On episode 17, “Stuck On $5 Million,” we’re joined by Gene Spittle, CPA, PFS, CGMA, a principal at Rea & Associates with more than 35 years of business consulting experience. Gene talks about three key factors for business stability and continued growth – focus, people, and systems. During their conversation, Gene and Mark analyze the four stages of business growth while analyzing solutions to help business owners overcome some common challenges that prevent their businesses from achieving the growth they want and are capable of achieving. Listen to episode 17 of unsuitable on Rea Radio to learn all this and more.
Transcript
Mark: Welcome to unsuitable on Rea Radio, the unique financial services and business advisory show that challenges your old school business practices and the traditional business and culture. You'll hear from industry professionals who think beyond the suit and tie to offer meaningful modern solutions to help you enhance your company's growth. I'm your host Mark Van Benschoten.
Business ownership and parenthood have a lot of similarities. Both require a commitment of time, they both drain your finance or resources, that's the truth. When it's all said and done you're hoping that we're able to exceed your return on your investment. I'm not sure how you measure both of those but Gene will tell us I'm sure. Those of us who are parents are generally pretty aware of the stages of human life, infancy, childhood, adolescence, teenage years, adulthood, the golden years. I'm not sure where I'm am, but not everybody is familiar with the phases of business growth. Gene Spittle who's a principal with us at Rea & Associates and a 35 year veteran of the industry is here with us to talk about the subject in more detail. Hopefully you will walk away with a better idea of how you should proceed in your own business strategy. Gene welcome to unsuitable.
Gene: Thank you Mark. I was able to walk in here without a cane.
Mark: Touché, touché, touché. Since you brought it up, 35 years uh Gene?
Gene: Yep.
Mark: We hire people born in the '90s, how does that make you feel?
Gene: I do have staff that I'll bring something and they'll say, "You forget I wasn't even born then."
Mark: I struggle with that though.
Gene: Yeah, I've got ties older than a lot of our staff.
Mark: You probably see a lot of changes of people over those 35 years.
Gene: Yeah. Waiting to come in here I was reminiscing back and a lot of these phases, I started think, "Boy, the firm just went through that phase too, maybe we've entered this phase."
Mark: That's a great segue, you would think we had planned that but we didn't. We're going to talk about phases, we started with linking human life stages and then business stages. Would you say that they're similar?
Gene: Very similar, yeah. I listened to a consultant about 4 years ago, a lot of what he said really changed my thought process about where businesses go and where they've been. He started out, Mark, by saying, "There's 3 sets of 3 factors. Focus, focus, focus. People, people, people. Systems, systems, systems." Through our firm's transition or growth, or maturity, I knew about that people ... We're always working with good people here, and there's systems, but when he brought focus up, I finally got focused.
Mark: That's a good point because it's not something I would have thought of, focus. How does that apply?
Gene: In this case, I look back and a lot of these, I'm going to say, startups that were coming out of the startup phase and into a growth stage. Poor cash flow, employees that maybe were more technical than they were smart. They always wanted to diversify into something else. I can tell you, I sat in a lot of meetings and would shake and say, "Yeah, that sounds pretty good, maybe we ought to do that." But after listening to this consultant ...
Mark: Lack of focus?
Gene: Lack of focus.
Mark: Good point. Before we dive in more detail, is there some widely accepted, "Here are the stages of a business," or is it self described, you're self defined?
Gene: I think everybody knows startup. This fellow's materials that I read that day or took back from the conference, he threw a 5th on in there, permanent mom and pop. Which those are the ones that don't go through the 4 stages that I'm going to refer to.
Mark: The 4 stages, startup ...
Gene: Startup, then you go through an entrepreneurial expansion, then you go through an entrepreneurial management accountability. That's where there's some systems in place, the growth has slowed a little bit, things are a little more consistent, profitability. Then, and I think you've seen it in the firm here the last 5 to 10 years, you go into that strategy and planning, where you have executive leadership and you start doing 3 to 5 year plans.
Mark: On these stages, is it like a hard ... Under the life stages, teenage, you know when you're a teenager, you know when you're an adult. Is it defined in the business, you know if you're in the entrepreneurial expansion or is kind of grey?
Gene: There are characteristics. The startup, usually you'll see the owner working around the clock doing everything. He cares more about the customers than he does his employees. People are working long hours, no systems in place and profitability is low and cash flow is terrible.
Mark: Doesn't sound like a great place.
Gene: No. No but good news is you can come out of that.
Mark: I assume as you go from startup to entrepreneurial expansion to the management, the accountability, is [there 00:05:55] potential that you could slide back?
Gene: I would think. If you had a breakdown ... As you go into this expansion mode, your systems aren't perfect yet. We've probably seen it in our firm where big influx of business and the systems couldn't handle it. The people could handle it but the systems couldn't.
Mark: Systems couldn't.
Gene: I could see systems breaking down, one of them is the management, the people part of it. Management starts slipping, you could go backwards. I don't that you go back to the startup, you'd probably be out of business by then.
Mark: Right, or sitting at a bar somewhere drinking your sorrows away.
Gene: Yeah. Dave Cain would probably be there too.
Mark: We'll stick him with the tab. Why is it important to know what stage you're in?
Gene: That's a good question.
Mark: First one of the whole series.
Gene: Yeah. I've listened to them all and you're right. No, joking there. I would say the last 5 years I've been able to turn to clients that are going through some of these things and tell them not to panic. That's probably the big thing is that, "Hey, everybody goes through this."
Mark: Acknowledge where you are.
Gene: Yeah. In fact I was thinking on the way down here that, I've got that lean 6 segment green belt and it's got systems and processes but I start thinking, maybe I was pushing that too much to some clients when they first got to get focused and they've got to get the right people in place.
Mark: Sure. I would also think a benefit of knowing where you are, it's like, "Here's how I get out of it," like you were describing before everyone working long hours, profitability is low, and say, "What's a characteristic of somebody in the next stage? I can latch on to them, I can do something." For me sometimes, I get overwhelmed and I'm like, "Oh," I'm working hard, I'm doing I think everything the right thing, but I'm not getting any traction and maybe a focus as to what the next stage looks like. I need to be doing some of those characteristics.
Gene: Yeah. That's well said, I would agree with you.
Mark: I like you Gene, that's 2 compliments.
Gene: It doesn't go much beyond that.
Mark: I'm used to it, don't worry about it. Getting back to Rea, I assume it's probably easy to look back over your 35 year career, which when you started I was still in high school but that's besides the point. Could you identify points when Rea was in these different stages?
Gene: Yeah. Now that I've become a little more mature myself, I'm not sure if I'm mature but wiser. When I started there were probably 30 to 40 people in the firm. You didn't really need ... Every office, 4 offices, had their own systems. There was really no need to do what another office was doing, even if they did it better. I've seen that come a long way. You know as well as I do how hard we've worked on the one firm concept and to break that stuff down. I've seen that ... I don't think we're there completely but seen a lot of improvement there. Our people, we've always had great people, but now I think we've realized that there are exceptional people out there.
Mark: Something you were talking there makes me think, I would think that within an organization different distinct groups could be in a different stage of a business, an office, a department.
Gene: A department, yeah. How long have you been here? Not 30 but.
Mark: 8 years.
Gene: 8, okay. Look at our government team, how they have put in the systems and they went through a lot of these where they couldn't keep up with the work, things were probably last minute. They settled down.
Mark: That's a great point, and they focused.
Gene: They put systems in place and scheduling.
Mark: Working on the people.
Gene: Yeah.
Mark: That's a great point.
Gene: That's a good success story there.
Mark: You can have an organization be in different stage. You can have a department in a stage and it's probably not dependent upon ... It could be non-dependent on each other.
Gene: Correct, yeah.
Mark: It's an interesting point.
Gene: Earlier you asked about, when do you know that you're in a stage.
Mark: Right.
Gene: I didn't look at it before I came but there was a ... I have something at the office that it actually relates it to sales. Maybe 1 to 2 million you're at this stage, 3 to 5 ... It breaks out what your crisis probably is and the things that you need to be working on. On the way I started thinking, what did I tell Becca or Abbey what I wanted to talk about? Probably about 7 years ago, I'm a pretty good writer but I'll take the time to write. I started thinking, I'm going to write a book, Stuck on 5 Million. Because I looked around, especially in our client portfolio there in Wooster and we've got some very nice companies but 1 year went by, 2 years went by, 3 years went by and they would seem to be stuck on 5 million.
Mark: Do you think there's a hard definition of the sales to a particular stage in the business? I don't, I think you could have the entrepreneurial expansion and maybe be at a million, where another organization might be up in the management and accountability and they might be at 10 million.
Gene: Yeah, I can give you 2 great examples on what really woke me up. Rubbermaid was born and raised in Wooster. Shortly after I got there, in fact some people blame it on me, Rubbermaid packed up and moved the Carolinas. A lot of people, their executives did not leave town because it's such a wonderful place to live. 2 examples, one I had a client that was at about 3 to 5 million. Went through these phases, pretty tough time, cash flow and everything. They approached me one day and said, "Hey, this fellow used to work for Rubbermaid and Little Tikes, he's looking for a business. I think I'm going to entertain this." I turned to him, I said, "You're through the tough part, you've got your overhead covered, you've got this, you've got that. Why would you do that"
Without saying names, he said to me, "I feel that I and my wife have taken this as far as we can go." Eventually, the call came in and bought a little piece, had options to buy others. I think they were eventually up to 20 million in revenue, which you can throw sales with no profits but the cash flow was there. I saw it happen down the road a couple miles too, same thing. A company in the 5 million, I'm talking to the owner. He says, "I'm at 10, I'm at 15," both Rubbermaid guys. I started working on the correlation, now the big thing I would say it they think big picture, which phase 4 is strategy and planning. I think when they went into those they weren't really mom and pops but they might have been ready, just coming out of that expansion mode but not much management team. I think they immediately brought in the strategies.
Mark: And were able to take it to the ...
Gene: Take it to the next level.
Mark: I like the title of your book, Stuck on 5 Million. I know it's just a placeholder but I think a lot of businesses are just stuck. They do what they do, day in, day out. They can't step back and look. They don't see that they're working more, that they're treating their employees maybe not really the way that they want to. They are stuck, on 5 million, your term. I like that, because I think there are a lot of businesses out there like that.
Gene: Yeah, I've seen a lot. You don't like to tell people how to run their business but when I see that happening I'm more apt to bring it up to them. Maybe it's time to get that $100,000 HR director and get this thing straightened out.
Mark: Yeah. I won't say a success, but that's a difficult conversation to have with somebody but you try to paint the picture for them, if you do this here's what it might look like. Hopefully they can buy into that and they don't get mad at you and throw you out the door.
Gene: Yeah, never been thrown out.
Mark: Maybe not invited back.
Gene: Good point.
Mark: Sometimes, your 2 examples I think are very important because the one that the gentleman, the husband and wife, had the acknowledgement that we've done all we can do. It might be age and tiring and who knows what was going on. It's not an indictment of them, it's not being critical, just an acknowledgement to say, we have done all we can do here. I think that's tremendous to have that self awareness.
Gene: Yeah. In fact I just had lunch with them a couple weeks ago. They are pretty much semi retired, retired and they're having a lot of fun. A lot of people don't realize when they get to that point that they can't go any further. I was just blown away that they said that to me. You know what? After watching the former Rubbermaid guy come in, he put people in, he stayed focused, he put systems in, and it took off.
Mark: That's exciting. Your 3 by 3 there, it sounds so simple but it's easy to grasp onto. The focus, the systems and the people. Those are all things we can work on on a daily basis, it's some huge mountain that you have to overcome.
Gene: I think you've seen especially startups, they get to the point where they need more sales but they don't have the cash flow or profitability to go hire a sale person. What comes first? We went through that after the recession in our firm.
Mark: Yes.
Gene: Business started coming back, when do you hire? You hire when it's already in the door or ...
Mark: On the off ...
Gene: Yeah. A lot of businesses go through that problem, or that stage. I've got one going through right now, he needs ... All his sales people are 60, I can say that because I'm only 58, they're 60 plus and they're great guys and they're doing a nice job, but they're not hunting anymore.
Mark: They're going out the sunset and getting back to the people, and the focus on the system. The system, to me you need to have a replacement pool of talent there. Who's going to take-
Gene: It's going to take the cash flow and it takes profitability.
Mark: Gene, I appreciate this. This is some insightful information about the stages of business and why it's important to know where you are, what can be done when you're in a stage. I assume you would encourage business owners to talk to somebody. I'm not saying go to counseling, but if they want to that's fine. To have a conversation with somebody.
Gene: Yeah. There are a lot of good consultants. You've watched our firm, we've got a lot of good people with a lot of experience. I'm thinking of a senior that's much older than me but spends a couple of days a week consulting with clients. Those clients are growing because of things that he's sharing with them.
Mark: Yeah, to have conversations I guess would be a recommendation. Be open, accepting of things you might not want to hear but you need to hear.
Gene: That's great, right there. Those at the table here that know me, sometimes I don't hold back, I let people have it.
Mark: That's what we like about you Gene. Before we wrap up, there's a question we ask every guest. If you could have one superpower what would it be?
Gene: I heard you were going to ask that and I forgot all about that.
Mark: Memory?
Gene: Yeah, I'd like my memory back. One superpower ... I'm a big basketball nut, I wouldn't mind being the adoptive, I'm going to say grandfather of Lebron James.
Mark: That would be a super.
Gene: Or father.
Mark: All right, that would be a superpower. That's a lifetime contract with Nike there. Thank you for joining us today Gene. I think I might have even learned a thing or two from our conversation today. A huge thank you to our listeners for listening to this show every week. We have posted some great resources on our website for your to check out. If you want more insight into growing your business, check them out at www.reacpa.com/podcast. If you liked this episode let us now, send an email with your feedback or future topics ideas to podcast@reacpa.com. Until next time, I'm Mark Van Benschoten for unsuitable on Rea Radio, encouraging you to loosen your tie and think outside the box.