How to Fail in Business, while trying really hard

By Andy Killion

A real time lesson on buying and managing a small business during tough economic times by a Wall Street trained stockbroker turned boatyard owner in pursuit of one simple goal: freedom In his mahogany-paneled office in a climate-controlled, modern office tower, Andy Killion hangs up his cushy Morgan Stanley stockbroker position to chase his lifelong dream of owning his own business. Not being a normal, rational person, Andy's chosen path is ownership of a small boatyard in Southern California. Join Andy on his journey of personal growth and learn countless insights from a Wall Street - trained small business owner struggling to survive during the toughest economy in generations.

• Language: English
• Publisher: Andy Killion
• Release date: Mar 15, 2015
• ISBN: 9781311093707

Book preview

PREFACE

A WAY OF LIFE

ON THE WATERFRONT

One of the most frustrating times that I experienced in my working life was when I worked as a stockbroker. My firm was a terrific company, and they treated me very well. But because of its sheer size and public image, I was not allowed many opportunities to be free to show my stuff. The firm was paranoid that they might suffer failure and embarrassment. They had invested so much time and money building their image and reputation that virtually any new idea had to be vetted through the chain of command.

For example, early on I had a wonderful idea. As the new branch coordinator for online trading, I wanted to leverage my proximity and knowledge of Kinko’s in an effort to position our firm’s online trading kiosks in Kinko’s branch offices throughout the land. It was a slam dunk. I actually had interest from Kinko’s, and they wanted a pitch. When I went to my branch manager, she thought I was crazy.

You see, in our firm’s culture, big ideas came from New York, San Francisco, and Chicago—not from Ventura, where I was located. I was so frustrated that I told her that I would go to our regional manager for approval. It was then that she mentioned the whole chain-of-command thing to me. After decompressing my entrepreneurial energies for a day or two, I went to her corner office and told her the story of how an entire U.S. Navy convoy went aground near Point Honda in 1923. You see, the admiral was leading his convoy down the California coast in a thick fog near Santa Barbara and had miscalculated his position. Junior officers aboard the six ships following the admiral were aware of his miscalculation, but they were not allowed to disobey his standing orders. One by one all seven ships ran aground.

This problem is why I am so fiercely grateful to run my own business. True, I am broke most of the time. True, I have aged in dog years (as the last six years have aged me twenty years). But even with all of the negatives, I love being in charge. You see, the freedom of calling the shots and of ownership is a powerful thing. There is nothing else like it. So when a job comes up that requires a little planning and a bit of risk, I jump at the chance. I am very proud of all our crew for a job well done. The boatyard is a can-do place. We rely on ourselves, and we get things done. I love it down here.

Small business is not the means to an end. Rather, you will be making a journey that requires skills and instincts, many of which are illuminated in this book. So keep a steady hand on the wheel and prepare to ship out with me on a course for your freedom. AHK

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CHAPTER 1

STANDING ORDERS:

an introduction and rationale

Chances are you are reading this book because you are contemplating jumping into the sea of small business. Oh, what an exciting time that was for me; I embraced all the possibilities, the pride of ownership, and the freedom. It seems like just yesterday that I was sitting in your place, looking ahead to what could be.

Throughout the book, you will find useful information paired with timely anecdotes from my Web log titled As the Prop Turns (www.anchorswaymarine.com/blog). Within various chapters, you will also see the acronym AWMC, which stands for my company, Anchors Way Marine Centers. Timely facts about the economy and my company’s financials are in this book as a reference for you.

You will find this book to be entirely different than any other small business how-to book. I wrote this book while having everything on the line, while the missiles and cannon fire of an economic disaster were going off all around me. In this book you will learn firsthand what it takes to be the owner of what I jokingly call the bastard stepchild of our American economy: a small business.

I offer up the following challenge: you can have the whole damn thing, provided you can walk in my skin for twenty-four hours and not get diarrhea.

THICK SKIN REQUIRED

from As the Prop Turns

A pang hits my stomach, and I find myself awake. I glance at the digital clock on the nightstand to see red numbers glaring back at me. The clock reads 3:47 in the morning. This is a normal day; there’s nothing unusual about being up at this hour. As matter of fact, I have a déjà vu moment, as I distinctly remember waking up at the exact same moment yesterday, the day before, and the day before that. Sunday is the one day where the twenty-four-hour buffer grants me the luxury of almost forgetting the realities of my responsibilities.

As a warrior fighting at the purest level of our economy, I have become immune to the endless onslaught of combatants. Whether they are financial creditors, governmental regulators, customers, employees, personal health issues, landlords, or equipment malfunctions, these combatants will always be there to test my skills. It is rare to be attacked on all sides at the same moment, but rarer still to be at peace with all of them simultaneously. I embrace those rare days of peace, for they are truly blissful.

When you are in business for yourself, smile. Realize that as a warrior of commerce this is the lot you have chosen. Seize the day; soak it all in. The smell of battle is like no other, and the excitement will grow on you. To be sure, the early morning stress-induced wake-up calls can be unsettling; but this early rising is merely the tuition we pay for our personal freedom as the self-employed.

Fight the good fight. Hold your ground each and every day because the reward is truly wonderful, and it can be collected whenever you have a need for it. That reward is independence. Yes, many of the aforementioned combatants will endeavor to control or impede your freedom. But most of them do not possess your thick skin, which you have developed and annealed over years of battle. Smile and respect them all for what it is that they too are attempting to do. Embrace them and work with them, because the battle that all we small-business owners are fighting has no end.

WHAT IS A FREEDOM MULTIPLIER

from As the Prop Turns

In business, especially when you are working for yourself, you can lose track of time. At least I do. Losing track of time is probably a good thing for us self-employed because if we were to divide our compensation by all of the time spent managing our enterprises we would immediately discover that we are not necessarily in business for the money.

I love working for myself even if I am basically working for free.  This business model may be unsustainable in the long run but it beats not working at all or worse yet, having to work for someone else.

A unique way to rationalize this painfully obvious financial situation is to simply flip the equation on its head and look at it from the other direction. This means rather than dividing compensation by time we should divide our time by compensation. The result would be called our Freedom Multiplier.

Some Freedom Multiplier Factors Revealed:

• Being able to voice your opinion to whomever you want, whenever you want=.15

• Burping whenever you want=.05

• Making appointments away from work whenever you want=.05

• Running your enterprise your way=.25

• Blue Sky/What ifs/Anything is possible/Equity=.50

The real question should not be how come we get paid so little but more importantly, what is our freedom worth?

Mine is pretty damn expensive and I am willing to pay for it.

(October 2011)

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CHAPTER 2

THE DEAL:

so you want to buy a business?

Some thoughts on purchasing a business

When I worked at Morgan Stanley, I was approached by an old family friend and client, Chuck Stanton, who owned Anchors Way boatyard. I had met him years before as a customer. He asked me to have lunch with him and subsequently asked me if I had any interest in a career change. I wasn’t expecting his proposal and went home excited about the idea of working outside and for myself. I naïvely predicted that I would have more control over my life by owning what I expected to be a simple business model. I could not have been further from the truth.

Fortunately for me, I had a private office with ample downtime to research a business plan and assess options. I was lucky. I purchased several books on small business valuations, purchase arrangements, and contracts. I found most of the books to be theoretical, and they tended to confirm my own instincts; but I did pick up a few tips that made me feel more competent. The bookshelves at your local bookstore are packed with advice about running a small business, and I recommend you read as much of it as you can.

As a stockbroker, I felt fairly competent with the task of how to value a business. I was fortunate to have business contacts, and their skills enabled me to evaluate profit and loss and balance statements very thoroughly.

Never purchase a business without access to real company financials

Important valuation factors include elements such as the true value of assets on hand, inventory, goodwill, and the net income of the business. Pin these numbers down prior to negotiating price. The price is simply a function of these numbers, and there are many formulae available.

What’s emotion got to do with it?

It is rare that a price can ever be negotiated without buyer emotion. If you are a successful poker player, you will always strike a good price, but how many opportunities will be folded in the process?

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Pricing is dependent on where you are in the business cycle. Where in the business cycle do you find yourself? Are you at the top of a cycle? At the top of a business cycle, most assets of a business are fully valued along with your own personal collateral and overall optimism. This old adage comes to mind: Invest when the cannons are blasting, and sell when the trumpets are flaring.

Will you be buying the land too, or leasing the facility?

Chances are that the business you are buying will be on leased property. In my business, all of the land is publicly owned, so leases are the only thing we can use to control the space.

If you are leasing the property, make sure that the terms are favorable

There are entire books dedicated to achieving favorable terms. Do all the necessary research. Try not to lock yourself into a usurious lease that benefits no one other than your landlord. A good