Free Advice

Downsizing – Repeat not necessary

“I’m going to turn 50 in a few months and I know what my company does to people in their 50’s. They’ll replace me with someone half my age and at one-third my salary.” I don’t remember his name but I’ll forever remember his comment. This was in the early 1990’s and our conversation dealt with his option of business ownership versus corporate employment.

Key Bank recently announced a 2,500 person downsizing. Much of it upper and middle management. This on the eve of their move to their new Bellevue headquarters. The stockholders must be grumpy, a merger is in the works or both.

Benefits to customers or the remaining employees are not prime considerations. A bank branch manager told me that layoffs simply meant he’d have to work longer hours because fewer people must now do the same amount of work.

There are legitimate reasons for some worker reductions. Improved efficiencies or when a merger duplicates positions are two examples. When analysts complain about profits, the easy way out is to reduce staff. Rarely a thought given to how the customers feel much less the employee’s situation.

Since 1998, job options have abounded for those recipients of the layoff notice. Jobs were/are easy to find. This disguises the fact that 1998 and 1999 both were record years for middle management downsizing. According to the Wall Street Journal, over 675,000 each year.

Chad started a business in 1998 when his outplacement counselor told him to expect three more job searches before retirement. He decided to take control of his business life. Many find the call to entrepreneurship a forced call. They lose their job and turn their back to the corporate world.

The good news is

·   There are over 11 million businesses in this country and over 170,000 in the Puget Sound area

·   Over 90% of all businesses are family owned

·   According to Dun and Bradstreet, 95% have sales under $5,000,000.

Many have provided a great lifestyle for their owners and offer excellent opportunity. The Family Firm Institute states that only 30% of family owned business survive into the second generation. They predict a $10 trillion wealth transfer in years ahead and that 39% of family owned firms will experience a leadership change by 2005.

Tim Johnstone had a lifelong dream of business ownership. When his employer merged with another firm, he decided it was time to fulfill his dream. Tim purchased Seattle based Anywear Shoes, Inc., a fast growing manufacturer and distributor of specialty footwear. Tim’s motivators included having control of his life and to have his superior efforts make   money for himself, not shareholders. The company he purchased was profitable, his skills were a good match to fix the company’s problems and increase sales, and the potential is huge.

The bad news for business buyers is it’s next to impossible to find the good ones (much less the great ones). Here’s why:

·   The majority of businesses sell direct from seller to buyer (no intermediary)

·   There is no Multiple Listing Service for businesses

·   Most of what is advertised is junk or overpriced

·   Many downsized executives do things the wrong way, which either inflates prices or gives the seller a bad feeling about corporate people buying their company

In the early to mid 1990’s, when the job market was tight, many corporate people decided business ownership was the path to take. That trend is starting to reappear. Buying a business has many advantages over starting one including being easier to finance. (Start a business if you have an idea or technology that doesn’t currently exist. Otherwise, you have to “steal” customers from a finite customer base.)

With all indications the economy is cooling (one good barometer of this is banks are getting tighter on their credit policies) more people will consider business ownership. To be successful, whether starting or buying, requires a proven plan and well-defined criteria. If buying a business is in the plans remember you really applying for the job of company president with part of the seller’s retirement on the line. The buyer needs to sell him or herself as much as the seller needs to sell the benefits to owning the company.

© Copyright John Martinka 2000. All rights reserved.