Lesson #376: Know When to Cut Your Losses

 

As a founding entrepreneur, it is hard to not to always be “in love” with “your baby”.  You created something from nothing, you nurtured it along the way and you built something really great.  Until that point “your baby” stops growing, your profitability falls with increased competition and the roller coaster starts picking up speed in the wrong direction, with revenues going down, not up as before.  It is very easy to want to “stay the course” and hope for things to get better in the future.  Depending on the root cause of the fall, like a temporary decline in the economy, it very well could rebound.  But there are times when the root cause cannot be fixed, or worse yet, will continue to “snowball” in the wrong direction.  In those scenarios, you need to know when to pull the “ripcord” to save whatever value you have left before your business is worth zero.  This post will help you identify what to look for and how to get you and your shareholders a “soft landing” when things start to turn south.

A Case Study on Joe’s Bikes

Meet Joe’s Bikes, a fictional ecommerce seller of electronic bikes (“eBikes”).  They were one of the first movers to be marketing eBikes online, launching their website in 2018, and were experiencing meteoric growth in the first several years that followed, growing their revenues from $0 to $20MM by 2022. But soon after that point, they were seeing a lot more competition from other eBike sellers online, and the effectiveness of their Google advertising was getting a lot worse.  Their profits which had peaked at $2MM in 2022, had quickly fallen to $1MM in 2023 with the increased advertising costs to break through the clutter of additional competitors online.

But then Joe noticed something really strange start happening in 2024; he saw his cost per click starting to double in Google, which meant his cost of customer acquisition was going to double.  And he saw his number of clicks from Google starting to cut in half, largely due to the invent of artificial intelligence engines like ChatGPT (taking traffic away from Google) and Google itself redesigning their pages to give their own A.I. results more promotion at the top of the search results (at the expense of the traditional search links at the bottom of the page).  The doubling of the cost per click meant his profits were going to slowly head to $0 on his current level of revenues, and the halving of his traffic meant his revenues would most likely cut in half from $20MM to $10MM over the next year, which suggested huge losses were in his future.  It wasn’t yet visible in his financial statements in 2023, but he knew the storm was coming in his 2024 projections.

If this case study sounds familiar, it should, as most all ecommerce companies in most all product categories were living some form of the above during their own growth curves over the last couple years.  Now what do we do about it?

What Are Joe’s Options

Option 1:  Ride Out The Storm.  Joe could do nothing and simply “hope” for his advertising struggles to improve.  But unless there were new marketing channels for Joe to pursue (e.g., distribution of his eBikes through retailers like Dick’s Sporting Goods), his ad metrics may never improve if he only stayed focused on search advertising.  You should never make business decisions with the word “hope” involved, so this path does not make sense.

Option 2: Restructure His Business.  Maybe Joe is fine watching his revenues fall from $20MM to $10MM, as long as he could think of a way to cut his expenses so that projected losses could become a small profit to afford his lifestyle.  But we are talking about a lot of cuts here (around 70%) for Joe to hit his goal.  And that does not sound like a reasonable path forward either.

Option 3.  Sell The Business While You Still Can.   Yes, Joe could have sold a year earlier for $10MM (5x his $2MM in profits at the time).  But that is water under the bridge at this point, and he should not be chasing that number.  He still can sell today for $5MM (5x his $1MM in profits reported in the prior year that just closed).  Which would be $5MM more than the $0 he would get next year, if profits are truly on their way towards big losses.  Assuming Joe can move quickly to find a buyer and getting the deal to closing, this is the best path forward.  But the longer he takes to get to the finish line, the lower the odds this path will work, as the profits start to fall in the coming months’ financial reports.  Joe must move at light speed here.

What Will Joe Do?

If Joe is a sole owner, the path that Joe should pursue is a personal decision, based on his personal goals.  But if Joe has shareholders, he must protect their interests, and in this case, selling now before it is too late, will at least get his investors an exit at a reasonable valuation that would yield them a nice return on their investment.  He should take that “win”, which his investors would appreciate and be willing to back him again on his next venture.  Because if Joe doesn’t sell now, and let’s revenues and profits fall resulting in a terrible trend line, they will never be able to sell, and his investor will lose all their monies invested, and more importantly, their faith in Joe.

How to Create Leading Indicators For Your Business

Joe was fortunate that he set metrics for himself to predict the future health of his business.  Most entrepreneurs live in the present and simply track their success and make decisions based on historical results.  You need to figure out how you can predict where your business is heading, to learn the bad news that may be coming your way, before it actually hits your business, so you have time to respond and take the necessary actions ahead of time.  In Joe’s case, his leading indicator was clicks and cost per click from his Google campaign, which he could track in “real time”.  The minute he saw those heading in the wrong direction, he knew it was time to take action.  Remember, a buyer of your business is studying historical financials, which still looked good for this business.  Only Joe knew of the future storm that was coming his way.  You need to figure out which leading indicators will be the ones that will save your business from a looming storm, with time to sail to shelter while you still can.

Closing Thoughts

So, a couple closing thoughts here.  First, stop chasing historical peak valuations that may never be achieved again.  A "bird in the hand" is always worth more than waiting for "two in the bush" especially if you feel the business is heading in a downward direction.  And second, make sure you have leading indicators in place that will enable you to quickly pull your “ripcord” with enough time to get you a “soft landing”.  Otherwise, prepare to crash and burn, entirely wiping out your equity value and reputation with investors in the process.

For future posts, please follow me on Twitter at: @georgedeeb.

You Sold Your Business--What Happens Next?

Congratulations, you just sold your business! But don’t expect things to remain the same under the new ownership. Oftentimes, new owners have a different vision of what to do with your business to help achieve their needs, and they may have different ideas on how best to do certain things inside the organization, resulting in a ripple effect of chaos for the transitioning staff in its wake. This article will help you figure out what to expect after a change in control, so the expectations of you and your team are properly managed ahead of time.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #375: Why Having Co-CEOs is Usually a Bad Idea

 

Oftentimes, two co-founders think it is a good idea to share CEO responsibilities, as Co-CEOs.  The logic being they can separate their roles and responsibilities, with one person leading certain departments (e.g., sales and marketing) and the other person leading other departments like (e.g., technology and operations).  The reality is, this is a pretty bad idea.  The business should only have one leader at a time that can “lead the ship” and make sure everything is perfectly coordinated across the entire company.  This post will teach you the potential pitfalls of a Co-CEO strategy.

Lack of One Sole Vision/Control

Anytime you add additional people to a decision-making process, that is most certainly going to involve you making some sort of compromise, where you are not doing exactly what you would have done if you were a stand-alone CEO.  On minor points, it probably doesn’t matter.  But if it is important strategic level points you are compromising, you end up diluting your own personal instincts and convictions.  And it is those same instincts and convictions that are often the difference between good outcomes and average outcomes.  You never want to be in a position of “managing towards the happy middle-ground”. 

Lack of One Sole Voice With the Team 

When there are two leaders, and those people are not necessarily in 100% alignment on the vision, they may be saying conflicting things to the team, in terms of the directions they are providing to the staff. That can create a lot of confusion with the team members, as they are unclear on whose voice to listen to the most, as they are both Co-CEOs.  And worse, it makes it look like the Co-CEOs are not in alignment, and are not communicating well with each other, which has the team nervous that leadership at the top doesn’t know what they are doing. 

Lack of a Tie-Breaker

What happens when the two Co-CEOs cannot come to an agreement on a topic?  There is no one there to break the tie.  Which either creates a level of paralysis where no decision gets made and the work doesn’t get done at all.  Or, it requires one of the Co-CEOs to back down, and agree to the other Co-CEO (usually with the louder voice and personality winning).  And that can create resentment towards the other person who is constantly not getting their opinions listened to or acted upon.

Different Management Styles Could Cause Friction

No two people are exactly the same; what happens when there are philosophical level differences in management approach.  Let’s say one of the Co-CEOs is a “top down” strategic level thinker that likes to “see the big picture forest” and the other Co-CEO is a “bottoms up” execution level thinker that likes to “live in the trees”.  Those two styles are completely different ways to make decisions and can easily “ruffle the feathers” of the two Co-CEOs over time, forcing them to think and act in ways that is not their preference.

You Lose Control on Half of the Business

If you are the “Sales & Marketing” leading Co-CEO, that doesn’t mean you don’t have opinions on how “Techology & Operations” are being run by the other Co-CEO.  But by dividing up the responsibilities, you are basically handing off all decisions in those other departments to the other Co-CEO.  If you trust the other person to operate alone in their silo, that is fine.  But what happens when you have a fundamental disagreement on how those other departments are being operated?  You can communicate that to your Co-CEO to try and fix it, but it is ultimately up to them to make the desired changes you want, which they may or may not do.

Your Co-CEO Refuses to Stay “In Their Swim Lane”

Even though you may have divided up the management responsibilities with your Co-CEO, that doesn’t mean they will always stay in their “swim lane”.  CEOs that like to lead and control, typically have a really hard time giving up control to anyone else.  And when that “likes to control” Co-CEO, starts drifting into the “swim lane” of their other Co-CEO, having to have input on every decision in their departments, that will really piss off the Co-CEO.  At that point, you don’t really have a Co-CEO structure at all, with one person needing to control all decisions.  That will end up very badly.

Limits Your Exit Options

When it comes time to sell your business, the new buyer would prefer to have one CEO be their sole decision maker, with which to sit on their board and work with the investors.  Also, when you are ready to sell, your Co-CEO may not be ready to sell.  Now you are stuck owning and working in a business that you no longer want to be working in.  Or worse, your miss “your open window” to sell, and market conditions change by the time your Co-CEO is finally ready to sell, but now the window has closed and you can’t sell.  You never want to be in a situation when you can’t get an exit for your equity, handcuffed by a Co-CEO’s opinion, when you see an exit as the right path forward.

Closing Thoughts

Hopefully, you now have a better understanding of the challenges at hand when you are considering a Co-CEO setup for your business.  There are examples where Co-CEOs have worked together perfectly—think the Google founders (Sergey Brin and Larry Page).  But more often than not, it ends up not working out very well at all—think the Salesforce executives (Marc Benioff first with Keith Block and then with Bret Taylor).   So, if you are considering this Co-CEO path, buyer beware, as it is ripe with potential pitfalls and most likely will not end up working well for the Co-CEOs, the staff or your investors.

For future posts, please follow me on Twitter at: @georgedeeb.

 

 

[VIDEO] Why Product-Market Fit is Critical For Startup Success

 

I was recently interviewed by ASBN, an online "television network" serving the small business community, about the importance of identifying product-market fit for a startup's success.  This video will help you learn what that means, how you attain it and how to measure it over time.  I thought this video turned out great, and I wanted to share it with all of you to make sure your new product launches have the highest odds of long-term success. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

When to Sell Your Business--Before It's Too Late

As a founding entrepreneur, it is hard not to always be "in love" with "your baby". You created something from nothing, you nurtured it along the way, and you built something really great. Until the point "your baby" stops growing, your profitability falls with increased competition, and the roller coaster starts picking up speed in the wrong direction, with revenues going down, not up as before.  It is very easy to want to "stay the course" and hope for things to get better in the future. Depending on the root cause of the fall, like a temporary decline in the economy, it very well could rebound. But, there are times when the root cause cannot be fixed, or worse yet, will continue to "snowball" in the wrong direction.  In those scenarios, you need to know when to pull the "ripcord" to save whatever value you have left before your business is worth zero. This post will help you identify what to look for and how to get you and your shareholders a "soft landing" when things start to turn south.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] The Four Pillars of Equity Distribution For Startups

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how best to split-up the equity between cofounders of a startup.  This video will help you learn how to handle all the key drivers here, like if the cofounder is investing cash, if they are deferring salary, their role in the company and more.  I thought this video turned out great, and I wanted to share it with all of you to make sure all cofounders are being treated fairly upfront, so there are no debates about equity interests in the future. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #374: The Top 5 Reasons Why People Buy a Business

 

Many entrepreneurs go down the path of buying a business to help jump start their business building efforts.  But oftentimes, they don’t give enough thought to WHY they are buying the business, and their long term goals they are hoping to accomplish from this investment.  Unless they are 100% clear on the “end game”, they could get themselves into a situation that is not what they intended, and it could be too late to fix it once they close on the purchase.  This post will help you assess your acquisition goals before you get started hunting for targets, so you don’t repeat the mistakes that many other entrepreneurs have made by not doing sufficient homework upfront.

Let’s talk through the various reasons why people buy companies:

1.  You Need a High Return on Investment

Like any other investment, you want it to be worth as much as possible at the time you are ready to sell it.  This path most typically involves buying a business at a low price, increasing its value over the next 5-10 years through increased sales and marketing efforts or other margin enhancement techniques, and then selling it for a much higher value down the road.  And that higher value typically comes from two sources:  the higher profits of the bigger business and the higher sale multiple of earnings, as bigger companies are typically sold at higher sale multiples than smaller companies.  But the intent here is to buy and sell the business—that is the intent from day one.  And it may or may not require you raising outside capital to assist you with the purchase or your scaling efforts.  If all goes well, you sell the business at 5x-10x the price you purchased it, and that is when you get your “big payday” as a shareholder.

2.  You Need Current Recurring Cashflow  

In this category, it is less about growing a business, and more about “milking it” for recurring cash flow from whatever size the business is today.  Here it is less about shooting for the highest long-term ROI possible, and more about driving the highest near-term annual return on invested capital.  These investments can be things like buying a car wash, a strip mall to rent, or a restaurant franchise where you are hoping to drive 10-20% annual returns on your investment.  This is basically a more hands-on alternative to investing in the stock market or other more traditional investment vehicles.  It may or may not require an investor partner, like a family office, that is also looking for current recurring cashflow.  This path is preferred if you need current cash and are not planning to reinvest annual profits into the future growth of the business, as you were doing in the first category.

3.  You Are Creating a Family Legacy

In this category, there is simply one goal: owning and operating a family run business that you can hand off to future generations.  It could come in the form of either of the first two categories above, with one primary difference:  you would not want to take any outside investors, as they will require an exit strategy down the road, and may require you to sell the company to achieve that goal, which defeats of the whole purpose of ending up with a business you can hand off to your family members.  The other major difference here is now there may be multiple opinions around the family dinner table in terms of what types of business they would enjoy operating.  So be sure to toss around those mutually acceptable ideas as a group, before you get started, so there are high odds the next generation will enjoy working in the business and will want to take it over when the older generation retires.

4.   You Need Passive Income   

Another type of business you can buy is one that comes with very little work required by buyers in terms of operating the company.  Businesses that basically “run themselves”.  This could be things like buying a parking garage, or a business that places vending machines in retail locations, or a business that comes with a general manager that will be doing the majority of the work.  So, as you are assessing which business to buy, figure out how much time you want to personally be investing in it, as there is a wide range from 5 hours a week to 50+ hours a week, depending on which business you end up buying.

5.  You Simply Need a Job

This last category is one of necessity. Sometimes people have a hard time getting hired into a job and they need a salary with which to live.   Oftentimes their solution to that is buying a company that is large enough to afford them a salary or other annual distributions that can cover the costs of lliving.  It may or may not involve having investor partners, depending on the size of the company.  But if you take on investors, just remember, you may be looking for another business to buy in 5-10 years, after your investors require you to sell the business to enable their exit down the road. If you don’t want that risk, don’t take on new investors.

Closing Thoughts

So, as we have discussed, there are many different reasons for buying a business. Make sure you are 100% clear on the reasons you are buying a business, and incorporate the learnings above during your evaluation process, to prevent you from getting into a situation that you did not fully understand the consequences when you started.  Good luck and happy hunting!

For future posts, please follow me on Twitter at: @georgedeeb.

Why Sharing the CEO Title Usually Doesn't Work

 

Oftentimes, two co-founders think it is a good idea to share CEO responsibilities as co-CEOs. The logic is that they can separate their roles and responsibilities, with one person leading certain departments (e.g., sales and marketing) and the other person leading other departments (e.g., technology and operations). The reality is, this is a pretty bad idea.  The business should only have one leader at a time who can "lead the ship" and make sure everything is perfectly coordinated across the entire company. This article will teach you the potential pitfalls of a co-CEO strategy.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #373: When to Fire Yourself as CEO?

 

Most CEOs don’t usually think about putting themselves up on the firing block, but there any many instances where you as the CEO of the business may be holding your business back.  You need to be honest in your assessment of yourself as CEO, to make sure you are in fact the right person for the job.  This post will help you identify certain scenarios where a CEO change may be necessary, even if it means you firing yourself from the job.

You No Longer Have the Right Skillsets

Most entrepreneurs are very good at taking a “piece of paper” idea, productizing it, taking it to market and getting initial traction for the business up to the first $10MM in revenues of the company’s growth curve.  That is not an easy feat, and you should be very proud of that accomplishment.  But as the company then needs to scale from $10MM to $50MM in revenues for the next phase of its growth, that typically requires a very different skillset.  Now you are talking about launching new products, new markets, international expansion, mergers and acquisitions, and other techniques that may be unfamiliar to you.

If you suddenly find yourself drowning with the new challenges of your later-stage growth, it may be the right time to find your replacement that already has those proven skills.  And you shouldn’t feel embarrassed about admitting this—you should feel empowered that you were actually smart enough to assess the situation and how best to resolve it.  You still have your equity ownership, and wouldn’t you want your stock price growth to have the highest chance for success as a shareholder?  Sometimes, that could be in the hands of somebody other than yourself.

You Have Run Out of Ideas

If your business is struggling and you have tried everything you possibly could to “right the ship”, it may simply be a function of “you don’t know, what you don’t know”.  You are only as smart as your own education and experience has made you.  But sometimes a “fresh set of eyes” is exactly what the business needs to turn it around.  That new CEO may see some easy fix, based on their past education and experiences, that was simply in your blind spot.  So, if you often find yourself scratching your head without the right answers to your business’s challenges, maybe it is time for a new CEO.

You No Longer Have the Passion For the Business

An equally important part of being successful as a CEO is having the right “fire in your belly” to succeed at all costs, no matter what challenges get thrown your way.  If you find yourself losing that passion or getting bored with the business (which can easily happen the longer you are there), it is very easy to lose focus and basically “go through the motions”, with the business “coasting” based on historical efforts and not “accelerating” with new ideas and efforts.  You are not doing your shareholders (including yourself) any favors by sticking around in this scenario.  Be smart enough to know when you have “mentally checked out” and find your replacement that is as excited about your business and its potential, as you were when you first started.

You Are Not Getting Along With Your Team

Being a successful CEO requires building a great team that is gelling well with each other.  Just like in any marriage, sometimes relationships can sour over time.  Maybe it is your fault, and you are ruffling everyone’s feathers.  Maybe its your colleagues fault, and every word out of their mouth drives you crazy.  Whatever the situation is, a business won’t thrive if the team cannot get along with each other.  Either they need to go, or you need to go, to find team members that will actually respect each other and enjoy each other’s company when “slogging through the mud” together.

You Have Lost the Confidence of Your Colleagues

Maybe you feel you are doing a good job as CEO, but if your fellow employees, partners or investors don’t think you are doing a good job.  In this scenario, maybe it is time for you to go.  This can be a really bitter pill to swallow.  You look in the mirror and see success, and your colleagues look at you and see short fallings.  But if the team has lost confidence in you, it is time to show yourself to the exit, as the team will not follow a leader that they do not think is leading them in the right direction.  And it could be better for you to step down on your own terms, than wait to get fired by your board when they have seen enough (which will be a lot harder to explain to your new employers).

Closing Thoughts

Hopefully, this post helped you complete your own self-evaluation in your role as CEO.  After reading this post, do you still think you are the right person for the job?  If so, great, it’s full steam ahead.  But if anything in this post resonated with you as “striking a chord”, it may be time to have that very difficult conversation with yourself.  Your business, team and shareholders (including yourself) will thank you!!

For future posts, follow me on Twitter at: @georgedeeb.

5 Good Reasons Why People Buy a Business

Many entrepreneurs go down the path of buying a business to help jump-start their business-building efforts. But oftentimes, they don't give enough thought to "why" they are buying the business, and the long-term goals they are hoping to accomplish from this investment. Unless they are 100% clear on the "end game", they could get themselves into a situation that is not what they intended, and it could be too late to fix it once they close on the purchase. These five reasons will help you assess your acquisition goals before you get started hunting for targets, so you don't repeat the mistakes that many other entrepreneurs have made by not doing sufficient homework upfront.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #372: Stop Aiming for Perfection--As Time Kills All Deals!

Winston Churchill is famously known for saying “perfection is the enemy of progress”.  And that quote most relevantly applies in business, perhaps more than any other sector.  You may say, why is perfection a problem?  Isn’t perfection a noble goal when doing your work?  The answer is: perfection takes time, and time in the business world can often be a deal killer.  If you can produce A- work in one week and A+ work in one month, that incremental benefit of the “perfect” work product, is most certainly lost in the form of the three weeks of lost time.  When an A- is good enough to get the job done, take the win, and move on.  This post will teach you how to better keep your business running at “light speed”. 

Examples of How Perfection Can Get in The Way of Progress

There are many examples in the business world where perfection can be your enemy.  Let’s talk through a few examples.  Firstly, in your sales efforts, a client waiting an extra three weeks for your proposal, is mostly like still shopping with your competitors. Close the sale faster, to ensure that client ends up with you and not your competitor.  Secondly, when disposing of owned assets, like real estate, most often times your first offer is your most seriously interested buyer with the highest odds of getting to closing.  Don’t hold out for an even better offer that most likely will never materialize, and risk losing the “bird in hand”.  Thirdly, let’s say you are negotiating the sale of your company, don’t dig in, holding out for certain points in your contract or a certain valuation in mind.  Making a three-month sale process turn into a six month sale process will negatively wear upon the other party, potentially having them walk from the deal after the excitement of buying the company has worn off.  The examples are limitless here, but hopefully you get a better picture of how perfection can hurt you.

An M&A Case Study on How Time Can Be Your Enemy

One of my clients was recently trying to sell their business.  They started the process in February 2024 and were hoping to be done six months later in August 2024.  At every step of the process, the business owner was “over engineering” everything.  Instead of picking a business broker and attorney in a few days, he ran an exhaustive process of interviewing many prospective brokers and attorneys over several weeks, looking for the best one.  Additionally, instead of turning the sale book around in one or two rounds of comments, he required over ten rounds of comments, trying to tell the perfect story.  Furthermore, instead of having the business broker quickly start making calls to the first 200 prospective buyers on their list, this same individual kept pushing the broker for more and more names to be added to the calling list, slowing down the process as the broker needed to shift focus from starting calls to expanding the list to the requested 1,000 prospective buyers (requiring 5x as much work).  Finally, during negotiations, instead of one or two turns of the purchase agreement, he kept digging in on few deal points with over five turns of the documents, seeking “the perfect deal”.

Collectively these actions materially slowed down the process.  Then guess what happened?  Instead of being closed by the original August 2024 target date, they were still in discussions with buyers in November 2024 (three months behind plan).  And remember what happened that month? A new president was elected, one talking about his big plans to launch new tariffs on the countries where this company sourced much of its products.  All of sudden a cloud was hanging over this business and the industry, and it spooked the originally excited buyers to the point they all stopped their conversations and there were no more interested parties to sell to.  Those three lost months ended up causing the owners of the business near certainty a deal would have been closed in August 2024 and lost them millions of dollars in sale proceeds in the process. What a mess!

Know Your Goals—Knock Down Walls

You need to keep yourself accountable on what the most important goals are and manage towards those goals.  In the above case study, the primary goal was:  get the business sold in the next six months to lock in the high return on investment the owners were seeking.  Nowhere in that goal does it say have the perfect broker, perfect lawyer, perfect sale book, perfect valuation, perfect contract, etc.  Seeking perfection at every step along the way was in direct conflict to the primary goal, and now the company is paying a big price, to the point it may never be able to sell its business in the current economic climate.

Keep Your Business Running at Light Speed

At the end of the day, when setting your priorities and managing your workload, always subscribe to the K.I.S.S. method (Keep It Simple Stupid).  Anything that overcomplicates things will make what should have been a fast and easy process, a torturous nightmare wearing down everyone that is involved in that project, from your own employees to whoever you are trying to do business with.  And when people get demotivated or tired, the easiest path those people have to make the pain stop, could end up having them walk in another direction, leaving you with a revolving door of talent and nobody wanting to work with you.  Don’t be that person, as life is too short and your business will suffer if you do.  

How do you know if this is you, and how do you manage yourself and keep yourself accountable?  I typically live by these two rules: (1) hit your preset timeline (if you are behind plan, don’t let the due date slip, you have to move faster); and (2) make no more than three changes to the same work product (if you can’t get it “close enough” after three tries you are not being effective as a communicator or you are not effectively listening to the needs of others in creating a win-win outcome for both parties).  So, anything that slows you down needs to end—move on with “good” without always seeking “great”.  Your team will thank you and your business will increase its odds of success in whatever it is trying to accomplish.

Closing Thoughts

If any of the above sounds like it could be happening in your business—by you, by your team, by other parties—the offending parties need to take a long look in the mirror and figure out how to get moving faster.  But my guess is, the offending party (which could be you), may not know they are the offending party, which is even worse.  So if you are getting feedback from your team that you are getting in the way of speed and progress—it is time to reverse course and get out of their way (that is not a time to dig-in to get your way towards perfection).  Frankly, more successful businesses are lead by the person that is perfectly happy with “breaking things” and “imperfection”, as good things typically come out of that process and quicker timeline.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] How to Hire the Right Salesperson

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how how to hire the right salesperson for your business's specific needs.  This video will help you learn more about the 1,024 different types of salespeople, and the questions you need to ask during your interviews to have your salesperson hire hit the bullseye.  I thought this video turned out great, and I wanted to share it with all of you to make sure you are optimizing your hiring practices here, which will in turn optimize your revenues. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Is It Time to Fire Yourself? 5 Signs You're Holding Your Company Back

 

Most CEOs don't usually think about putting themselves up on the firing block, but there are many instances where you, as the CEO of the business, may be holding your business back. You need to be honest in your assessment of yourself as CEO, to make sure you are, in fact, the right person for the job.  This article will help you identify certain scenarios where a CEO change may be necessary, even if it means you firing yourself from the job.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at @georgedeeb.

Lesson #371: Tariffs Are Hurting My Business--Should I Cut Expenses?

 

With all the chaos in the economic and financial markets these days, largely around the impact of new tariffs, it is causing unexpected and unfortunate turmoil for many businesses today.  Businesses that used to be growing are seeing declines, and businesses that used to be generating healthy profits may now be experiencing losses.  That can be a scary time for the most seasoned executives, and even more so for startup executives living it for the first time.  This post will help you figure out how best to navigate these choppy waters.

Why is This Happening?

Tariffs are typically very bad for the economy.  Although it may raise revenues for the government in the short run, it raises the prices of goods and services that are imported from the countries in which tariffs are imposed.  And right now, tariffs of varying sizes are flying around many different countries and industries, wrapping pretty much everybody into this “dust storm”.  This means as importing costs go up with the tariff costs, either you will pass through those increases in the form of a higher selling price (which will lower demand and profits) or you will eat those increases at the original price (which will hurt your margins and profits).  Neither is a good outcome for your bottom line. 

What Are Your Options to React?

When profits are in a free fall, you really need to assess the situation and determine your best path forward.  For many, that could include dramatically lowering your cost structure with layoffs or otherwise, to help extend your cash runway so you can live to fight another day.  Whether you make these cuts, and the size of these cuts, is the conversation for today’s article.

Key Questions You Need to Ask Yourself?

In This Reduced Economy, Will I still be Profitable?  This is a very important question.  If you think you will still be profitable, then any cuts are optional depending on how high of a profit you want the business to generate for its shareholders.  Maybe your shareholders will have a longer term perspective and will not want to “rock the boat” in the near term, if they see a viable path to recovery in the medium term.  But if you are expecting losses, cuts may be your only option, unless you are sitting on a big pile of cash that can fund your newfound cash burn rate. 

Do We Feel This is a Short-Term or Long-Term Hiccup?  If you feel the impact will be short in nature (e.g., under a year), you may have a different perspective than if you feel the impact will be longer term in nature (e.g., over a year).  But for issues like this, you don’t always have a crystal ball with which to perfectly predict the future.  So be conservative in your thinking, assume it could be much longer than you think, and build in the appropriate cash cushions into your forecasts.

How Long is My Cash Runway?  Your cash position will often dictate your best path forward.  If you have enough cash to fund the next 18-24 months in a reduced sales environment, maybe you will be okay with no changes.  But for most startups, they do not have the luxury of sitting on a lot of excess cash.  So if you are incurring newfound losses and your runway is under 12 months, it is time to start chopping, as raising funds in this economic climate will be very difficult.

How Important is It to Retain Key Talent?  In highly specialized industries, making cuts can be extra painful.  You have invested a lot of institutional knowledge into your team, and you don’t want that to walk out the door unless you really have to.  So your decision around cuts may be directly related to how hard will it be to hire their replacements down road.  But be honest with your assessments here, not everyone can be the irreplaceable “Michael Jordan” on your team.

When Should I Make Cuts?  As fast as humanly possible.  The faster you cut, the quicker you start saving your cash, which will be a hot commodity in down markets like this.

How Deep Should I Cut?  As deep as you can without putting the core of the business at risk.  More is better than less, remember the deeper the cut, the more cash you start saving, again back to that hot commodity in these markets.  In all cases, your cash runway will help you decide whether you are cutting 10%, 20%, 30% or more.  But cut enough that you don’t have to go back and cut a second time down the road.  The worse thing you can do to your staff is having them constantly worrying about the axe hanging over their heads in repetition.

How Will Cuts Impact My Culture?   Yeah, cuts are typically not good for culture building in the immediate term.  The remaining staff just watched all their friends and colleagues walk out the door under unexpected circumstances.  They will be grateful they “survived”, but they will potentially be angry with management as the ones who dropped the axe.  As long as you are 100% transparent with your team about what the situation was, how tariffs impacted the business, and that you didn’t have any other choice to save the company and their jobs. Hopefully, they are mature enough to understand the situation and culture will hopefully rebound over time.

Are There Alternatives to Cuts?  Other than raising capital, you can get creative in how cuts are implemented.  For example, let’s say you have a staff of 10 salespeople all making $50,000 base and $50,000 in commissions (at 5% of sales).  Instead of cutting 3 people to save $300,000, you could change the compensation plan for all.  You can move all ten salespeople to a “commission only” model (which keeps everyone with the company).  That puts the onus on them to sell in order to get paid any amount at a higher 10% commission.  But if they don’t sell, you don’t have the fixed overhead of their salary to pay.  This may upset all 10 people instead of upsetting the 3 that would otherwise have been cut, which may have everyone looking for the door, but it is an option.  The more you can implement a single action and be done with it, the better, as compared to solutions that drag out the pain for everyone over a longer period of time.

Closing Thoughts

Hopefully, you now have a better understanding of how to navigate the current choppy waters many of us are experiencing.  Follow the guidance in this post, and you should survive to live another day and best position the business to weather the storm until the markets start to recover.  Good luck and hang in there!  This is never an easy topic to deal with.

 

For future posts, please follow me on Twitter at: @georgedeeb.

 

 

Lesson #370: Not All Potential Acquirors of Your Business Are Created Equal

When your shareholders have decided that it is the right time to put your business up for sale, it is very easy to say “great, let’s sell it to the buyer with the highest valuation”.  But that would be a mistake.  There are several other factors that go into finding the “right” buyer for your business and your specific situation.  This post will help you think through those various consideration points and provide some warnings for things you need to look out for to avoid known potential pitfalls when it comes to picking the right buyer for your business.

A Normal Sale Process

When companies are put up for sale, that is often done with a business broker that is marketing your company to many prospective buyers at the same time.  Let’s say in a normal process they could reach out to 200 target buyers, get 20 of them to engage in some sort of dialog or preliminary due diligence and get 5 of them to submit a letter of intent to purchase your business.  The question of this post is:  which of the five buyers is the one you should pick?  Spoiler alert, it may not be one with the highest price.

The Different Types of Buyers

Most buyers can be classified into one of three categories: (i) strategic buyers that are companies looking to get into your industry or increase their current market share in your space; (ii) financial buyers that are often private equity firms or family offices looking to buy cash-flowing businesses as an investment strategy; and (iii) individual executives or entrepreneurs that are looking for a business for them to own and operate themselves (these can be individual executives or fund-less sponsors backed by private equity funds creating new executive roles for themselves).  Let’s talk about the typical advantages and disadvantages of these three different types of buyers.

Strategic Buyers

Advantages:  Strategic buyers are often the most reliable to get to closing.  They are talking to you because they see something in your business that can help them with their business.  Because of that, they are often the most willing to pay the highest valuations.  And they are often cash-rich, which means many do not need outside loans to get a deal done, depending on the deal size.  They don’t necessarily need your management team, if they have other executives able to step in and run the business.

Disadvantages:  Strategic buyers are often the slowest moving with the longest timeline to get to closing, with lots of different decision makers involved.  So, if speed is important to you, think twice about going down this path, as the due diligence and document drafting process could be the most cumbersome.

Financial Buyers

Advantages:  Financial buyers can move pretty quickly, as they are typically sitting on a big pile of cash that they are looking to invest.

Disadvantages:  They will often want to raise bank debt for up to 50% of the purchase price to better spread their equity investing potential into other companies.  And banks like to invest in companies with over $3MM in EBITDA, which may not be you.  They will want to back executives, as opposed to run the business themselves, so make sure you have a management team plan for them, which may include hiring and training your replacement prior to selling.  They tend to be the most aggressive in terms of negotiating the best price possible for themselves in order to maximize ROIs for their investors.

Individual Buyers

Advantages:  These tend to be the least sophisticated buyers and can require the least due diligence or least “hoops for you to run through” to get to closing.

Disadvantages:  They often require bank financing for a large portion of the transaction (up to 90% with SBA-backed loans), so the process can get slowed down by them having to secure the needed capital.  Since those bank loans often require personal guarantees of the buyer, they are often the most nervous about “making a mistake” and can easily talk themselves out of a transaction if they don’t want to take the additional personal risks.

Other Topics to Consider When Picking a Buyer

In addition to the type of buyer, you have to assess these additional considerations to determine if they are the right buyer for your business or not.

Their Reputation.  If you are interested in protecting your legacy, you don’t want to hand your business off to a buyer that will hurt the company’s reputation in the future.

Their Plan for Your Business.   If you care about how the business is going to be run post-sale, you don’t want to sell to anyone that doesn’t share that vision.

Their Plan for Your Employee Team.  If you care about your staff being treated fairly post-sale, you don’t want to sell to someone who is going to layoff your team.

Their Odds of Closing.  Selling to a buyer with a 75% chance to get to the finish line is a lot better than selling to someone with a 25% chance of getting to the finish line.  Even if it means a lower price.

Their Speed to Closing.  Selling to an experienced buyer that knows how to get through the process quickly is preferred to selling to an inexperienced buyer that could have the process drag out for months, and still not get to the finish line.

Their Personal Fit for Your Culture.  Make sure there will not be any personality or other issues with the buyer, in terms of how they will mesh with your current culture and team.

How is It Financed.  An all-cash offer is a lot better than an offer requiring any seller notes, earn-outs or third-party bank financing.  Duh!

How Secure is Their Financing.  If they do require outside bank debt or equity investors to fund the transaction, have those commitments been secured already, or is there risk they will lose their financing.  Even committed financings can fall apart, so be careful here.

Market Conditions.  If the economy or financial markets are perceived to be on unsteady footing, that will make buyers, banks and equity investors nervous, which will hurt your odds of getting the business sold.  Find buyers with a long term vision that are comfortable in all market conditions.

Closing Thoughts

So, as you can see, there are a lot more things to consider than maximizing valuation when picking the right buyer for your business.  Don’t be so focused on getting the highest sale price, that you potentially “topple your apple cart” by not fully thinking through all of the above issues.  Good luck!!

For future posts, please follow me on Twitter at: @georgedeeb.

Tariffs Are Bad for Business. This Post Will Help You Survive.

All the chaos in the economic and financial markets these days, largely around the impact of new tariffs, is causing unexpected and unfortunate turmoil for many businesses today. Businesses that used to be growing are seeing declines, and businesses that used to be generating healthy profits may now be experiencing losses. That can be a scary time for the most seasoned executives and even more so for startup executives living it for the first time. Here's how to best navigate these choppy waters.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] The 5 Stages of the Marketing Funnel for SMB Success

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to optimize the five stages of the marketing funnel.  This video will help you learn more about those five stages, including brand awareness, consideration, purchase, repeat purchase and advocacy.  I thought this video turned out great, and I wanted to share it with all of you to make sure you are using the best marketing tactics and metrics for each stage of the funnel. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Perfection Requires Time--And Time Kills All Deals! Stop Trying to Be Perfect!

 Winston Churchill is famously known for saying, "Perfection is the enemy of progress." And that quote most relevantly applies in business, perhaps more than any other sector. You may say, why is perfection a problem? Isn't perfection a noble goal when doing your work?  The answer is that perfection takes time, and time in the business world can often be a deal killer. If you can produce A- work in one week and A+ work in one month, that incremental benefit of the "perfect" work product, is most certainly lost in the form of the three weeks of lost time. When an A- is good enough to get the job done, take the win and move on. Here is how to better keep your business running at "light speed."

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #369: Artificial Intelligence 'Avalanche' Looming for Search Engines

I have been a serial entrepreneur for over 25 years now.  Each of the businesses I built included a healthy dose of search engine marketing, anchored by Google, the “big dog on the block”.  Google controls over 90% of all searches completed on the internet worldwide, a market share it has held for the last decade.  It was never imaginable that anyone could ever take Google down off its perch.  But with all the progress the artificial intelligence (AI) companies are making in the search world (e.g., ChatGPT recently launching SearchGPT), it may not be long before there is a “new sheriff in town”.  And that could be really bad news for most of us digital marketers that have grown to be dependent on Google over the years.  This post will help you get in-front of this pending avalanche on the cusp of happening.

How Search Engine Marketing Works Today

If you are new business trying to get off the ground, most do so on the backs of companies like Google where millions of people are searching for things each and every day.  You simply needed to piggyback on their huge audience.  And you either did that by trying to get free organic traffic as Google indexed pages on your website, which you would try to manipulate through search engine optimization efforts (e.g., content creations, sourcing backlinks, optimizing the page code).  Or you would do it the quicker, easier and often more costly way of purchasing pay-per-click advertising through Google Ads.  This latter effort meant you always had an immediate way to get your business exposure with 100% certainty.  As long as you had advertising money to spend, Google would find you an audience.

How Artificial Intelligence Changes This

First of all, these AI companies are in their infancy and they are solely focused on winning the “technology war” up against their competitors to prove they have the best AI search product in the market.  Which means they are not focused at all on how to monetize it yet.  Secondly, there will be a handful of players that rise to the top of this race.  Which means it is unclear who the winner will be that you need to focus your marketing efforts on, which will result in a much more splintered marketing efforts across multiple sites to manage (no single “big dog” yet).  Thirdly, there is no “handbook” written on how you can “game” the AI companies to include free organic links to your company.  It took decades to learn how to “manipulate” the Google algorithm, and it is unclear what needs to happen to manipulate more conversational AI robots.

This doesn’t even speak to the biggest point—AI can do things that were never even possible or imaginable with Google, making it a “better mousetrap” which will capture a lot of attention from users looking for solutions.   For example, if you are looking for a vacation on Google, you better have your “keywords” ready (e.g., whitewater rafting trip,  best things to see in Florida, best hotels in New York).  With AI you can layer in a lot of different things into a single search.  I was amazed when ChatGPT could quickly answer this question I posed: when you combine the cost of air, hotel and concert ticket costs, which of the 20 cities in Taylor Swift’s European Tour is the cheapest place to see the concert with me starting from Detroit.  In less than a couple seconds it pulled all the airline cost options, hotel cost options, concert ticket options by city, and made a well-researched and detailed recommendation.  WOW, was all I could say!!  This is a game changer, and Google should be really worried.  But more importantly, us digital marketers need to be shaking in our boots right now.

What This Means for Digital Marketing

First of all, it is going to be a “wild ride” for the next few years.  Most likely two things will happen, in this order.  First, people will experiment with all the new AI engines.  And they will gravitate to the ones they like better than Google, and Google will start to lose its stranglehold grip and market share.  This means you will see a lot less traffic coming from Google to your website, or the cost of that traffic will materially increase as you and your competitors will be fighting over less-and-less traffic over time.

The second thing will happen is the winning AI companies will finally turn their focus to revenues and monetization and launch advertising options on their websites.  It is not exactly clear how they will do that (e.g., keyword based like Google or something completely different), so it will be a learning exercise for all involved.  Which means there won’t be an immediate replacement for your lost Google traffic, and there will be this “middle period” of waiting to learn how to replace that lost traffic from the new AI engines.  That will put a lot of strain on your financial results—losing traffic from Google, waiting for new solutions, learning new solutions from AI engines.  It could result in a material “shake-out” for undercapitalized companies that don’t have a big pile of cash with which to “weather the storm”.

Closing Thoughts

Hopefully, all the search engine optimization companies shift their focus from Google to the new AI engines to help us more quickly navigate this new “Wild West”.  Or better yet, Google protects its search turf with its own AI and acquires one of the big AI engines so it can quickly transition its advertisers from the legacy Google search engine to the new AI driven solution that users are migrating towards. Until then, protect your businesses in the coming years.  It most likely won’t be all “wine and roses” for immediate marketing positions that you can easily control.  Which will make it a really bumpy ride for your income statement, requiring you to have a healthy cash reserve on hand.  I can’t wait to see where we end up in the next five years—as digital marketing will look a lot different to what it is today.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Tips for Eliminating 'Friction' in Your Customer Journey

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how how to remove "friction" from your customer journey.  You will learn how to study each step of your sales and marketing funnel to ensure a poor customer experience is not having them looking for the exit.  I thought this video turned out great, and I wanted to share it with all of you to make sure you have the highest odds of converting every lead into your business with no customer hurdles in the way. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Not All Buyers of Your Business Are Created Equal

 

When your shareholders have decided that it is the right time to put your business up for sale, it is very easy to say, "Great, let's sell it to the buyer with the highest valuation."  But that would be a mistake. There are several other factors that go into finding the "right" buyer for your business and your specific situation. This article will help you think through those various consideration points and provide some warnings for things you need to look out for to avoid known potential pitfalls when it comes to picking the right buyer for your business.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Strategies for Creating Successful Sales & Marketing Plans

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how how to create a successful sales and marketing plan for your business.  You will learn everything you need about the building blocks needed for scaling your revenues.  I thought this video turned out great, and I wanted to share it with all of you to make sure you have properly "done the math" to ensure your revenue goals will actually be hit. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #368: Pending Tariffs Creating Paralysis for Businesses

 

When businesses are unclear on what the future will bring, it often results in a “wait and see” approach before making any material investments.  We see that leading into most presidential elections, as different presidential winners could have different impacts on the economy based on their promoted policies.  The winner of the most recent election is touting his plan to levy up to 25% tariffs on China,  and potentially other countries where he sees an imbalance on trade levels.  The result of that has most business executives very worried about the future impact of any tariffs on their businesses, and hence has “paralyzed” many companies, resulting in them pushing off any material investments until the situation becomes more clear.  This post will better educate you on why business executives are worried, and what this may mean for your businesses.

Why Tariffs are Generally Bad for the Economy

Tariffs are not penalties paid by the country they are being imposed upon.  Instead they result in a 25% increase in the cost of those products which are imported from those countries.  And guess what, when the costs of importing goes up, the importing companies in the U.S. typically raise their prices to cover the higher costs of those products. And if the U.S. importers raise their prices, it is ultimately the U.S. consumer (you and me) that end up paying higher prices at the retail stores where we purchase these products.  Rising costs for consumer goods will decrease consumption, hurting the sales and profits of those products, which in turn lowers the success of the U.S. based importers, hurting their ability to re-invest in their businesses (creating new jobs), and in turn hurting the U.S. economy.  It is a vicious cycle.

To try and scope the size of the potential impact, here are a few stats.  Imports represent around 14% of the U.S. GDP and around 17% of total imports come from China.  That in itself does not sound too bad, but U.S. GDP includes a lot of huge industries like oil and food that are not sourced from China.  When you study consumer spending behavior on the goods they are most often purchasing, things like apparel, shoes, toys, electronics and textiles, around 40% of those products are coming from China.  If consumers see a 25% increase on 40% of their spending, that will result in a 10% immediate impact to their spending power, further straining their ability to effectively make ends meet.  As consumers will be spending the same 100% budgets they have to spend, it will only go 90% as far, forcing them to make difficult decisions on which products are kept in their monthly budgets and which products are cut.  The manufacturers or importers of the “cut products”, will see an immediate impact on their revenues and profits, hurting their businesses, their ability to create new jobs and the economy overall.

A Case Study

This is not the first time the Trump administration has imposed tariffs on China.  He imposed 10% tariffs on Chinese sourced products during his first administration (2016-2020).  We saw the impact of this on the restaurant furniture industry.  The retail cost of these products ultimately increased 10%, and the U.S. importers went looking for other sources of product (e.g., Vietnam), in an effort to try and get their prices back down.   Our business was fortunate enough to pass through a 10% price increase to our B2B customers, without a material impact on our demand or profit margins.  

But a 25% price increase would create much bigger headaches.  First of all, customers may be unwilling to pay 25% more for those products (which could impact margins and profits), or they may push off any discretionary spending entirely (hurting revenues and demand).  But in the restaurant industry, there will be a greater worry:  if consumers are seeing 25% higher prices on their everyday purchases like apparel, shoes and textiles, they will feel a squeeze on their personal checkbooks, which is turn may have them spending less on discretionary purchases like going out to dinner at restaurants, which in turn will have the restaurants seeing less sales and profits, and a general inability for them to reinvest in their businesses in the form of new locations (creating new jobs) or upgrading their old locations.  So, let’s hope that doesn’t actually happen.

What This Means for 2025

I think there is generally going to be a “wait and see” approach this year before companies make any material investments (creating new jobs), which in turn will stagnate the economy until the business executives feel more confident they have their arms around the situation.  Trump took office in late January, and tariffs on China may not be known until the end of his first 100 days in office.  Which means It could be the end of April before business executives have a clearer understanding of what actions were taken by the Trump administration and what the estimated impact of those tariffs on their businesses could be.

Then, one of two things could happen.  One, the news is not as bad as they thought, and they get back to growing their businesses normally, per their original plans.  Or two, they react negatively to the news, and they start to “batten down the hatches”.  That could result in a decrease in spending, a decrease in investments (job growth creation), or worse, they don’t have enough cash on hand to weather the storm, and they start laying people off to lower their expenses.  Once people start losing their jobs, that would negatively impact consumer spending, and in turn, further hurt the U.S. economy.  I am sure rooting for path number one over path number two.

Closing Thoughts

Many of us are already seeing a general softness in our businesses, largely due to our customers employing this “wait and see” approach.  Material purchases are getting “back-burnered” until business executives can get more clarity on the tariff situation.  That includes both for their normal day-to-day purchases (e.g., new store growth, major remodels, big capital expenditures), and for things that can materially move their businesses forward, like mergers and acquisitions.  Business buyers are more nervous right now and banks which fund these deals are being more cautious than ever in their lending decisions, making it harder for business buyers to access the needed capital. 

So, if I were the man sitting at the Resolute Desk in the Oval Office, I would think long and hard before implementing tariffs.  Yes, it may sound like you are punishing China and that could get you some short term sound bites with your voting base or generate additional revenues for the government.   But, if you put on your long-term glasses, you could end up putting the U.S. economy into a tail spin (which we are already seeing nervousness in the U.S. stock market).  Proceed with caution, both at the government level and in your own business forecasts!!   

For future posts, please follow me on Twitter at: @georgedeeb.