What goes up must eventually come down
The average gravitational pull on planet Earth is 9.8 meters per second squared (m/s2.) The gravitational force of a body is in direct relationship to the overall mass of the body hence, gravity is much stronger on Earth then say on the moon, which is 1/81 of the Earth’s mass. Gravity, to say the least, is a powerful force.
Gravity has such a hold on objects that it takes tremendous energy to escape its draw. In physics, overcoming gravitational pull is called escape velocity. The amount of velocity needed to escape the Earth’s gravitation force is 11km per second. That is more than 40,000 km per hour! For a rocket to escape Earth’s gravity, it needs to produce 3.5 million kilograms of thrust. Escaping gravitational pull takes tremendous skill and energy. The bigger the mass of a body, the greater the energy required to break free from its hold.
Organizations have gravity too. Depending on their size, they may even have planetary systems, with multiple gravitational bodies orbiting one central organizational mass. In large companies, we call that central mass the company mission. In smaller organizations, the gravity that holds it together may be individuals instead of mission statements. This is often the case with successful small businesses still run by their founders. Those businesses grew and are maintained by founders’ personalities and “gravitational” forces of will.
All who work in organizations have various gravitational problems to navigate. This is not my concept; it is one laid out more eloquently by Bill Burnett and Dave Evans in their “Designing Your Life” books and workshops. In their work, they discus various problems we encounter in our personal and professional lives. Some problems are easily solvable, some problems are “wicked problems” but solvable with the right amount of energy, intellect, and time. Finally, some problems are so massive, they termed them “gravity problems.” Gravity problems are colossal issues that are essentially immovable. These business roadblocks can be systematic, personality driven or actual laws of mathematics and physics that simply cannot be overcome.
Governments are great at producing systematic gravity problems. Social Security is one such gravity problem. Social Security “benefits” are so engrained in the population’s spirit, a collective that adamantly but falsely believes they paid into a “retirement” fund lo these many years, that changing the government created Ponzi scheme known as Social Security to adhere to its original intent and fiduciary math is simply impossible. Thus, Social Security is on a death march to insolvency. But when it dies, it will not be abandoned as a failed government program. Heavens no, some future congress will breathe new life into it under some other form of cunning redistribution. Social security is a Jupiter-sized gravity problem, and no current or future elected official will ever amass enough thrust to escape its hold on the American psyche.
I encountered a gravity problem early in my restaurant career, though I didn’t know it at the time. I worked for a very successful third generation restaurant owner. Over the course of several years, I became the general manager and the top employee in title and salary that did not share the owner’s last name. At that time, the fourth generation was in high school and university. Being a non-family employee came with its own challenges, benefits, and abuses. Not to say that family members did not have their own and distinctly different challenges, benefits, and abuses, save one. They were not in jeopardy of getting fired. My gravity problem was, no matter how hard I worked, no matter how dedicated I was to the family, I was never going to rise above my title and status in that company. The need to be a family member for further advancement was the immovable object – it was my gravity problem.
Force of personality is another gravity problem. Organizations that grew because of a dynamic and driven personality create huge gravity problems. In reading “Steve Jobs” by Walter Isaacson, Apple’s growth was entirely tied to the determination of Jobs. Steve Jobs, through utter force of will, created Apple products the world did even know they wanted. His personality was so integrated into Apple’s success that the company had to bring him back in 1997 after firing his difficult ass in 1985. Being an Apple employee and believing your ideas and career could advance except in the shadow of the great Steve Jobs would have been a failure to understand the “cult of personality” gravity problem at Apple.
Because of the gravity problem that founders create, not on purpose but by how the organization grew by sheer force of will, escaping personality gravity becomes the greatest employee as well as leadership challenge. When a founder grows a successful company, especially in less orthodox ways, they naturally respond to every problem “nail” with the same well-worn solution “hammer” that led to their personal success. However, those solutions are generally not transferable skills and subsequent non-founding leaders must solve problems in a more universal and fairer manner simply because of two reasons:
1. They do not have the owner’s motivation through either risk or reward.
2. Organizations can only tolerate one dynamic and powerful personality.
Thus, the gravity problem for both employee and the strong personality driven owners regarding succession is transferring winning skills and creating a winning exit plan. Powerful personalities do not tolerate competitive ideas, nor do they foster innovation beyond their own choosing. Personality driving businesses create “cult of personality” acolytes and triage specialists but not necessarily innovators & driven achievers. The acolytes bask in the shadow of the “all-knowing” leader and faithfully execute the company doctrine. The triage managers are more pragmatic, ever attending to those wounded in the wake of the dynamic leader, constantly assessing whether the victims can be saved to fight another day or executing the “do not resuscitate” order. All the management efforts in these kinds of organizations are focused on time and tasks and not growth and accomplishments.
An example of confronting a dynamic personality problem occurred early in my career. I worked for a catering company headed by a larger-than-life media driven individual. The company was all about building a brand around the CEO’s name. Every bigwig who came to town, from princes to presidents, had their parties catered by this individual. For those too young to remember news papers, this leader was an ink addict the same way current social media influencers are “like” junkies.
Midway through my tenure with that company, the dynamic leader was fired by the parent company. With his well-crafted brand, he established a competing catering company. About 50% of us opted to stay with the parent company vs. following the dynamic leaders to his new company. Even though the new management improved wages and working conditions, both of which were atrocious under the dynamic leader, the remaining staff fought the new leadership tooth and nail because they could not produce the ego reinforcing sensation producing feeling we got laboring under our showy past leader. Although I eventually left the employment of that catering company, the parent company could never shake the stigma of loosing the dynamic leader. It was unceremoniously dissolved several years later.
That dynamic leader left such a hole in the wake of his departure that no small amount of time or money could over come it. They had a gravity problem, and, in that situation, the prudent move was to walk away. For, if the parent company could have applied the 3.5 million kilograms of thrust to escape the gravitation force of the dynamic leader, the best they could have accomplished was a less energy required low orbit. But all things that go up, must eventually come down. The return on investment (ROI) for that mission just wasn’t there. And unless one is Elon Musk and has “f*** you” money and wants to prove a “Futile and Stupid Gesture,” the smart money was to disband the catering company to keep their powder dry for another less gravity-defying venture.
This brings me to the buy/sell conundrum associated with gravity problems. Throughout my career, I have analyzed and made recommendations on over a hundred business opportunities, mostly in the restaurant/hospitality space. I generally come across three types of operations:
1. A business so poorly run that it has virtually no value beyond resalable assets.
2. A business that has absent or distant owners that happened to “Forest Gump” their way into decent sales but under preforming profit.
3. Successful business ruled by dynamic personalities that have proven sales, real bottom line profit and brand recognition.
Of the three possibilities, the only one that really interests me is option number two. I avoid the first option as I have no interest in being a demolition man. The third option is also undesirable as one would have to overcome the gravity of the dynamic owner to produce the current business results. Option two is the only business that has an easy to obtain upside.
For option two, I analyze that my skill in designing profit along with inserting humanistic management policies will increase revenue and bottom-line profit in short order. There will be two kinds of managers in that owner-absent business, opportunistic and dedicated managers. The first will quit when I inform them that the alcohol is destined for our customers bellies and the cash is destine for our bank account. The hardworking dedicated managers will be pleased to stay when working conditions improve and profits result in a higher income. Thirdly, the lack of any real leadership means that I will not need to apply excessive force to move the team to a more profitable way of thinking. Option two restaurants are the sweet spot for acquisition.
The problem with purchasing a successful business lead by a dynamic personality is the entire organization was designed to benefit that ego, both financially and psychologically. The mission in these organizations is that all grace floats effortlessly uphill and all s*** rolls down hill. As previously stated, there are two types of managers in these organizations, the acolytes that bask in the shadow of the dynamic leader and will continue to praise him or her long after their departure and the triage managers that constantly access the damaged employees run over by the leader’s management style to determine if they can be nursed back into the battle to serve the company or if the wounds are too great for reformation. Neither of these types of managers are of any use to me as the new owner for the first will sabotage every new policy and initiative and the latter was never given the skills to manage the business as they only learned how to manage gravity dysfunction.
There is a fourth option of a company worth purchasing but I hesitate to put it on the list. This is the business that has a purposeful mission, assembled a healthy management team that is involved in the agenda creation and duly rewarded for their efforts. This type of company is profit driven, not as an end, but as a marker on the report card of success. This company has a strong EBITDA and is worthy of large EBITDA*X offer as a new owner could expect this company to continue to operate and innovate into future prosperity. The reason I hesitated putting this type of company on my purchase list is I have yet to encounter one, at least one that is for sale. Especially in the restaurant buying business, I would call this type of operation a unicorn. I am not saying that these companies do not exist, but I would expect my beloved Minnesota Vikings to win a Super Bowl before I ever get a chance to purchase one of these restaurants. But hope springs eternal and perhaps Beelzebub may eventually tire of the heat and build a ski resort in hell, and I will find a well-oiled, customer brand-loyal healthy management structure restaurant to buy.
All organizations have some form of gravity that holds them together. This force gravity gives the business purpose and that drives their operations. The challenge in finding businesses to buy (or sell) is accessing the nature of that gravity and determining if it is a net positive or negative to a future owner. Churches often grow under dynamic and forceful pasters only to lose ground upon the leader’s departure. Businesses created around dynamic visionaries grow until the dynamic leader retires, loses interest or sells. For me, when assessing the true value of a business to purchase, the formula looks something like this, Purchase Price = (EBITDA*X) + (EBITDA*Y) where X is a factor of sustained cash flow and Y is a factor of net positive or negative gravitational pull of the organization. Thus, a business with strong cash flow, positive brand recognition and management built around that mission is far more valuable than the organization with strong cash flow but a negative and difficult to overcome gravity problem. My best advice for purchasing a business, leave the peddling of dynamic actors and drama to the Hollywood studios and focus on buying a net-positive gravitational force operation. The last thing a new business owner needs when purchasing a business is an unwanted and expensive bill for rocket fuel.