Monthly Archive for June, 2017

It Was The Best of Times, It Was The Worst Of Times

Contemplating the current economic and entrepreneurial conditions out here in Main Street America, I keep thinking about this perfectly paradoxical passage from one of the great literary masterpieces:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

Perhaps you recognize the opening paragraph from A Tale of Two Cities by the immortal Charles Dickens. He was providing analysis of the disruptive state of affairs in 18th century England, as well as across the Channel, in France. If you know about the disruptive state of affairs in the 21st-century marketplace, perhaps you’ll appreciate the allegorical reference of these phrases for small businesses almost two and a half centuries later.

It was the best of times: “The more high tech we have, the more high touch we will want.” The reason John Naisbitt’s 1982 words will always be prophesy is because humans will always be analog beings. There’s never been a time when the high touch leverage of a small business has been more powerful against the high tech of big competitors.

It was the worst of times: Tech behemoths like Amazon, Google and Facebook are increasing digital leverage to create new customer experiences and expectations. This trend is deadly for those hidebound small businesses that won’t infuse their sublime high touch with incremental high-tech to produce irresistible, Main Street special sauce.

It was the age of wisdom: Unlike the 20th century, today there are few hidden rules or proprietary tools employed by big businesses that aren’t available in some form to small firms. Digital leverage and data are increasingly available in incremental and affordable forms, but you’ll have to risk what you know for what you might learn.

It was the age of foolishness: In the most transparent era of management fundamentals, the keys to sustained success are lower than low-hanging fruit – they’re on the ground. And yet, innumerable small businesses are following Sears and Macy’s into the realm of irrelevance rather than adapting to new customer expectations with high-touch intangibles, relevant 21st-century practices, and affordable – many free – new tools.

It was the epoch of belief:  In many ways, the path to entrepreneurship has never been easier. A sweet byproduct of democratized digital leverage is a lower capital barrier to entry. Plus, the expansion of the universe of niches (read: niches of niches) is creating unprecedented small business opportunities.

It was the epoch of incredulity:  It’s still easy to start a new business, but it’s never been more challenging to sustain one. New and evolving customer expectations must be served with fresh data and effort – every day. And competitive disruptions are emanating from improbable market sectors.

It was the season of light:  The illumination and availability of customer data for small firms is unprecedented. Extensive information about business prospects is opening doors to the now-illusive, face-to-face appointment. And response behavior of retail prospects is available to help design and deliver a high tech/high touch marketing strategy.

It was the season of darkness:  At the same time, qualifying a suspect into a prospect into a customer has been disrupted by a more informed prospect base. As the selling cycle lengthens for those who fail to recognize this shift, diminishing gross profit erodes equity, burns available credit, and then – well, you know.

It was the spring of hope: One of the most amazing forces in the marketplace is the pathological optimism of American entrepreneurs. Against all odds, they navigate their dreams around the wreckage of peers that were sunk by the reef of disruption.

It was the winter of despair: I never thought I’d see conditions that would so restrict the entrepreneurial energy of America. The past decade saw anti-business political policies, unprecedented demographic shifts and behaviors, distressed economic conditions, and restricted capital and disruptive pressures combine to set back entrepreneurship in America for the first time in generations (Kauffman Index Startup Activity).

The human experience is pregnant with paradoxes, and no sector more so than the marketplace. Digital leverage is at once creating the paradox of exciting opportunities and unprecedented disruptions.

You would be correct to point out that humans have lamented change for millennia, but this really is different. Not change itself, but the velocity – the compression of time between changes.

Past changes have occurred at the velocity of analog – the speed of sound (761 miles per hour). Today’s change is powered by digital – at the speed of light (186,000 miles per second).

Are you adapting to new expectations with your high touch/high tech special sauce? Or are you being disrupted on the way to – well, you know?

Write this on a rock … The best of times or the worst of times? The choice is yours.

A father’s tough love is the harder job

This is Jim’s traditional Father’s Day column.

As the father of an adult daughter and son, plus the grandfather of four knucklehead boys (Hurricane, Tornado, Crash and Train Wreck), I’ve learned some things about love.

All the hours logged as Dad and Poppy have often caused me to contemplate how different are the roles of mother and father, especially in the overt demonstration of parental love. It’s fascinating how the manifestation of this love differs between mother and father - biologically, emotionally and experientially.

A mother’s love, at once sweet and fierce, is observed in almost all animals, not just humans. No doubt you’ve heard this metaphor: “… as sweet as a mother’s love,” and this warning: “Don’t get between a momma bear and her cub.” I have been the recipient of this kind of love and have witnessed it, and there truly is no other force in nature like it.

A human father’s love, on the other hand, is more often associated with words that are unfortunate, like “tough” and “discipline.” Here’s a warning no one has ever heard: “Just wait ’till your mother gets home!” As a teenager, my dad once apologized to me when he thought his demonstration of tough love might seem “hard-boiled.” It did.

Consequently, it has troubled me that there are no corresponding sweet references to a father’s love. Could this be why Father’s Day is not quite as big a deal as Mother’s Day? Just saying …
Mothers occupy the pinnacle of parental love - with justification. And not to take anything away from them, but let’s be honest: Since a mother’s sweet love is as primal as the miracle of birth, they don’t have to work too hard to deliver it. But there is a uniqueness about a father’s love that deserves a better rap. Here are two reasons:

  • Unlike a mother’s sweet love, a father’s tough love does not exist outside of homo sapiens.
  • When a father’s parental toughness is required, especially when applied to an indignant recipient (read: teenager), it requires a love that has found the courage to endure a negative response and a willingness to defer gratification - sometimes for years.

No one is more keenly aware of the distinction between the application of these two demonstrations of love than a single parent (especially a single mom), where both kinds are required of the same person, perhaps within minutes.

Mothers, please forgive any paternal bias you may detect, but here is my conclusion about parental love: The only force in the universe that comes close to a mother’s sweet love is a father’s tough love. But the latter is the harder job, and the return on investment almost always takes longer.

Write this on a rock … Happy Father’s Day, Dads. You’ve earned it.

Claim the stealth benefits of small business ownership

The classic financial benefits derived from small business ownership typically fall under two categories:

1.  Earned income: salary and bonuses reported on a W2 each year.

2.  Unearned (investment) income: distribution of profits from the operation and/or sale of the business.

But there are other small business ownership advantages that I call “stealth benefits,” because they’re not as evident as operating opportunities. Arguably the most dramatic stealth benefit, which often has the most wealth creation potential, is for the business owner to also personally own the real estate in which that business operates.

Here’s the classic scenario: Every business is a tenant of some landlord, likely under the terms of a commercial lease. There are many financial and strategic reasons for a small business to lease property from an unrelated landlord. But that arrangement offers the business tenant only tax deductions of the lease payment and associated disbursements, and essentially no financial benefits for the owner of the tenant business.

Now let’s consider the stealth benefit mentioned earlier. As long as the business you own is legally structured as a tax reporting entity, like an S Corp or LLC, you can accrue stealth benefits by personally owning the real estate your business operates in and leases from you. For example: Smith Enterprises, Inc. (SEI), a small manufacturer, has one shareholder, Tom Smith. SEI enters into a long-term, formal lease of the improved real estate it operates in, and the landlord, the individual who owns that property, is the same Tom Smith. Several of the stealth benefits these two entities accrue from this legal arrangement include, but are not limited to:

  • SEI doesn’t have to worry about prohibitive rent increases, or getting kicked out because its landlord, Smith, won’t renew the lease.
  • As with any lease, SEI deducts lease payments and associated disbursements as operating expenses.
  • As owner and landlord, Smith personally deducts expenses necessary to deliver on the lease agreement, including mortgage interest, depreciation, maintenance, etc.
  • Profits arising from this venture are taxed as unearned (investment) income for Smith, calculated at his personal income tax rate, but – and this is important – not subject to payroll tax.
  • It’s possible that Smith could receive cash distributions from the property, even if the investment delivered a loss.
  • Over time, as inflation causes rents to rise against mortgage payments that may be fixed for that period, cash distribution will likely increase each year.
  • When the mortgage is paid off, the income-producing property becomes a cash-producing annuity for Smith.
  • Upon the ultimate sale of the property, basis-adjusted profit is taxed at the current capital gains rate, which is typically lower than Smith’s personal income tax rate.

In my long career, I’ve seen many family businesses that Mom and Pop founded and operated for decades. But at the end of their business careers, it turns out that the business itself had little or no value to a prospective buyer, and the founders just locked up the business one last time.

However, concurrent with operating their business, Mom and Pop also went about acquiring the property their business operated in, and leased it back to the company. Over those same decades, that corner of an intersection, in a once-sleepy section of town, became a valuable piece of commercial property.

In the end, Mom and Pop made a good living from operating their business, which ultimately was worth essentially nothing. But they retired well by selling the real estate they’d bought for thousands, for millions. Oh, and they actually have one other option that might be preferable: Just continue to lease the property to the next business.

And almost all of this, including years of rent distributions, was taking place under the marketplace radar, as a stealth benefit.

Write this on a rock … Take advantage of the stealth benefit of owning the real estate your business operates in.

Blasingame’s Three Laws of Aggregation (or Two reasons your small business is like Sakrete)

Sakrete is one of the handiest products ever developed. It’s basically a bag of rocks and sand, but to a weekend warrior with a honey-do list, it can be a magic dust.

Packaged in small bags almost anyone can carry, Sakrete is an aggregation of Portland cement, sand and different size gravel. Just stir in water, apply it to your small construction project, wait a little while and, badabing badaboom, you’ve got real concrete supporting your project.

So, what does a small business have to do with a sack of rocks? Two things.

1. Chemistry.

When the components of Sakrete come in contact with water, a productive reaction occurs that, in a short time, manifests as a handy and enduring result. In the marketplace, productive chemistry between people and organizations is has long been known to be critical for sustaining successful performance. Whether Sakrete or your small business, the right chemistry is critical.

2. Aggregation.

Sakrete doesn’t just aggregate the correct combination of stuff, but also different sizes of masonry material. The larger pieces provide critical mass and structure, while the smaller ones bind everything together and nimbly fill in the gaps to eliminate weak spots. But unlike chemistry, aggregation is not as much of a natural law and requires more maintenance. Which is why there are no Blasingame Laws of Chemistry, but three Blasingame Laws of Aggregation.

Blasingame’s 1st Law of Aggregation

Find your success in aggregating the success of employees.

Simply put, this is servant leadership, a term Robert Greenleaf coined in his book titled, you guessed it: Servant Leadership. But the concept goes back thousands of years to the ancient Chinese wisdom of I Ching, “The highest type of ruler is one of whose existence the people are barely aware.” And in his gospel, Mark quotes Jesus, “Whoever wants to be great among you must be your servant.”

Leaders who sustain success, year after year, are those who subordinate their ego by helping their people to be successful professionals, and then aggregate those success stories for the benefit of the company. They celebrate others first.

Blasingame’s 2nd Law of Aggregation

Aggregation prevents aggravation.

In business, aggregation is also known as strategic alliances, which small businesses must build with other organizations, especially larger ones.

It’s aggravating at least, and dangerous at worst, to manage threats and take advantage of opportunities without strategic resources. Compare the merits of forming a strategic alliance with an organization that already has what you need before you risk the expense and possible delay of capitalizing the ownership of that resource. And if you prefer, you can call it strategic aggregation.

Blasingame’s 3rd Law of Aggregation

Associate your brands with those that are more established.

I also call this the “Forrest Gump Strategy.” As you develop strategic alliances, look for partners with brands and influence that have a higher recognition factor than yours, and arrange for the relationship to include your brand being presented in the marketplace alongside theirs. Brand association is smart aggregation, but you have to step up your game to earn the right to that level of aggregation.

Write this on a rock … If you’re not having the level of success you want, perhaps you should take some lessons from Sakrete.




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