The Perfect Storm

September 14, 2009
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“Poor naked wretches, where so ever you are,
That bide the pelting of this pitiless storm.”

- William Shakespeare

I was recently a bystander to a tragedy. A close friend of mine, “John,” was forced without warning to shut down his life’s work literally overnight – a cleaning and restoration business he had spent more than 30 years building.

So very, very sad for everyone involved. Thirteen employees, some that had been with John for many years, lost their livelihood with no notice. John’s painfully purchased business assets will be liquidated for pennies on the dollar, and he will see little or no financial reward for the work of a lifetime.

Even worse, John goes off into his “forced retirement” with the sour taste of failure in his mouth. What happened? The “Perfect Storm” and John’s failure to prepare for it.

Let’s examine this perfect financial storm that devastated John’s company and what he should have done over the years to prevent it from happening. Or at the very least, what tactics John could have used to survive the current tough economic times.

Just maybe, you will see a bit of you and your business in the sad scenario detailed in this column. Forewarned is forearmed.

A "Challenging" National and Local Economy

For many carpet cleaners the recession has hit hard. John’s town is no exception. A local car plant shut down, unemployment spiked and a substantial minority of John’s loyal customers started postponing their regular carpet cleanings.

John had been complacently running his company on auto-pilot for years, so he didn’t notice the drop in volume till it was too late to make financial adjustments and/or search for new business.

Solution: Over the years John should have been tracking his financial results like a hawk and even more so since the recession hit. Remember two financial dictums that Chuck Violand drills into every SFS seminar attendee: “Every number tells a story” and “Focus on the percentages.”

An Unstable Partner

35 years ago, when John wanted to start his business, he was too scared and insecure to go out alone on his own. Since “misery loves company” he asked a friend (let’s call him “Bill”) to partner with him.

This business arrangement struggled along for the next 30 years until Bill arbitrarily announced one day several years ago, “I’m retiring and I want my son to take over my half of the business.”

This impulsive transfer of power was a major disaster! The young man’s inexperience, arrogance and total lack of emotional sensitivity and responsibility caused the company to lose several major adjuster relationships along with numerous other important long-time customers.

Solution: This one is simple. Don’t go into a partnership! (Yes, I know hindsight is 20-20!) Remember, there are only two reasons to enter into any partnership, and needing emotional reassurance doesn’t count.

One oft-quoted reason for bringing a partner on is you need funding. Don’t do it! Funding your business start-up by giving away equity will be the most costly money you never borrowed!

The other way owners rationalize bringing a partner on board is “I need his expertise.” Don’t do it! Hire expertise (with a properly structured profit-sharing plan if you wish) but don’t pay for it with equity in a company that you certainly hope will be wildly profitable in the future.

If you are already saddled with a partner then reach out to him or her and make sure you are on the same page re: company and personal goals.

Every partnership should follow the old adage, “Begin with the end in mind.” So ignore the initial euphoria of entering a partnership and insist on having a legally written contract defining your partnership and how to end it.

Hint: Most business buy-sell agreements state that the departing partner must offer to sell his share to the remaining partner(s) at a pre-defined amount based on company net profits or other calculation.

Then, only if the partner doesn’t exercise their option to buy can the departing owner offer his share up on the open market, or transfer it to his children.

Leaving All the Eggs in Just a Few Baskets

Over the years, John came to count on the referrals from a few adjusters that had become his cronies. Nothing improper or illegal here, mind you. After all, friends do business with friends, and there is nothing wrong with that!

But John found himself left all alone when a miniature local Perfect Storm destroyed his revenue stream from insurance work. What happened?
  • Several of his adjuster buddies retired and/or died.
  • The insurance industry in general went to long distance adjusting or Preferred Provider Networks.
  • Many of his remaining agent and adjuster contacts were antagonized by his partner’s emotionally immature son and went looking for a restoration alternative.
Solution: Recognize that referral relationships are a constantly moving target and especially so in the restoration sector. So sales and marketing should be a continual, routine and consistent process.

Set a goal of making at least 20 new contacts every single week. Twenty new contacts per week doesn’t sound like much, but that is over 1,000 new contacts per year!

But don’t stop here with formal sales contacts. Network through community functions, business referral groups such as BNI or Le Tip or even the old-fashioned Chamber of Commerce.

If your focus is restoration start developing other non-insurance referral sources such as property managers, real estate agents, plumbers and other service contractors.

Don’t just do all these things until you are “comfortable” again; set up routine procedures and never, ever stop doing any of them!

Forgetting That "Everyone Leaves - Your Only Choices are When and How"

John never prepared himself or his business logistically, emotionally or financially for the simple fact that everyone, including him, eventually will have to leave their business.

People get old; the problem is too often we don’t recognize it nor prepare for it! And so it was with John. He always made a good living, enjoyed his life and his family.

But John never followed the important principle of “run your business today to sell it tomorrow.” Then when the perfect storm detailed above hit and being well over sixty years old he didn’t have the emotional resources nor physical strength to overcome it.

Solution: Recognize that the years fly by and your general health is only going to go one way in the long run- downhill! So get started early in your career planning for your eventual retirement.

Go one way or the other. Build a business infrastructure that will allow you to be an “absentee owner” (if you wish) while still growing your company, or make a conscious decision to avoid the inevitable problems of employees/rapid growth and enjoy staying small while consistently socking away money in your personal investment plan.

Unfortunately, John did neither.

Never Achieving Critical Mass in the Company

Sadly, John never achieved the business growth and success that would have allowed him to hire quality, management-level employees that could have backed him up when his physical and emotional health began to go south on him.

Even after turning sixty John was “wearing all the hats” in his business. Even in good times this balancing act is a precarious and mentally exhausting one.

But when this perfect storm hit John just didn’t have the internal (himself) or external (quality employees) resources to ride it out.

Solution: Years ago when John and Bill made the decision (even though they probably didn’t make a conscious one) to grow, they also should once again have “started with the end in mind.”

Right from the get-go they should have hired quality employees that at least had the potential to grow into a management position. However, due to John and Bill’s own insecurities and poor self-esteem they hired a revolving door stream of short term employees that contributed nothing to the long term success of the company.

So what about you? If you plan to grow your company, are you hiring for the “shadow position”?

Yes, I know. You advertised and are interviewing for the position of carpet cleaning technician. But as you chat with the applicant, are you observing and thinking, “How stable is this person? Are they capable of (or can they grow into) becoming my Operations Manager in three to four years?”

Sure, even with all this pre-analysis, your “best and brightest” new hire may only last a few short weeks. But better to get the odds on your side by at least trying to hire people with management potential!

Maybe you’ve seen a few of the “business sins” above in your company. If so, great! Now you have your work cut out for you, though I’m guessing not everything we’ve discussed applies to you; if it does, you are in dire straits!

Learn from John and Bill’s sad story and start preparing your business today to weather the Perfect Storm – because you are already in the midst of a big one!


Author’s Note: To download a free “Financial Flash Report” that will give you a weekly “snapshot” of your company’s financial health just go to http://tinyurl.com/SFSflash. For a free complete system on how to do this in your company just go to http://tinyurl.com/SFSCommercial.

Did you enjoy this article? Click here to subscribe to i Cleaning Specialist Magazine.

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