Mistakes are part of business, and we all make them. Most of them, I've found, are the product of faulty reasoning. I'm constantly running into people who are about to make a major change in their business for reasons that have nothing to do with what's best for them and their company. Usually it's because their emotions have gotten in the way.
I'll give you the example of Brian Kelly, the former fireman I helped get started in the document-destruction business (see "A Few Good Competitors," August 2002). As you may recall, he also owned two coffee shops in New Jersey with a friend he'd known since childhood (see "Taking On Starbucks," August 2007). In the course of getting the stores up and running, Brian ran up a significant amount of debt. Although his partner also invested some money, he had mainly contributed sweat equity, serving as manager of one of the stores. As long as Brian was in the fire department, he could put only a limited amount of time into the business, but that changed once he retired. He then proceeded to implement several programs that improved the profitability of the shops.
In the past few years, however, I could see him becoming frustrated. For one thing, he had a hard time turning his partner into a businessman. The guy was a nice person, not to mention a lifelong friend; he just didn't have a business mindset. He wasn't much interested in the numbers. He didn't concern himself with the details that spell the difference between mediocrity and excellence. When Brian didn't keep an eye on things, old habits reasserted themselves, and performance slid.
About a year ago, Brian came to me and said he was planning to sell one of the shops. He figured he could pay off his debt with the proceeds. "I don't know how much longer I want to continue in this business," he said. "I really put in a lot of time, and I'm not getting as much out of it as I'd like. I'm going to look for something else. But I need to get rid of the debt, so I can start fresh."
"What about your partner?" I asked.
"He's usually willing to go along with what I want," Brian said. "I'm going to sign up with a business broker. Can you help me?"
I don't think much of business brokers, particularly the generalists who say they're competent to handle any type of transaction that comes along. But Brian had made up his mind, and I didn't have a better alternative for him. So I helped him negotiate a reasonable contract. Eventually, he found two potential buyers who were serious enough to sign confidentiality agreements and begin their due diligence. For various reasons, however, both deals fell apart.
Then, a couple of months ago, Brian stopped by, and I could see he was aggravated. "What's wrong?" I asked. He said he'd gone into the office he shared with his partner and found an application to become an emergency medical technician. He was angry. He confronted his partner, who said he didn't see a future for himself in the coffee shops. He wanted to find a career that would offer him hope of being able to retire someday.
Brian felt betrayed. In his mind, he had been protecting his friend for years. Without Brian's help, his friend would not be a part owner of a business -- at least not this business -- and he would not be getting paid as a partner. Indeed, Brian could probably have paid a store manager half what his friend was taking out. Even in deciding to sell just one of the shops, rather than both, Brian had been thinking about protecting his friend. Now, it turned out that the friend wasn't planning to stick around anyway. Brian felt he was being deserted. In fact, he was being handed a golden opportunity.
"What are you upset about?" I asked. "Your friend is doing you a favor."
"What do you mean?" he asked.
"You took on debt for this guy's sake," I said. "You're selling one shop so that you don't get stuck with the debt, and you're keeping the other so that he can still have a job. Meanwhile, you're looking for another business to get into. Let me ask you something: If your partner disappeared tomorrow, would you still want to get out of the business?"
Brian was taken aback. "I hadn't thought about that," he said. "But there's something else."
"What's that?" I asked.
Brian explained that his morning manager at the other shop was an immigrant who had applied for permanent residence in the U.S. Brian had agreed to be her sponsor. "I've had her on the payroll for six years, although I really should replace her," he said. "But if I let her go, she'd lose her sponsorship."
So here was Brian making important business decisions based on what he thought was best for everyone but himself and his business. He was allowing his compassion and sense of responsibility to dictate his actions. It turned out, however, that his compassion was misplaced. His friend was saying, in effect, that continuing as a shop manager and a partner in the business was not what he wanted. As for the morning manager, I happened to know she could work elsewhere while her residency application was being considered. Brian had not bothered to research the question, because he felt obligated to keep her on until her application was approved.
Don't get me wrong. Compassion is a wonderful thing, and so is a sense of responsibility toward employees. But those emotions shouldn't have entered Brian's decision-making process until he had first taken a clear-eyed look at the needs of his business. You simply can't make good business decisions unless you are able to put emotions aside and analyze a situation objectively. I believe there is no more important -- or difficult -- skill for an entrepreneur to learn. I'm not saying you should ignore your emotions. In the end, you may decide to go with them anyway, but at least it will be a choice you make with your eyes open, knowing what the tradeoffs are.
And that's what I told Brian. "Why don't you go home and think about this," I said. "Make believe these two people aren't around anymore, and you're running the business without them. Think about what you would do to improve the stores' performance and how much more money you'd be able to make as a result. Figure out whether it would be enough to let you pay off your debt. Ask yourself, 'Would I still want to sell one of the shops if they were doing as well they could be doing?' Then come back and tell me what you've decided."
