Coyote Blog

I already had this column at Forbes in the works, but I could not resist switching the protagonist from myself to Obama's Julia.  Every tax, license, and story here are real ones I have experienced in my business.  Here is just a small sample:

So twelve registration numbers and 12 monthly/quarterly/yearly reports later, surely Julia has fulfilled all her obligations to the government.  Unfortunately, no, because she has not even begun to address licensing issues.  To begin, the County will require that she get an occupancy permit for her campground, which must be renewed annually.  This seemed surprisingly easy, until someone from the County noticed she had removed an old rotting wooden deck from the back of her store that had been a safety issue and an eyesore.   It turns out she was in violation of County law because she did not get a removal permit first.  She was required to get a permit retroactively, which eventually required payments to seven different County agencies and at one point required, for a reason she never understood, the collection and testing of a soil sample.

Because she will be selling packaged foods in her store (e.g. chips and pop-tarts), she also has to get a health department license and inspection.  She had originally intended to keep some fresh-brewed coffee for customers in the store, but it turned out that required a higher-level health license and eight hours training in food handling.  She might have been willing to pursue it, but the inspector told her that to make coffee, she would need to install a three-basin stainless steel wash-up sink plus a separate mop sink in her store, and she decided that coffee would have to wait.

Once through the general health licensing process, she then needed to obtain licenses for individual products.  She wanted to sell aspirin, so she had to get a state over-the counter drug sale license.  She knew that customers would want cigarettes, so she had to obtain a tobacco sales license.  One day as she was setting up, a state inspector noticed she had a carton of eggs in her cooler, and notified her she needed  a state license to sell eggs  (as Dave Barry would say, I am not making this up).  And then there was the problem of beer.

My Forbes article is up this week and uses my company's vendors to compare the power of markets vs. government regulation.  A small excerpt:

I am assuming that many readers will have already spotted what these three vendors have in common:  all are either highly-regulated government-enforced monopolies (in the case of liquor wholesaling and electric power) or government agencies themselves.   As a consumer, I get the worst deal from my vendors in direct proportion to how heavily regulated they are.

My column this week in Forbes is about the declining rate of entrepreneurship and startups in the US.

A recent study by the Beauru of Labor Statistics confirmed a potentially disturbing trend — that the number of new startup businesses in the United States has declined since 2006, and the number of jobs created by those startups has been in decline for over a decade.

This is not just a result of the recent recession.  These declines pre-date the current recession, and besides, startup activity has always held up well in past recessions as unemployed workers try entrepreneurship as a path back to prosperity.

There are likely a myriad of economic and demographic reasons for this decline, but certainly the growth of government power in the economy must be seen as a major contributor.  Government intervention in commerce nearly always favors large companies over small, even if that was not its specific intent, for a couple of reasons:

1. Increasingly complex and pervasive regulations on everything from labor practices to salt content tend to add a compliance cost burden that is more easily born by larger companies
2. Large, entrenched competitors are becoming more facile at manipulating government to create barriers to competition from upstart companies with different business models.

The role of government in throttling entrepreneurship has been evident for years, in the enormous differentials between US and European business startup rates.  Historically, the US has had entrepeneurship rates 3-4 times higher than in the large European industrial countries, due in large part to the barriers these latter countries place in the way of business creation.  But the US, with its current bi-partisan drive towards a corporate state, may soon be engaged in a race to the bottom with these other countries.

I go on to discuss each of these two points in more depth.

It looks like the simply awful 1099 provision from Obamacare will be repealed.

I have to agree with Glen Reynolds that this is an awesome quote, from  a member of the teacher's union in Denver:

That’s your problem. You’re an entrepreneur, so you don’t work. You don’t know what work is until you get into an educational area.

Yep, some day I will have to stop loafing around and take on a brutal assistant principal job somewhere.  All I have to worry about is that every dollar I own (and more) is invested in my business and could disappear at any time if I make a mistake.  Thank God I don't have to sit around all day worrying whether the doctor that hands out no-questions-asked disability rulings will still be practicing when I am 45 and ready to retire.

I call this the "Dallas / Dynasty" perception of business, that businessmen just grab a phone call or two, go to a power lunch, and then head home to the mansion.

Update: Apparently this is a common misconception about entrepeneurs

The average number of working hours per week of a successful starting entrepreneur is seventy. This catches the typical American dreamer by surprise.

The teacher day:

Nor do teachers spend all of their time at school in the classroom. In fact, teachers spend fewer hours actually instructing students than many recognize. Stanford's Terry Moe worked with data straight from the nation's largest teacher union's own data - and found that the average teacher in a department setting (that is, where students have different teachers for different subjects) was in the classroom for fewer than 3.9 hours out of the 7.3 hours at school each day.

With several hours set aside at school for course-planning and grading, it strains plausibility that on average teachers must spend more hours working at home than do other professionals.

Not to mention, of course, summer vacation, Christmas break, spring break, fall break.... Oh, and the fact that they have lifetime job security because in public schools they can't be fired for even the most egregious incompetance

Anyone use Paycom for payroll?  Considering switching there from ADP, both for cost and what I think is a better IT platform.

One issue I discussed in my article on buying your own business was business valuation.  This article from Inc magazine talks about business valuations during this recession, and includes an interview with Walt Lipski, a terrific investment banker in the small business sector who represented me in my purchase.

A while back another entrepreneur/blogger wrote and asked me about investment choices for retirement.  My philosophy on retirement seems to be a lot different than that of others, and I think owning one's own company changes some of the dynamics of retirement investing.   Note that this advice is not right for everyone, and maybe no one, so read at your own risk.  I publish it because the person I wrote suggested I do so, and after weeks of crazy intense work schedules I finally have the time.

A blogger wrote me about his despair at finding appropriate investment vehicles for his retirement savings.   With relatively equal chances of 1) a long period of Japan-like slow growth or 2) a high inflationary period triggered by trying to avoid #1, both bonds and equities looked bad, and while real estate may have some value plays when things finally bottom out, neither of us has the time to pursue that.  [since our emails, International equities are something I have moved money into, both as a diversification play as well as a way to short the dollar].

As I wrote him in one email

There is still a good chance of returning to normal growth in the middle somewhere, but both those bookends [inflation and stagnation] loom much larger than they might have, say, in my calculations five years ago.  I have trouble figuring out what to invest in when both are possibilities.  Equities?  Great for hedging inflation but suck if there is a lost decade.  Bonds would make sense in that case, but their interest will be low and they will be awful if inflation ramps up.  If I really knew we would get inflation and devaluation, I would be leveraging like crazy because inflation transfers wealth from creditors to debtors.

As a result, I said that my main investment for my free capital was debt reduction and de-leveraging of my own business.  Paying down debt has the advantage of having an absolutely predictable return and it reduces risk.   This makes double sense for me as I have put new expansion investments in my business on hold until a variety of government issues from health care to tax rates become clearer.  (For example, in health care, because my company is an oddity, with seasonal part time workers mostly on Medicare already, no one can yet tell me what my future costs will be.  Estimates range from +0 to +20% of revenues!)

The key to my business, which may be very different from others, is that I make big investments to gain long-term contracts, but once captured, these contracts give my business a fair amount of stability and predictability.  Further, in the latest recession, my business has proved to be either counter-cyclical or at least recession-proof to some extent, as 2009 was actually a blow-out record year for us.  Given these facts, I am able to put a higher percentage of my net worth into my own business as an investment, without having to diversify as much in case of business trauma.  And I prefer this.  Given the choice of investing in a company I barely know on the NYSE or mine, which I understand and control, I prefer the latter.  Also, returns on capital from buying or investing in private small businesses can be much higher (with higher risk of course) than in traditional equities -- see my whole series on buying a small business.

But here is where I really differ from most people: I take a very different view of retirement.   When I worked in grinding corporate jobs (e.g. up until I was about 40) I was very focused on retirement.  Now that I am doing something that is not brutally stressful,  I hardly think about retirement.   The whole concept of retirement now seems weird.  I have, after a lot of hard work, gotten my business to the point where I can generally work as hard as I want to -- if I don't work hard, the business does not grow but I have good people such that it doesn't fall apart either.  I compete with people who are running businesses in their late 70's who are still having a good time.  I can take nice trips when I want to, take the day off if I need to, or whatever.  My business actually has an off-season so I can be more relaxed part of the year.

My advice to this particular entrepreneur was to maybe reconsider the paradigm of "retirement."  After all, the the long history of the world, retirement is a new concept that is barely 100 years old.

Are you the shuffleboard and golf type?  What do you imagine yourself doing after retirement?  I think you need some protection against becoming infirm or senile, but if you are healthy and vigorous, are you the type to get bored fast?  As an example, nearly all of my 400 employees are retired, but they all got bored and wanted something to do.

Here is an alternative, entrepreneur's way to think about planning for retirement:  How do I work really hard building a business that in 10 years will have a position such that it spits out some level of cash without effort on my part and can still grow if I want to spend time on it.  I am surrounded in Scottsdale by people who have done exactly this after giving up a corporate job.  At some point they took their savings from their 30s and 40s and dumped it into a business where they could still have the lifestyle they wanted.  Buying or building the right company is sort of like buying a bond with an attached warrant whose value is related to how hard you want to work.

As I implied earlier, this is not an appropriate approach for every small business.   The problem with technology businesses, for example, is that they never seem to mature into that latter predictable-cash-flow-stable-market-share phase.  One is always running in place.  One lesson I never forgot from my corporate years:  In the industrial sector, I often saw people making loads of money selling bushings or some such whose design hadn't changed since 1920.  It led me to this strategy:  Find a market with barriers to entry, which may well not be very sexy, and spend ten years battering you way in, and then relax behind those walls.  (As to sexy, the very first two classes of the first year Harvard Business School strategy course were a sexy cool software business and a boring stable industrial product business.  Of course,the boring stable water meters made a fortune, while the software business never made a good return on capital.  Beware of sexy businesses -- see: Airlines).

One other paradigm I would challenge is the notion everything you do as an entrepeneur has to be started from scratch.  Many entrepreneurs have fun doing this but the prospect of doing a bootstrap startup when you are 70 years old is exhausting.   Such entrepreneurs who have had a life of serial startups might consider a new phase in their business career as they get older, when they have saved enough assets to perhaps buy into an existing business rather than starting from scratch.  I cannot tell you how many interesting small businesses there are that come up for sale with a guy who has an interesting product and has made some progress but can't manage his way out of a paper bag and thus hits some growth ceiling.  I bought just such a core to my current business 8 years ago.  These businesses require a lot of due diligence, because they are a real mixed bag, but I bought mine in an asset sale for 3.5 times EBITDA (which is an entirely typical price).  Try buying Wall Street equities for 3.5 times EBITDA!  If you pick the right business, and you are a good manager, there is not a better investment out there.  Again,  see my whole series on buying a small business.

Of course this investing-for-retirement is higher risk, because one bets a substantial portion of his net worth on his own business.  But for those with confidence in their own ability, I find it a lot more compelling to bet my capital on myself rather than on guys I don't know running the Fortune 500.

I often have to try to put together a staffing plan and pro forma for new business opportunities in states or utilizing professions with which I am unfamiliar.  I have no idea how accurate it is overall, but so far this site has been a useful site for figuring out what market wages for certain positions may be.

As a small business, there is just about no way to get a bank loan based on cash flow -- not just on future projections of cash flow, but even just based on a history of strong cash flows in the company.  This is not particularly new post-financial-crash... I wrote about this issue years ago.

In contrast, it is fairly easy to get equipment financing.  I get 10 calls a week from folks trying to finance my equipment purchases.  If they can slap a lien against a moveable asset, people will lend money.  The only change I have noticed of late is that fewer of these folks will do titled assets (like road vehicles).  This is kind of ironic, since they can perfect their lien on titled assets more strongly, but apparently the government paperwork hassles with titles makes lending expensive for these assets.

The one exception to this is for boats.  We would like to buy a bunch of new pontoon boats for rental service at some of our lakeside marinas.  Pontoon boats are great assets - they have fast payback, they are tanks so they last forever, and they don't go very fast so they don't usually get in accidents.  But no one will touch boat lending.  Apparently there is too much liability for lenders.  Which is just crazy, when you think about it.  How in the world have we created a tort structure where Bank X is somehow liable for the actions of a boat user that gets hurt, just because Bank X lent the money for our company to buy the boat and then rent the boat to the user?\

Anyway, if anyone knows someone who finances such commercial boat purchases, drop me an email.

My brother-in-law Eric Grove's book on email marketing was voted on the list of top ten small business books for 2009.

I originally started this blog as an advice column for small business, and though I have diverged pretty far from that most of the time, I still like to share some of the things I have learned.

The last year have been difficult for a growing business that needs capital to survive.   A lot of our growth is on leased land in the form of leasehold improvements that revert to the landowner when the long-term lease expires.  This has always made getting funding difficult -- as bankers want to slap  a lien on something -- but of late it has been impossible.

The one exception has been in equipment financing -- I get almost more calls from lenders looking to do equipment financing than I do from companies selling printer supplies.  So I began thinking about how I might be able to redevelop a campground using as much equipment financing as possible.

One large expense in any construction project is rental equipment.  But on this job we have bought a bunch of equipment - up to and including large construction equipment.  We equipment-financed the machinery, the payments on the loans are less than the rental charges we would have had, and we hopefully can sell the equipment at the end of the job if we have no place to redeploy it.

But we still were facing a large expense for buildings.  I asked my equipment finance guy - will you finance a modular building?  "Sure," he says.  So we started rethinking the whole design using factory-built buildings.  We combined three modules to make the store and office:

The entry / gatehouse was entirely factory built:

In another location at Burney Falls, California, we equipment financed 24 cabins by, you guessed it, having them factory built rather than built on-site.  They came out pretty well:

I was really amazed at how well they came out.  Modular has really come a long way.  And since in many locales they are permitted different, some of the paperwork and approvals and inspections were streamlined as well.

As a small business owner, a huge portion of my time is spent feeding governments with all the paperwork they demand.  But this year has been twice as bad.  Every local authority we operate in has started mining for dollars.  What this has meant is a whole slew of property "reassessments" that have no basis in reality (e.g. values put on non-existent assets) that I have to spend a lot of my time fighting.  The general modus opperandi is to declare my company owes money for something fictitious, and then make us prove we don't.  Have you ever tried to prove you don't own an asset that doesn't exist?  Think about it.  How would you go about it, short of inviting the assessor out to your property to search for it.

Maricopa County, the county that includes Phoenix where my headquarters resides, has been the worst.  We buy assets for properties all over the country, and have the bill sent to our headquarters.  Often, if a registration is required, we will put our headquarters address on the government registration to make sure we get the renewal paperwork (long experience is that if anything gets sent out to an address in the field, it is lost).  The concept that an asset might be in location X but the paperwork should be sent to location Y is a really, really hard concept for a lot of state registration authorities to get their head around/

This year, Maricopa County has started sending us personal property tax notices for all kinds of assets that have never even existed in this county.  They were bought in state A, shipped to state B, with the bill sent to us here in Arizona.  But the County is in financial distress.  It probably understands that the asset does not exist in the County.  I am sure it knows that I don't, for example, have 24 cabins sitting on the fourth floor of this building, where they have them located.  But they need money.  If they send out enough fraudulent bills, and then tell taxpayers it is the taxpayer's responsibility to prove the bill is wrong, then they will likely get some money.   Yet again, the government is engaging in abusive practices that not private company could get away with for long.

I was pretty calm today on the phone with the assessor until this came up:

Me: Look, these are cabins I bought from a factory in Maricopa County but which were shipped immediately from the factory to California.

Assessor: I don't see where you filed for permission to move the cabins

Me: Excuse me?

Assessor: Your xxxyyy form [I forget the numbers].  You never filed for permission to relocate

WTF?  I know we have problems with declining tax roles, but do I really have to ask permission to move an asset out of the county or state.  What, did I violate directive 10-289?

So beware small businesses.  Your government is mining for dollars -- do not assume that tax bill is correct.

A quick note to many small businesses out there that use Quickbooks.  I know that most of us are cynical about annual upgrades from people like Microsoft as they seldom add any new functionality one actually needs, so they are seldom worth the price.  But there is an additional reason not to upgrade Quickbooks.  Every single version, since at least 2004 and up to and including 2009 has been worse than the previous year's version.  Somewhere around 2006 we got data file bloat, where the size of the company data file mushroomed 10-fold.  Around 2008 we got a goofy and intrusive place-a-phonecall-to-India authorization process.  In 2009 most of the online banking features were broken.

It is kind of funny to read Quickbooks reviews on Amazon, with each successive generation getting fewer stars.  Every version is dominated by reviews that begin with "worst quickbooks version yet."   Quickbooks 2009 right now is at about 2 stars, and is buoyed that high only by an aggressive campaign by Intuit employees to post 5-star reviews.  I stopped upgrading my business version around 2006 (and wish we had stopped earlier) but one of the non-profits I do the books for upgraded to 2009 and it is a mess.  Unfortunately, if you use the online banking functions or payroll service (we do not) Intuit forces your company to upgrade as there is apparently a 3-year clock built into the software that shuts down and forces an upgrade.

Its time for those market forces to get to work and make someone rich by bringing out an alternative.  Intuit is right for the plucking, if someone has the right product.

Because in a public company, I might have to, out of fiduciary responsibility, accede to this:

China plans to require that all personal computers sold in the country as of July 1 be shipped with software that blocks access to certain Web sites, a move that could give government censors unprecedented control over how Chinese users access the Internet.

Running a private company, I can tell them to take a hike.  As I did last week, when I was offered a large piece of new business but refused it because it required that I drug test all my employees.

Once upon a time, most entrepreneurs organized their business as what is called a C-Corporation.  Most of the publicly traded corporations you can think of, from Avon to Zenith, are essentially C-Corporations.   Such corporations had any number of advantages, but they had (and still have) one big, big disadvantage.  C-Corporations paid federal income taxes at the corporate tax rates.  And then, if after-tax profits were dividended to owners, those dividends would be taxed again.  This double taxation of earnings is something Congress talks about all the time, but never does much about.  And the implicit government tax subsidy for debt over equity does a lot to explain various waves of merger and LBO activity we have seen since the 1980's.

Now, entrepreneurs were not stupid.  No one wants their hard-earned income taxed twice.   So, entrepreneurs who owned C-corps would do one of two things.  One approach was to have the owner pay himself a large salary, thus reducing corporate income and converting the dividends to more tax-advantaged wages.  The other approach was to have the company issue the owner loans rather than dividends.  I have seen many closely-held C-corps with huge accumulated corporate loans to their owners, which may only be unwound years or decades later when the company is sold or liquidated and profits can be taken out a lower capital gains rates.

Over the last 20 years or so, a new corporate vehicle called the sub-chapter S or S-corp has become popular.  With a few limitations, the S-corp offers all the same liability protections as a C-corp, with a big tax advantage:  S-corps are not subject to corporate taxes -- corporate profits of the owners flow straight through the corporation to the owners' 1040 personal returns, eliminating any double taxation  (Limited Liability Corps or LLC's operate roughly the same, but with slightly different rules).  For this reason they are also sometimes called pass-through entities.

It is interesting to note something I never hear mentioned when discussing aggregate personal income data, which is that the switch over time from entrepreneurs using the C-corp to the S-corp creates something of a discontinuity in the income data.  Thirty years ago, much of the annual corporate earnings, and all of the retained earnings, of business owners would not show up in the IRS personal income data  -- it shows up as corporate income, but not personal income.  Today, nearly all of that corporate income of small business owners shows up as regular income on personal tax returns.  Absent any other changes in income trends, business owners as a group will appear to have large increases in taxable income, when in fact economically nothing may have changed save the corporate structures of their businesses.

But the real point I want to make is that all of the retained income and potential investment capital of a small business using S-corps or LLCs (which is nearly everyone nowadays)  shows up on the owner's personal income tax returns.  Let's hypothesize an entrepreneur whose S-corp earns $250,000 in profits after-tax.  Let's say he typically puts $150,000 of that to savings and living expenses, and the other $100,000 is reinvested in the growth and/or productivity of the business.  Now let's look at proposed increases in upper income tax brackets.  With these higher proposed rates, the business owner will have less than $250,000 in after tax income.  Let's say it goes down to $220,000.  Odds are that the owner will retain his lifestyle (he will as a minimum still have the same size mortgage and school and other payments).  The slack, then, comes out of the retained earnings.  Essentially, higher taxes result in less investment capital.  In fact, we can see an increased tax rate on wealthier entrepreneurs and business owners could easily result in a dollar for dollar reduction in business investment among small businesses, acknowledged to be the place where most all new jobs are created.

I think readers know that I don't fully accept the Obama administration's analysis of this recession.  However, let's take them at face value for a moment.  They are concerned that savings of average people won't currently translate into more business investment, as they fear the credit crisis causes banks to hold the savings rather than re-lend it.  If this were the case, then it would mean that as a policy, we would want to preferentially route tax savings to entrepreneurs and business owners who invest their own money directly, because their is no intermediary of a bank to interfere with the process.  But in fact, this is exactly opposite of what the Obama administration is doing through tax policy, instead taking away the investment capital and retained earnings of entrepreneurs through higher taxes.

This is the European-style corporate state in a nutshell.  In Europe, entrepreneurship is made extraordinarily difficult.  This is part of the deal that the political elite have with the largest companies in their countries -- we will protect you from potential new competitors, we will bail you out when times get tough, and you in turn will support us politicians.  One only has to look at the turnover of the top 30 companies in the US since 1970 vs. the top 30 in Germany or France to see this at work.  Political turnover is even slower, as an elite group of ministers run the country, almost no matter the party voted in office.  The economy as a whole suffers, but for the top 1000 or so men in power, the system works to protect their position, be it in government or in the largest industries.

And now we bring this system to the US.  Small business owners and entrepreneurs are punished with higher taxes in order to bail out politically powerful but failing companies like GM or Citicorp.  Welcome to America, the new corporate state.

Postscript: A lot of folks erroneously associate corporate states with right-wing governments, and certainly that was the case in Mussolini's Italy.  But the closest brush the US has ever had with such a system (prior to today) was implemented by leftish FDR via the National Industrial Recovery Act, and governments of both left and right have supported the corporate state approach of France and Germany.  In Britain, it was the left that built the corporate state and the right, under Thatcher, who tore it down.

Apparently Wells Fargo is catching grief for having an internal conference in Las Vegas.  Tigerhawk defends Wells Fargo.  I don't know if the meeting if the meeting made business sense to hold in the first place (and I don't want to be in the business of caring which is yet another really good reason for the government not to be investing my money in these companies).  But I can tell you that Vegas makes tons of sense for a business conference.

My company has managers located all across the country, which makes it sound like we might be a really big company but in fact we are not.  It just turns out that we have a process that allows us to accept relatively small contracts around the country and still turn a profit.  Being small, and with profit margins well under 10% of revenues, I can assure you that we do not spend any money on items or events that are frivolous or superfluous boondoggles.  Against this backdrop, here are two things I can say with confidence:

• You have to physically gather all you key managers and/or employees in one place from time to time.  No amount of teleconferencing and email can substitute for occasional face-to-face meetings.  We get all of our managers together for a week once every two years, and I wish I could afford to do it more often.
• Given the fact that we have to meet somewhere, Vegas is just about the cheapest place in the country to hold a national meeting.  There are tons of cheap flights there from everywhere.  And since the hotels have  away of earning money from visitors that most other hotels in the country do not have (ie from gambling) they discount the rooms below equivalent quality rooms in most other large cities.  On top of this, every hotel I have used for a meeting in Vegas had great meeting facilities and really knew how to provide meeting and catering services.  Finally, many (but not all) of my employees love to go to Vegas, and consider the trip a treat/reward.  So, I get a positive reaction from my employees for taking them to one of the cheapest possible places.  A win-win for sure.

I got another boiler room broker call today, so I guess the recent downturn has not flushed out all the cockroaches.  A while back I discussed the frequent calls I get from boiler room stock promoters.  The approach they use with me is this:

So the other day, I accidentally let one of them go further than I usually allow.  He said he was from Olympia Asset Management.  (There is an Olympia Asset Management web page, but I don't know if it is the same company and the web page has not been updated for several years.)  I let him run for a bit because a friend of mine runs a very well-respected financial planning firm with a different name but also with Olympia in the title, and for a moment I thought it might have been one of his folks.

Anyway, he proceeds to try to convince me that we have talked before and discussed a certain security.  "Remember me, we talked six months ago about ____".  Of course, I had never heard of the guy.  At this point I usually hang up, because I have heard this crap before -- it is a common pitch.

Its pretty clear to me now that this is what he is doing:

1. Trying to imply that we have some kind of relationship we actually don't have.  Or worse...
2. Trying to convince me that he touted stock A six months ago, so now he can tell me stock A has gone up in price.  Many reputable brokers built their reputation by cold calling people and saying:  Watch these 3 stocks and see how they do and I will call you back in 6 months.  That way, you can evaluate their stock picking without risk.  The modern sleazy approach is to pick a stock that has gone up a lot in the last 6 months, and then call some harried business person and pretend you called them with that pick 6 months ago, hoping that they will give you the benefit of the doubt.

The call just went downhill from there.  I hung up after his discussion of throwing Molotov cocktails into the cars of people he doesn't like.  That was right after I asked him if Tony Soprano was standing beside him listening in on the call.

Anyway, beware.  The guy today called me and asked me if I remembered him calling 6 months ago predicting the downturn in the mortgage market and the crash of the financial stocks.  You are not crazy - no matter how certain the guy seems, you really did not talk to him 6 months ago.

By the way, I am not the only one getting this pitch.  Ed Moed got the same pitch from the same script from the same company.  Many of his commenters share similar experiences.

Update: Wow, they sure do like Mitt Romney over at Olympia Asset Management.  I'm sure there was no arm-twisting here, when every single employee of the company seems to have given the max donation to the same candidate, with no breaking of ranks.

Update #2: Mike Murphy, CEO of Olympia Asset Management, was "a member of the [Hoffstra's] elite football team."  Wow.  Remember that time Hoffstra ripped through all those SEC teams?  Yeah, neither do I.  Anyway, this achievement does not hold a candle to the fact that I was once captain of Princeton Tower Club's elite intramural coed field hockey team.

I got another one of those scam letters from a company that attempts to trick businesses into thinking their bill is actually a requirement of a state regulatory organization (original post here).  This one is from the "Indiana Corporate Compliance Business Division."  It looks like one of the millions of small fees a business actually does have to pay to state governments for all kinds of random stuff, but is actually a business solicitation.  I will give this one credit - the font size at the bottom where they say this is a business solicitation and not a bill from a government agency is actually a size larger than similar language on the last one I received.  (click to enlarge image below)

I did not take them up on their offer, so I do not know what one would get back, if anything, from them.  It is indeed important to keep minutes books up to date.  But I do know that the information they request in addition to the fee is not nearly enough to create a meaningful set of minutes for one's corporation, so my guess is it is a ripoff.

Reader Tim Allen writes:

I wanted you to consider that in a recent previous post you had
mentioned that people are filling up their gas tanks before they
previously would, and they are filling up all their other cars, and
spare gas tanks because of the fear of not having enough necessary gas.
This is a market reality and is completely rational considering the way
the game's rules are set up (no gouging, as per the govt).

I would like you to consider that I, as a small business man,
maxed out all my lines of credit and deposited the money in my bank
accounts. If fear is driving this market, and if it causes banks to dry
up credit, I want to be the first to be tanked up on money,
so-to-speak. The negotiated rate of interest is not high enough for me
to be disinclined to borrow, at least until this credit storm blows
over. I know I am not the first person to have this idea and I won't be
the last, and we (together) will create the situation that you think
can't happen. The tighter credit gets, the more people will borrow, if
just to have the cash on hand, to not need to borrow in the future.

I have done the same thing.  I am maxed on my line of credit, because the interest rate is low and I would rather have the money in hand and pay the interest rather than find out later my line is somehow revoked or frozen.  The money is not needed for near term expenses, but I want to have resources in hand if the recession creates a business opportunity that requires funding.  Does this worsen the near term crunch, the same way panic buying of gas worsens local gas shortages?  Probably.  And again, price is the key.  Like with gas, I would rather rationing by price rather than shortage.  In other words, I would rather my line of credit go up to a 15% interest rate, if that what it takes to put things in balance, than to be revoked entirely so a few businesses can still have 6% money.

I have never said that letting banks fail was without cost.  I just think the cost is going to be there, one way or another, and the cheapest and quickest solution is to let the whole mess sort itself out.

By the way, the notion that small business lives on short term credit is a hoot.  ExxonMobil may have access to the commercial paper market on short notice, but borrowing for our company, even in good times, generally takes a panzer division and a long war of attrition.  Even layup deals have taken me 6 months or more to finance.  Stephen Fairfax, via Mises, makes this point:

None of the small business owners I know depend upon easy credit to
make their payroll. When things get to the point where you need to
borrow to pay your employees, the end is near. Most small businesses
fail in the first few years, in large part because business is not
easy, it is hard. Not everyone is good at it. But it is an essential
part of free trade and the market economy that businesses fail, so that
new, better ones can arise in their place.

Few small businesses depend upon easy credit. Banks are generally
reluctant to lend to small businesses, with good reason. Most small
businesses are funded by owner's savings. Sometimes start-up money
comes from loans by parents or friends. While I can understand that
small businesses involved in building houses might profit from easy
credit, the market is sending unmistakable signals that there are too
many houses that are too expensive. Flooding the system with still more
easy credit can't be the cure, it is the problem.

People who say that bad things come in threes never ran a small business.  Bad things can come in much larger, Costco-sized lots.  Such is the case today in my own little corner of the American economy.  Expect blogging to be light for a few days.  Also, I may be slow to fix the RSS problem that has been reported.  Sorry.

PS-  The big lots of bad stuff seem to come just after one was thinking "gee, its kind of quiet around here, maybe I will take a day off this week..."

Working for someone else:  Days are way too long.
Working for myself:  Days are way too short.

Megan McArdle writes:

Why is it so much fun to hate Ivy Leaguers? In part, because they
(well, we*) can often be so hateable. For years, I toyed with the idea
of offering a prize to the first Harvard grad I met who did not, in the
first ten minutes of conversation, manage to work that fact into the
conversation somehow.

OK, I have a couple of Ivy League degrees, so now I have fallen into the trap as well.  But I say that mainly to tell a story about running a small business.

Running a service business that is dispersed across many locations in 12 states, I cannot personally be on top of everything.  Not even close.  I depend on my employees taking the initiative to tell me when they think the company should be doing something differently or better.  However, many of my employees do not have college degrees at all.  This is not a problem for their job performance, as most have a lot of life experience and they do their jobs quite well.  Unfortunately, if or when they find out I have a Harvard B-School degree, the very likely outcome is that they stop making suggestions.  They make the assumption that because I have a more expensive piece of paper on my wall than they do, that I must know what I am doing.  They are embarrassed to try to give me suggestions.  Which is a crock.

I constantly have to hammer home two messages to my employees, both of which are hard to get people to believe despite the fact that they are true:

1. Most of my employees do their job better than I would do their job.  They tend to assume they are somehow an imperfect proxy for me, when in fact, because their skills and interests are different, they usually do what they do better than if I focused on the same job myself
2. If the company is doing something stupid, it is probably not because I want it that way.  It is probably because I am ignorant, either of the problem or of the better way to do it. 

I know a gentleman named Alan Shapiro who has come up with what looks to me to be a nice new boat concept he calls the "Raptor".  Pictures of the boat are below (click on any picture for larger image)

I believe he also has a link to some YouTube video at his web site.  Update:  Here is the YouTube link.

He knows how to design and build the boat and has pretty good contacts for selling it, but needs help from a CFO/Strategist/business-type to push the company forward.  He has a prototype built and the production model fully costed-out and sourced.  However, he is about to look for a new round of financing and need help in that process.  He is offering equity in the company but can't pay a salary.  The job would not be full-time in the beginning.  If anyone has some time on their hands and has experience with startups and likes boating, this may be something to look into.  I have helped him a little bit, but I am out of time and need to focus on my own business.

I do not in any way warrant whether this is a good opportunity or not.  Don't assume that because Coyote seems like a smart guy, that this must be a viable business, because I just don't know.  I have given him a bit of startup money in exchange for some future boats, and a bit of advice, but that is the extent of it.   He has a draft business plan I am sure he would share with qualified candidates.

What I like about the product is that in the rental business, there really is a need for a personal watercraft or jetski that is enclosed, such that it will rent in colder waters and does not require renters to get out of their street clothes.  If you know what a mouse boat is, these are much higher performance versions of that type product.  He takes jetski engines, from 50-110HP, and puts them into this really fast hull shape.  This boat is fun to drive (see the video linked above) and my opinion is that it would rent well, but I of course have not been able to prove that with actual boats.  Alan believes there is also a strong market for individual sales, but I can't confirm or deny that from my own knowledge.

If you are interested, or know someone who might be, email me at the link on the right with some information about yourself and I will pass it on to Alan.

It always happens this way.

Pick a random message: Let's say I want my folks at Matagorda to know that what they do is important.  So I visit from time to time and tell them they are doing a great job.  I will email them with the same message, emphasizing how important Matagorda is to the company.  Each quarter I will compliment them on their results.  I will show Matagorda in all my long-term strategy documents as one of our core operations.  Every time I am on the phone with them I thank them for their had work at so important a facility.

And then one of our employee's mailman's wife's gynecologist's dog's veterinarian's receptionist might say at a social gathering that she heard our company was leaving Matagorda and the next day I will have 8 people emailing me to ask me why I was about to fire everyone and, further, how mad they were to hear about it second hand. 

Sometimes I want to just give up.