What Prompts Change for You?

Sometimes a shock to your system brings clarity.

It’s not easy to sit down and write a column about entrepreneurship the night of an unspeakable national tragedy in Las Vegas. What could I possibly say that would be relevant or useful tonight?

All I can suggest and hope is that some entrepreneurs might be able to take the shock of the Las Vegas massacre and try to use the event to bring some positive changes to your life.

Entrepreneurship is an all-engrossing lifestyle. Despite all the books and philosophies that teach us work/life balance – the reality is that there is not much of it. We push forward at an incredible and intense pace, and the focus and discipline that is required to reach our goals can often bring us tumbling down.

Sometimes our systems need a shock, to make positive changes.

I wrote about this in 2013, when I found myself in the Emergency Room one day. I talked about some steps I took back then, to try to bring some balance to my life.

And sometimes despite all of our efforts, we can find ourselves out of rhythm again. Just two weeks ago when I sat down in synagogue to celebrate the Jewish New Year, I was shocked and saddened at myself to realize that I had not been there for one whole year. I was too busy traveling, building, and running the marathon of building my company. And as I sat and absorbed the “shock” of the moment I decided to make some changes the following week.

The truth of the matter is that there are things we can all do to “de-stress” our lives. Think carefully about what you spend most of your time on, and how you can either delegate it or make it more efficient. Invariably, there is almost a way to make changes; you just have to be willing to “shock yourself” out of your routine.

My trip to the Emergency Room a few years ago and my experience in synagogue this Jewish New Year were my shocks. That being said, events like Las Vegas this morning can have a similar impact if you think about it and want to make changes.

So how will you use this shock to improve your life?

A Lesson We Can All Learn From President Trump

Today’s challenges are different then yesterday’s lessons.

Whether you love or hate Donald Trump, there is an important lesson we can all learn from him. Simply – you must adapt to your new set of circumstances, and what worked for you previously might not be relevant to your new circumstances.

I have read dozens of articles talking about how Donald Trump is applying his previous management techniques and methodologies to how he is structuring the White House. If the stories are true, he is following his instinct of working in the way that he is comfortable.

Whenever we face a new challenge, it’s natural to reflect on prior experiences to try and solve what is on our plate today. And while this is useful, it’s also critical to think through how the new circumstances are different to what we previously encountered.

President Trump is now running the biggest and most complex government in the world. His prior experiences may have no relevance to what he is working on today.

The same analogy is relevant to different experiences in business. If you move from working in a big company to a start-up or vice versa, you need to adapt to the different structure you’re dealing with today. If you don’t realize your new surroundings or learn to adapt to them quickly, you won’t survive.

This lesson is also critical when you ask for mentoring or advice. Does your mentor or coach understand the current lens you are dealing with, or are they advising you through their prior experiences. If they cannot understand the new situation, the bias of their advice might not be useful.

And likewise, if you are the one giving the advice, take the time to really make sure you understand the current circumstances, and aren’t only making suggestions based on your previous experiences.

Good decisions are a balancing act between understanding what we’re facing today, and what we learned yesterday. Embrace both elements, and you will make the best possible decisions.

What Would You Do With $1 Million ?

If you were given a million dollars to invest, how would you allocate the money.

Imagine a scenario where you are given 10 poker chips worth $100,000 each.

You have to decide how many chips to invest in your business and how many to invest in a mutual fund of your choice. Sorry, you can’t take the money to buy a house in Hawaii.

We posed this question to a group of attendees at the annual Inc. 5000 Conference in San Antonio last week. It turns out attendees were far more interested in bolstering their business than storing it in a relatively safe mutual fund.

More than one in three (35 percent) said they would invest all 10 chips ($1 million) in their business. And a combined 71 percent said they would invest at least seven chips ($700,000) in their business.

But when it came to mutual fund investing, just 6 percent said they would invest six chips ($600,000) or more.

Asked to back up their reasoning, the vast majority expect an aggressive return on investment (ROI) of between 20 and 40 percent for their business.

Nearly four of every five surveyed (78 percent) expected that level of return, while another 16 percent hoped for a return of 10 to 20 percent.

That’s in sharp contrast to the returns expected “from the mutual fund of my choice,” as just 2 percent expected a return in the 20 to 40 percent range.

The attendees also were polled on other issues, including their preference for raising capital.

The leading answer was either through investors or through debt, at 38 percent. Through debt was favored by 29 percent, while 13 percent preferred through investors.

It should be noted that two-thirds of those responding owned their business outright, while the remainder had investors.

In terms of how any money raised would be used, there was no dominant answer.

Growing sales channels was cited most often (28 percent), while making an acquisition was second at 18 percent. Building out the management team and developing new products came next, tied at 16 percent.

About 55 people participated in the survey, with the number of answers received varying slightly, depending upon the question.

So what would you do with your chips and why? Please comment; I am curious to know.

Leverage Doesn’t Have to Be a Dirty Word

We deal with plenty of entrepreneurs who are a bit gun-shy when it comes to taking on debt.

Some – who question the viability of their business — fear getting caught in a debt spiral that eventually leads to bankruptcy. Others question the need to take on debt when their business is already thriving (or at least is doing well enough). Still, others simply don’t have the stomach for it.

But debt and leverage, which is debt used for investment purposes, doesn’t have to be a bad thing and in fact, can be quite helpful if used properly.

Consider the following example: If you could borrow money at 6 percent and invest it to earn 12 percent, would you do it? Chances are, you would.

So, why would a business use leverage?

The main reason is to prevent the business from using too much of its equity to fund operations.

Or, as accountingtools.com put it: “Financial leverage is favorable when the uses to which debt can be put generate returns greater than the interest expense associated with the debt. Many companies use financial leverage rather than acquiring more equity capital, which could reduce the earnings per share of existing shareholders.”

Not only may leverage allow the business to make a favorable return on its assets, but interest expense often is tax deductible. That reduces the borrower’s overall costs.

And financial leverage also has a multiplier power. Consider these examples.

Company X spends $1 million of its cash to buy 100 acres of land. It is not using leverage.

Company Y spends $1 million of its cash and also borrows $2 million to buy 300 acres of land. The company is using financial leverage because it is controlling $3 million worth of land, but only using $1 million of its money.

Say the properties in question increase in value by 50 percent and are sold.

Company X makes $500,000, which is a 50 percent return.

But Company Y makes $1.5 million, and its return on its $1 million investment is 150 percent.

As an added bonus, the successful use of financial leverage may improve a firm’s credit rating. That means future loans may be obtained at more favorable rates.

Ideal situations for using financial leverage include things such as acquisitions, buyouts, one-time dividends and share buybacks – things with a specific objective.

Of course, there are risks, as with all things in the financial world.

A major risk occurs when interest rates rise. And considering how low interest rates are these days, it’s a reasonable expectation that they are more likely to rise than continue declining.

Another risk is when assets decline in value. Just as there’s a positive multiplier effect, there also can be a negative one.

In addition, using leverage can be costly. As higher interest rates are required, investors assume greater risk.

The use of leverage isn’t necessarily simple, as the financial instruments used can be complex. Concepts such as subordinated mezzanine debt may be difficult to understand.

There are no guarantees in life – and no two situations are the same — but the use of financial leverage can be a valuable tool in your financial kit, depending upon the circumstances. Figuring out those circumstances can be difficult, which is why consulting with a financial advisor is of paramount importance.

Eight Months Ago I Reluctantly Joined a Peer Group

And now I am drinking the Kool Aid.

I don’t know how you were growing up, but I was never big on “group stuff”. I never joined a fraternity or liked to be a part of anything that required regular commitments of my time.

Given the choice to have a quiet dinner with a smart friend vs. go out with a big group I would always pick the more intimate experience.

I went to business school and skipped out on the football games and all of the barbecues.

Call me an introvert.

Which is perhaps why I joined a Vistage group eight months ago with great trepidation.

I committed myself to spend a day a month with a group of peers to work “on my business” instead of “in my business”.

I certainly fretted the time commitment, and “getting away” for a day. But frankly I was also nervous about spending a day a month with strangers.

Would I get anything out of it? Would I help them? Could they help me?

During the first few months I was reluctant to bring any of my issues to the table. I was happy to try to add my two cents to others issues. Sometimes at the end of the day, my brain hurt as I drove home as I realized that I wasn’t alone.

I liked the group and the people, and I enjoyed the diversion from the day to day grind. I also benefited from the monthly one to one sessions with the Chair of my group.

But the real power of Vistage manifested itself last session when I broke out of my introvert shell and asked for feedback for an idea I was working on.

And sure enough in twenty to thirty minutes, this group of CEO’s from non-competing industries, transformed how I think of messaging and marketing my company, and an entirely new product line. I am not sure they realize it, or even if I realized it until a few days later. But after the ideas sunk in, they were powerful, real and valid.

I didn’t get the ideas from marketing or strategy consultants or an article I read on line. They didn’t come from one of our regular team meetings. They came from a group of “outsiders” who are slowly becoming “insiders”.

Thank you Vistage and thank you to my peers. You are slowly turning me into an extrovert after all.

Is Entrepreneur Class Peasant Class?

Last week, after spending several hours stuck in Atlanta airport, I boarded my Southwest flight home and got a seat in the last row. I jokingly posted a picture of the view on Facebook with the caption “entrepreneur class” A friend of mine who works for a venture backed company that recently went public quickly quipped back “Peasant class” His comment made me think about venture backed companies and how they are celebrated in our culture.

Every day, I wake up to another announcement in my news feed to a venture backed company raising another “round”. Whatever round it is, and whatever stage the company is, there is a “wow” factor associated with the announcement. I will often get comments from friends and colleagues, “how did they do that?” or “what an accomplishment”!!!

Is a financing round really something to celebrate? Is it a rite of passage or a true accomplishment? Like so many questions in life, the answer is that it depends. As is so many other parts of business and life, the answer is not as black or white as many like to make it out to be.

Putting a business on the venture capital treadmill, is one way to go. It comes with its risks and benefits. Typically, when these companies raise rounds, they’re not profitable yet. They’ve placed themselves on a high speed treadmill that often demands growth and market share before profit. The entrepreneur needs to keep up with multiple financing rounds at continuously higher valuations, so his or her investors can show paper returns to their investors.

This strategy occasionally works and there are powerful stories such as Facebook or twitter that we all marvel at. But for every one of these stories, there are hundreds that we don’t hear about – who eventually fizzle away or blow up when they can’t get that next round.

As I said, there are risks and benefits, just as there are in choosing to build your business without outside financing. For every announcement of an entrepreneur who is celebrating a round, there are hundreds of small-business owners who are choosing to slug it out and focus on slow and organic profitability. Some of these make it, and plenty don’t as well.

That being said, we don’t often read the stories about these businesses in the news. These “quiet” entrepreneurs aren’t made out to be heroes, even though they likely hire multitudes of more people than the venture backed companies. These entrepreneurs are my heroes, because they’re willing to put their houses on the line and sink all of their savings into their ideas.

On this Fourth of July weekend I am thinking about our independence as well as the American Dream. I hope we find ways to celebrate all of those who give it their best shot. I plan to keep on flying “Entrepreneur Class” – how about you ?

Take a Break – Regularly

When I used to live in Los Angeles, about 15 years ago, I would sometimes drive through an Orthodox Jewish neighborhood on Saturday’s – the Jewish Sabbath. Almost everything stopped. Restaurants were shut. Families could be seen taking strolls, and enjoying each others companies. It was the day of the rest – an obligation and a commandment in the Jewish tradition.

I always admired these families – and the appearance of peace in their neighborhood. And yet for whatever reason, even though I am Jewish I could never bring myself to follow the rules of stopping work on the Sabbath. After all, I was driving through their neighborhood, looking at them, instead of being a part of them.
That being said, almost six years after launching my own company, while I don’t officially keep the Sabbath – I have learned to crash hard on Saturdays. The incredible temptation as an entrepreneur is to keep going, and never to stop. After all, there are legitimately a million things to do, and the thought of stopping and taking a break is frightening.

What will happen if you take a day off? What will happen if you let yourself sleep in for a morning? What will happen if you sit and stare into space for a few hours? For the first few years I would fight every temptation to take a break. It was simply too scary. And every few weeks I would crash and burn hard – not be choice, but due to shear mental and physical exhaustion.

But then I started to realize that if I didn’t take a day off, and allow myself to rest and think about other things, I was actually weaker – not stronger. I started to realize that if I allowed myself to decompress, I would in fact be better prepared for the next challenge. And slowly as regular breaks became part of my routine, I became a better entrepreneur and leader.

When’s the last time you took a day off? And the time before that? If you can’t remember, now might be the time to change your routine. I promise that your business won’t fall into the ocean, while you’re giving your body and your mind some time to heal.

Am I Nuts to Try and Send My Shoe Flying Through My Office Window?

What do you do in the middle of the workday to relieve stress? Do you have one of those small punching bags hiding in your office? Or maybe you have a can of silly putty that you do some hand exercises with?  Perhaps you have cases of chocolate hiding in your drawer.

My stress relief exercise is – you might say — non-conventional. Every once in a while when I need a mental break I like to go into the communal area in our office, ask everyone to watch their heads, and I try to flick my shoe about 30 yards across the office through a small window.

Am I nuts to do this? I could imagine many people scolding me and telling me I am not setting a good example for my team. I disagree.

At my company MultiFunding we’re building a business that is all about being empathetic with entrepreneurs and trying to help them get the best possible financing for their businesses. The process can be stressful, and often times the entrepreneurs are in emotional states.

Dozens of times a day I repeat the line “we treat entrepreneurs and small-business owners as we would want to be treated” as I try to reinforce the core value and principle of our business. But I think that if I want these words to actually mean something, I can’t wear my own emotions, and my own ups and down’s close to my vest. My team has to feel the roller coaster with me, and the highs and lows.

This is why I think I like to play my silly game with my shoe. Entrepreneurship is raw – it’s emotional, and it’s intense. If you bottle it all up, and never find a release, you’re set for a heart attack. I think that besides the shoe game putting a smile on my team’s faces, it also shows them my human side – and that I too – need to let go some times.

A few weeks ago, I flipped my shoe and it flew right through the window. The problem was that instead of it flying into the bushes below the office, this time is landed on the roof. I was ready to write off the shoe, but a couple of folks in the office were determined to get it. As the picture above shows, they found a fishing pole in someone’s car – and fished my shoe back through the window. I think this story will be a part of our company culture for a long time.

So what do you do to relieve stress and how does it work for you?

Be Careful When Looking in the Mirror

When I started my company five and a half years ago, I tried to design and organize my life in a way that replicated my experience where I spent the last decade of my life.  Previously, I worked for an organization with 1,000 people in it. In that company, everyone was compartmentalized with one or two skills that they were best at. There were plenty of other people and other departments to take care of your perceived weaknesses. And to survive politically you started to believe in the myth of your own strengths and weaknesses. After all, you couldn’t be strong at finance if there were people who did that for a living–etc., etc.,

Whenever we’re faced with current decisions in business or life, we naturally look at our previous experiences for guidance and direction. It’s a smart thing to do. That being said, you have to look at your new set of circumstances, and make sure that your prior experiences are a good proxy for them.

In retrospect, trying to replicate my prior corporate life, in a brand new company, that was a raw idea; was about the most naive thing I could have done. Nothing was the same. Trying to compartmentalize an organization chart with 2 people was ridiculous. We both had to do everything and learn everything. We had to be strong at all of it, not pieces of it. It would take years before I could slowly start to afford the luxury of picking and choosing what I wanted to do.

I’ve also learned that when I ask for advice from mentors, which is critical and I do a lot, I also have to consider the mirrors that they are looking through as well. While I want their advice, I have to make sure that the context and texture is relevant to the current set of circumstances on the table.

I do not mean to suggest that we can’t draw valuable lessons from mentors and prior experiences into our lives–we can and we should. But when you’re looking in the mirror–make sure you’re comparing apples with apples. If you don’t, your prior lessons could haunt you.

Should I Be Worried About The Train ?

This week I saw a picture on Instagram of a turtle with a slogan saying “your speed doesn’t matter – forward is forward”. I decided to re-post it and was struck by a quick comment that came right back from an old friend of mine in Silicon Valley who said “unless you’re about to be run over by a train”.
His comment hit a nerve for me this week. I have an opportunity to do a deal with a partner that might significantly grow my company. The problem is that in my opinion the partner’s terms are outrageous. While I could substantially grow my top line – the chances of making any profit are small and the chances of losing money are high.

There ordinarily wouldn’t be any debate expect there is another venture backed company in my space who is happy to take the deal. And while I can’t be sure of their logic – I can only speculate that they’re more interested in market share – then profits. Their investors want growth. They’re on the venture capital treadmill.

Should I be worried that in their quest for growth they will build a train and run me over?

I am sticking to my guns. I have never seen a study that proves this – but I bet you if you took a sample of 100 companies that were focused on sustained profitable growth vs. another 100 companies that were focused on quick and rapid growth – at the end of the day the first group will have more survivors and build more long term value.

It doesn’t have to be a race but sometimes the tortoise beats the hare. I am going to stick to my tortoise strategy. I am not worrying about the train.