Remote Work and the Business of the Future

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Remote WorkEven five years ago, most people would not have known a single person who worked remotely. Now, many people know at least one person who has either a location independent job or business, or who has some kind of flexible work arrangement with their employer.

It’s clear that remote work is not a passing fad but a trend that will only grow as technology includes more of our world in building prosperity. That means employers need to realize that remote work is very much the future and figure out how to adapt their businesses to accommodate that.

Nothing Replaces In-Person Interaction

There are some companies that are entirely remote, like Automattic, the company that powers WordPress, and as a result, powers a third of all websites on the public internet (including ours!) They’ve discovered that whatever the joys are of location independence, there’s nothing to replace the camaraderie that comes with in-person interaction. This might mean annual, or even semi-annual or quarterly retreats, whether it be for certain divisions or for the entire company.

We are humans, after all, despite all the talk of self-driving cars and refrigerators that will tell Amazon what needs to be ordered. Whatever steps you take towards allowing remote work, remember that employees need to be together at least occasionally to build the camaraderie that every functioning team needs to perform. Technology doesn’t change human nature.

There are Savings All Around

Just as employers no longer need to take as much office space to accommodate remote workers who no longer need it, so too workers no longer need to spend money on commuting or on business attire expected to be worn in the office. The savings can be reinvested in other areas to help the company grow.

Resilience and Diversity Develop

It’s no secret that remote work requires more discipline than the in-office equivalent. No one is “supervising” you and the couch and television, should you be working from home, can issue never ending siren songs for you to join them.

Remote workers will develop more discipline or lose their jobs. This means your staff who go remote will get an upgrade you can’t get in an on-location employee. The newly developed skills of time management and task focus will spill over into other areas of their work and provide you, after a trial period for the first-time remote worker, with a more resilient team member.

For you as the employer it also means you have more avenues to find potential employees. There are many workers distributed around the world now who are willing to take less pay for equivalent positions in the United States. This is because they’re remote and working in a country in which 50% of the salary they would normally command lets them live at 150% of the lifestyle they did in the United States. This seems too good to be true, but websites like Dynamite Jobs consistently feature Inc. 5000 companies hiring remotely, and sometimes hiring the lower-priced of two candidates because of this gap.

Pay More Attention, Not Less

While it’s true that “out of sight is out of mind,” it’s important to remember that however resilient remote workers may be, they can still feel isolated and lonely. Ultimately unable to reap the rewards of personal and managerial development that can come from a traditional workplace. This requires employers to lead the way in setting aside time to catch up apart from regular virtual work meetings and to make sure their team members know they have an open door to communicate. Remote employees, like on-site employees, want to be valued. Thoughtful and intentional communication is one of the best ways to show you value them.

Should You Give Employees Stock?

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Should you give Employees Stock?One of the biggest mistakes that any employer can make is thinking that his/her employees think similarly. “Well, that’s what I would want!” is a terrible criteria by which to decide whether you should give your employees stock. While stock options seem like a reasonable way to boost the desirability of your workplace, you need to consider several factors when making a decision.

Is anyone asking?

This deals with the point made above: don’t assume that your employees think the exact same way as you do. Just because you would be interested in possible ownership doesn’t mean they would be. A fair number of employees are not interested in the ups and downs of owning a business. They are quite happy to have competitive pay and a positive work environment in which they add value to their own lives and to those of your clients.

Find out what benefits your employees are interested in. If “profit sharing/ownership” keeps coming up from various members of the staff, then yes, it might be something to take a hard look at.

Is it viable given your corporate structure and profits?

Remember that there will often be a loss of privacy with the introduction of an Employee Stock Ownership Plan (ESOP). There are often disclosure requirements that require you to disclose more than you currently have to disclose (which is usually nothing) about your books, long term capital spending, debts, and taxes.

Also unknown to most is the cost of creating and maintaining an ESOP, which can easily hit five figures for even the most modest companies. This is apart from the paperwork compliance that is necessary whenever you are talking about securities. On the other side of the argument, there are some ESOP expenses that are tax-deductible, within limits, for the business, and they represent tax-deferred savings for employees.

Is there another way for employees to feel ownership and ties to performance other than equity?

Just as there are many ways to build a business or create a product or service, there are many ways for staff to feel included, rewarded, or valued. You could have an incentive trip for top performers. This is something everyone can look forward to and aspire towards.

You can also give awards at annual meetings which recognize staff for things other than outstanding production. Sometimes people are great arbitrators in the office or bastions of kindness that help grease the wheels of those daily interactions. Recognizing them does a lot of what stock can do: show them you value them.

If you wanted, you could come up with a basic agreement (consult your attorney) that can be revised each year about some kind of profit-sharing. This can be an initial test which bridges what people say (we want an ESOP) and what they do (not actually step up and perform when goals are introduced) and helps you decide whether to introduce stock options.

We have dealt with ESOPs. Give us a call today to learn more.

An Exit Interview for Sellers

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Exit Interview for the SellerIn the due diligence process, a lot of documents and statements have to be delivered. What are sometimes forgotten are those crucial discussions about the heart and soul of a business. The information that is difficult to put into even the best owner’s manuals of the most systematized businesses. It’s also true that not all buyers and sellers develop the kind of rapport where an easy discussion about challenges and mistakes can organically happen.

In this article, we’ll offer four possible questions you could ask in a hypothetical exit interview for an outgoing seller as you undertake to replace him or her. The hope is that you can learn key lessons that will help you take the business you are buying to the next level.

What would you have done differently?

Very rarely will this question result in a quick, “Nothing.”  There are people who are either extremely intentional with what they did and proceeded along that line or those who are totally blind to self reflection. Most sellers will take a deep breath, exhale, and pause to think or just as quickly say, “Lots of things.”

The goal of this is not necessarily to capture every single thing that the seller could have done differently. Hopefully you will see a pattern that can help you avoid those potholes or make improvements that the seller couldn’t have. These discussions can also lead to broader philosophical conversations about the business. It’s an opportunity to introduce key questions for the buyer to fire his/her imagination and problem solving skills.

One of our sellers told the incoming buyer that he’d had personality and management style differences with one of the staff. This caused her to resign. But that the seller found her to be remarkably professional and dedicated to clients. He thought she would probably come back to the firm knowing there had been a change of ownership. He happened to be right and the employee returned to the benefit of the buyer, herself, and their clients.

What skill(s) do you wish you had that would have made a difference?

Some skills people are born with. But many can be acquired with diligence and patience.

If a seller confesses a weakness in a skill set that you also share, that doesn’t mean you’re doomed. Obviously, he/she didn’t possess that skill but still managed to build a sell-able business. But it does offer you additional insights and guidance from someone who has been in the position you are aspiring to. It gives you a head start so that rather than realize, “I need to be able to work better in the early evening, when a number of clients check in with us” a few months into the sale, you are told ahead of time by someone who has been doing it for years.

Sometimes, owners were too blind to hire their weaknesses, convinced of the “up by your bootstraps, do it yourself” attitude that parades as humility but is actually (and ironically) a very subtle form of pride. If an owner identifies a skill he/she wishes that you had, that’s a great sign. If something is missing, however, you can begin to brainstorm how to deal with it, including perhaps delegation to an existing employee or a new hire.

Can you share some war stories of experiences with clients or employees?  How you handled it well and/or how it might have been handled differently?

This is perhaps the most controversial question you might ask and one that is taboo in our “we are all scared of lawsuits” society. And the seller is always free to refuse to answer. But this again is part of the honest, goodwill effort for a smart transaction to occur and for a business to continue to grow, and indeed, thrive.

The new owner should be warned about a problematic client or an employee who created a bad atmosphere at the office. Likewise, the owner should be proud to share some times when a big risk was taken in client or employee relations and it ended up very positively for all involved.

We know of a client who had made personal deliveries to their clients on Mother’s Day. Some of those mothers were key factors in his company’s success. While it had been noted in the operating manual as a key part of marketing operations, it was important to share the reactions from those grateful clients. Many had probably never received Mother’s Day flowers from any business they had ever worked with (much less, the seller was told, even their own children!) This personal context is valuable and should be saved and shared.

Who is the most important staff member in the company at the moment? Why?

All sellers dread the loss of staff during a transition period. Sometimes the staff leave for no reason directly related to the incoming owner. A sale just signals a “change” in life and that can trigger a number of things related to their own career trajectory and plans, leading them to believe that perhaps it’s time for a change for them too. Where you have to hope to make the opposite case is with the most important member of the team.

Find out from the owner who this person is, what makes him/her tick, and what’s his/her “why” in relation to the company. After the acquisition, have a heart-to-heart conversation with this person as soon as possible and find out what his/her vision for the future of the company is, and if there are any ways you can incorporate that vision into yours. If so, you’ve just guaranteed a major factor of success for yourself in any business endeavor: retention of key staff.

We have other exit interview questions we’ve developed over the years to help you successfully acquire a new business. Ask us about them today.

Case Study #28: Paying the Idiot Tax

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Before Uber Eats and DoorDash became the VC-backed juggernauts in the food delivery space, Kenan Hopkins had already taken his 7 figure exit from this new space with lean margins. At the time of sale his company, Valet Gourmet, was doing $4M in annual revenue and employed 50 staff in Asheville, North Carolina, and Knoxville, Tennessee.

Revenue Model

In 2011, the concept of home delivery of anything other than pizza seemed like magic. Customers loved the idea, and restaurants loved adding marginal additional revenue. The restaurants could make money they weren’t otherwise going to make (these customers didn’t want to leave their house, for whatever reason) and hence utilize unused bandwidth in their kitchens, and customers loved the idea of upgrading from *the* deliver-at-home option, pizza. Restaurants paid up to 30% of the total ticket before delivery, and the delivery drivers/riders got to keep the delivery fee plus any gratuity. Both customer and restaurant were willing to pay something to make this happen, and many companies were born out of the process.

The Idiot TaxIdiot Tax

Among the things Kenan says he would have changed would have been stopping the “idiot tax” sooner. Drivers of said tax included:

  • Having no management skills (and not urgently acquiring them)
  • Having no strategic plan (and not being more intentional about building one)
  • Using credit card debt to bootstrap the business (and not restructuring that debt sooner)
  • Having no company culture in place (and as a result having high turnover)

This all changed when Kenan read Tony Hsieh’s Delivering Happiness, about the founding of Zappos.

He realized that the company desperately needed reform from the inside out and he went to work, focusing on branding, core values, and aligning hiring practices with values like “Exceed Expectations Through Service.” Kenan particularly liked this value as it wasn’t customer service but just service which allowed the team to focus on kindness both inside and outside the company.

Accidents and a Text Message

A number of things happened nearly simultaneously which were stressful for Kenan and led him to say “enough.”

Two driver accidents happened and one driver got stabbed. Insurance covered all these situations and no one was permanently injured, but after 7 years of building, Kenan wondered, “what if” and sent a text message to a competitor in the industry:

“Would you buy Valet Gourmet for 50% of projected revenue over the next 12 months?”

The text received a positive reception, and before too long, a 50% cash, 25% stock, and 25% earn-out deal was negotiated. Kenan has learned to read his business growth really well and despite the fact that his previous year was $3.3M he felt confident he could hit $4 in that 12 month window. And he did.

Money isn’t enough

While Kenan says that he wishes he had asked to stay more involved in the business in some way, as a board member, for example, his biggest regret was not planning for having a big pile of money and no purpose. He lost himself in the lifestyle and became, in his own words, a massive jerk. It’s a theme we have discussed before, that planning for what comes after the sale is almost as important as working on the due diligence during the sale.

That’s perhaps the first lesson of many we can take from Kenan’s experience selling Valet Gourmet: Purpose matters.

While he used the exercise of adding company values and a clearer vision which drove better culture for his business, he could have taken some time to identify a core purpose within himself, which would have aligned with his business and given him some kind of roadmap for when that business went away.

The second lesson is closely connected: pay as little idiot tax as necessary.

Identify where you are weak and hire those weaknesses, either in employees, contractors, or advisors. As Ben Franklin once said, “Experience is an expensive school, but fools will learn in no other.” Learn from the experience of others rather than pay to learn yourself.

Finally, network within your industry.

Because Kenan was friends with the competition, he was able to start a sale negotiation with a text message. We can say we don’t often see such a move, but even if you don’t end up selling to the competition, being on friendly terms can often help you share important information, build a better business, and help with hiring.  Lead with kindness, but don’t let it be mistaken for weakness.

Have you been paying the idiot tax longer than you should have been?  We have access to many resources that can help you drive down and eliminate that tax altogether! Give us a call.