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STREET SMARTS

Whose Business is It, Anyway?

It's yours! So don't apologize for setting aside your emotions and doing the right thing.

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."

As difficult as Brian might find it to reach a decision, he has the benefit of knowing that his partner has already thought about moving on. Most of us aren't so lucky. Often when you set your emotions aside and analyze a situation objectively, you come to realize that the right decision for the business will cause hardship for people who are not at all prepared to accept it. I remember a problem we once had with a guy whose job was to do pricing for my messenger company. I'll call him Arthur. He was a wonderful person. Everybody liked him. He'd been at the company from the beginning. He'd wound up in his position through the Peter Principle. I needed someone to handle pricing, and he was available. It's a common mistake.

As it happened, Arthur had very few qualifications to be our pricing person, but -- because we all liked him -- we covered for him. Eventually, however, I had to face the fact that he had become an obstacle to the company's growth. We needed a new computer-based system for pricing, and Arthur didn't feel comfortable around computers.

I agonized over what to do. I felt guilty, because I knew it was my fault that Arthur had wound up in this situation. I was the one who had decided to overpay him and give him more responsibility than he could handle. Now I couldn't reduce his salary or demote him without creating even more problems. I'd tried that with other people to avoid having to fire them, and it never worked. Ultimately, I decided that the best I could do was to turn the problem into a money issue. I told Arthur that we had to replace him, but -- because he was a longtime, valued employee -- we'd help him out by, among other things, continuing to pay his salary until he landed a new job. It wound up taking him eight months to do that, and he kept receiving a weekly paycheck from us until then. I considered it money well spent.

As we go to press, I still don't know what Brian will decide. But at least he will come away from this episode with a better understanding of a critical skill he needs to acquire. The sooner he acquires it, the better the decisions he'll make.

Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, was published by Portfolio in October.

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."

As difficult as Brian might find it to reach a decision, he has the benefit of knowing that his partner has already thought about moving on. Most of us aren't so lucky. Often when you set your emotions aside and analyze a situation objectively, you come to realize that the right decision for the business will cause hardship for people who are not at all prepared to accept it. I remember a problem we once had with a guy whose job was to do pricing for my messenger company. I'll call him Arthur. He was a wonderful person. Everybody liked him. He'd been at the company from the beginning. He'd wound up in his position through the Peter Principle. I needed someone to handle pricing, and he was available. It's a common mistake.

As it happened, Arthur had very few qualifications to be our pricing person, but — because we all liked him — we covered for him. Eventually, however, I had to face the fact that he had become an obstacle to the company's growth. We needed a new computer-based system for pricing, and Arthur didn't feel comfortable around computers.

I agonized over what to do. I felt guilty, because I knew it was my fault that Arthur had wound up in this situation. I was the one who had decided to overpay him and give him more responsibility than he could handle. Now I couldn't reduce his salary or demote him without creating even more problems. I'd tried that with other people to avoid having to fire them, and it never worked. Ultimately, I decided that the best I could do was to turn the problem into a money issue. I told Arthur that we had to replace him, but — because he was a longtime, valued employee — we'd help him out by, among other things, continuing to pay his salary until he landed a new job. It wound up taking him eight months to do that, and he kept receiving a weekly paycheck from us until then. I considered it money well spent.

As we go to press, I still don't know what Brian will decide. But at least he will come away from this episode with a better understanding of a critical skill he needs to acquire. The sooner he acquires it, the better the decisions he'll make.

Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, was published by Portfolio in October.

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Last updated: Dec 1, 2008

NORM BRODSKY | Columnist

Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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