Jay Goltz:
I think you need to have that inner tenacity and drive to push yourself through the bad times, versus, “Oh, I wonder whether I’m going to go broke.” I just can’t tell you I spent a lot of time thinking about that.

Mel Gravely:
Well, I did, this year, think a lot about, “Damn, I might go broke.” Because I had a real situation. But I didn’t buy this thing thinking I was going to go broke, but when it looked like I could go broke, I was like, “Ooh, I could go broke.” So to me, the timing of which this question is coming up is just odd to me. So I would answer him: You’re never going to get over it, buddy.

Jay Goltz:
Yeah, yeah, I agree.

Loren Feldman:
Thank you for sharing your experiences. I know it means a lot to everybody who listens to this podcast. My thanks to Jay Goltz and Mel Gravely.