Ted Hollander

Why should we want to network? — What do you want — a job, a favor, customers, some information, an introduction, … ??? Go to any of the dozens of “networking” meetings held in the Chicago area each day, introduce yourself, and get that for which you’re looking — right? WRONG !!! Nothing hard is ever easy. Building the relationships we need, to get what we want, takes much more time and effort.

By the way, what is a network, and how does one work? It’s knowing people who know other people and who will share their contacts. Larry Maier, President of American Business Interlink (a networking business), says, “Most of us are only six contacts from reaching everyone in the world.” He has told me several times what the contact chain (through him) would be for me to reach Nelson Mandella or Henry Kissinger. I now know more than 1000 people who, I think, would readily return my phone calls. If we assume that an average person knows only 100 others, theoretically with only three contacts (a friend of a friend of a friend) we could reach any of 1,000,000 different people. But, you say, lots of people know the same people. OK, I expect that those duplicates would be offset by some of our contacts who know many more than 100 others. How effective might your network be? It depends on who those people are. Can you list your 500 closest friends? (If you can, use a computer to keep track of them.)

No matter where we are or what we are doing, we should realize that we are always networking. We are either building one or tearing it apart. Consider just our vocabulary in conversation. The words we use mean things. For positive networking we want to develop feelings of belonging, alliance, and unity of purpose. Third person plural pronouns (them, they, their) sound unfriendly and impersonal. “Us vs. them” is a classic reference to an adversarial situation. “They” are usually the enemy. When it’s “their” problem, we need not get involved. The second person pronoun (you) sounds bossy or aloof. Advice is often given beginning with “you should …” The giver seems to be “above it all” or otherwise not a participant in the process. First person plural pronouns (we, our, us) are usually understood to be inclusive and often stimulate “warm, fuzzy” feelings. “We” can reach our individual goals more easily when “we” work together as a team. “Our” leaders’ duties are to help “us” help each other. Using the telephone more can help “us” to stay in touch when meeting face-to-face is inconvenient.

Let’s consider how we really feel about each other? Are we colleagues or competitors, or more bluntly — friends or foes? Friends do things together. Friends share things. Friends confide in each other. Friends help each other. Friends count on each other. Friends trust each other. Foes are suspicious of each other. Foes avoid contact. Foes may fight when contact is made. Foes only trust the other to try to do harm at any opportunity. Considering the high probability for changing circumstances in the work place we who may think of each other as foes “today” may need to be friends “tomorrow.” Some of us now work in situations where we may compete for the same job, customer or client. Maybe we can’t be friends with everybody at the same time. To be friends with whom we can takes work. Personal contact is necessary. It is disappointing to observe that many civic and social organizations, which used to provide those opportunities, are fighting to maintain traditional levels of participation. My informal surveys indicate that many of them are competing with “nothing,” and losing. Our attendance at meetings once a year, or worse yet just when we want something, is hardly enough to build useful relationships. Friend or foe, (???); heck, most of us are just strangers.

How can we build a network? Work at it deliberately. Be aware that many of us have been taught, beginning in childhood, to be suspicious of strangers. Newcomers, like “party crashers,” are usually not readily welcomed. Coming with a sponsor, though, tends to de-fuse the conditioning that a stranger is a threat. Find some activities to which you are willing to make a long-term (years, not weeks) commitment. Just paying dues money does not make you a “member” of a group if you never appear. Volunteer — we have to give to get. Be a team player — help others. Keep your promises. Be consistent. Ace Fair, who hosts “Ace’s Business Network A’Fair,” says that for a network to work “we must know, like, and trust each other.” That takes time. Caution — being well known may not be enough to have a useful network. An advertising agency executive and friend told me many years ago, “The best way to kill a bad product is with good publicity.” What do you think your “friends” would say about you when they think you are not listening?

What influenced me? Being a CPA, I have simply skills and integrity to sell. A business competitor told me, about 25 years ago, “Accountants are the world’s worst sales people.” I have gathered little evidence since then to change his opinion. We seem to attract people to this profession who are analytical and introverted rather than caring and social. Too often it seems, we live down to our stereotype. Some of us are different, though.

Almost 10 years ago I was a member of a task force at the Illinois CPA Society to start Industry/Business Forum Groups. Some of us thought that it would be a good idea for more CPA’s to know each other better. The formally created member services of our professional society are very valuable, but sometimes we need more, a “friend” with contacts. A CPA working as a corporate employee may be professionally isolated. Attending the required 40 hours of CPE (continuing professional education) classes each year, though important, did not seem to offer enough opportunity for interaction. While discussing the needs to be served by these groups, it became even more obvious (to me, at least) that if we want a network when we’re 40, we have to start when we are 25.

How did I do it? I have lived in the Beverly Hills neighborhood of Chicago for 25 years. I got acquainted initially by going to a local church. With an introduction from work I volunteered to help with Beverly Improvement Association. As my children grew, I volunteered to help with school groups, athletic programs and Boy Scouts in which they participated. After about 10 years I knew enough people to open doors by myself or find someone to introduce me. After my children graduated from high school, I became more active in Beverly Area Planning Association (BAPA), Illinois CPA Society, and Beverly Ridge Lions Club. I still regularly attend the same local church. I was a director of Beverly Improvement Association for 17 years. I have been a member of Boy Scout Troop 608 Committee for 20 years. I was a member of the BAPA Council of Delegates for 5 years. I have been an active committee member or Chapter officer for the Illinois CPA Society for 18 years. I have been an active member of Beverly Ridge Lions Club for 8 years and served a term as Club President. There have been other activities of shorter duration, but I hope you get the picture. I believe that it’s important to be involved with my community, but doing volunteer work just for promoting one’s business would be a bad reason. My activities, frankly, have cost me a lot of time and money, and they haven’t been a good source of business either. They have been (and still are) fun, though, and I hope that those with whom I have served would agree that I have been helpful.

My “real jobs” have put me in contact with people from about 200 different companies around the country and about the same number in the Chicago area alone. Belonging to networking groups like American Business Interlink and Ace’s Business Network A’Fair keeps adding to the diversity of the people I know (and who know me). If you want to “check me out,” there are lots of sources. Whatever they say about me, I hope I can live down. Ha!

If my only reason for “networking” were to get paying work (quickly), I should really wonder about its efficiency. I think that the “old boy network” legend is history, if it ever were true. (Maybe that’s one of the reasons for why so many organizations seem to be losing their support.) Some of my network contacts have become references when potential clients respond to my more direct sales techniques. Occasionally I do get a referral to produce a client. Much more often my contacts are sources of “free” information and other favors. (We do need to remember, though, that help may be worth what we pay for it, if we’re lucky.) I know that am more able to help my paying clients because of whom I know. It sometimes feels as if I give more than I get (I’m a great source for “free” advice and referrals), but a pendulum swings both ways.

I believe that “networking” is an investment. We shouldn’t give up, even if short-term returns are discouraging. We can’t have too many friends!

The following observations are generalities, possibly even stereotypical. Being aware of the probable implications of our decisions and actions, however, may help us to make better decisions and actions.

Manufacturing businesses are usually wealth builders. Most sales dollars come from customers from outside the local community. The “value-adding” process results in significant expenditures to workers who are local residents. Only 20-40% of sales dollars leave the community immediately to buy raw materials. More dollars usually come into the community than leave.

Service businesses are usually just wealth exchangers. Most sales dollars come from customers who are local residents. Most expenditures by these businesses are to workers and vendors who are members of the same community. A high frequency of transactions may give an impression of wealth building; but if activity slows or stops, the illusion disappears. National and regional government taxation reduces the wealth of such a community unless an equivalent amount is earned from outside sources.

Retail businesses are usually wealth drains. Most sales dollars come from customers who are local residents. 60-80% of sales dollars leave the community immediately to purchase merchandise for resale. More dollars usually leave the community than enter it.

Our government agencies are redistributors of wealth. A business will pay 10-30% of its gross sales in taxes. Since business expenses (including all taxes) are paid by its customers, a more meaningful measure of taxes might be that an amount equal to 30-40% of all household gross earnings will be paid to the government. In healthy, stable communities government is a wealth drain. There is less reason for the government to spend money on services because the private sector takes care of itself. Tax revenues are redirected to other communities where “need” is greater. In dynamic, growing communities government is a wealth exchanger. Tax revenues are spent on local infrastructure development. In poor, “disadvantaged” communities government might be a wealth builder if the retail business drain did not suck out resources as fast as they were poured in. Government welfare payments are wealth redistributions to the “poor.” Government purchasing and debt service payments are wealth redistributions to the rich. “Middle class” workers pay most of the bills.

Myth — It takes money to make money. There are three ways to get money for a business: equity, debt, and revenue. Investors want to share the fruits of your labor. Since they can lose all their money, they reasonably expect a larger reward for a big risk. Lenders want a guaranteed return for the use of their money. For less risk they will accept a smaller return. Customers want their money’s worth in product or service. Sometimes you can persuade a customer to prepay all or part of what he will pay in order to fund production. Sometimes you can persuade vendors to give you extended payment terms. Sometimes you can persuade employees to work for lower wages at the beginning in exchange for deferred (bonus) compensation when the business can afford it. The more ways you can find ways to pay others after you get paid, the more you can be “in control.”

Lenders should test your character, capacity, collateral. Your “collateral” is what the banker may take if you do not repay the loan. Your “capacity” is the potential for the business to earn the money to repay the loan. Your “character” is measured by the banker’s confidence that YOU will keep your promise.

You should want a loan, rather than need a loan. “Need” implies that you have not used the assets you have very well. What went wrong to put you in this situation? How will lending you more money change the situation? The lender sees himself as bailing you out of trouble, or worse just postponing the inevitable. Most lenders do not want to lend to people who need it. “Want,” on the other hand, implies that with the lender’s money you can afford to do something which is otherwise not possible (buy a new building or machinery, add promotion or distribution activities, attract more talented personnel). The lender is investing in an opportunity that should produce positive cash flow over the life of the loan.

It’s what you know AND who you know that counts. Talk to potential lenders early in the process. Ask each about their requirements and approval process. There are many similarities, but each will probably be a little different. Without necessarily divulging any really confidential information, ask several lenders about their interest in “investing” in your business project. Bankers seem to resist bringing ideas to the table. They seem to be more comfortable receiving proposals than making proposals. Investing large amounts of time (and money) in developing and documenting a project that bankers will not support will be very frustrating (besides being very expensive). If the project may be very difficult to fund, consider using loan brokers or consultants who work on a contingent fee rather than by the hour.

Lenders don’t want to foreclose on collateral. They are in business to loan money not to broker the sale of other assets. Lenders’ collection activities may sometimes seem offensive to us, but are really just defensive. Demanding a pledge of collateral is primarily to encourage a borrower to repay willingly.

The government is not your friend. The “third” on my list of the greatest lies is “I’m from the government, and I’m here to help you.” Despite the number of government loan guarantee programs, tax deferral or abatement incentives, and “set-aside” preference programs, BE CAREFUL! When you go into business, you will go into two businesses. One is the business you planned; the other is being an agent for (or victim of) the government. The most obvious activity is tax collection. From 10% to almost 30%, depending upon your type of business, of your gross revenues will be paid to the government in taxes. Payroll tax payments (to IRS, Social Security, State Departments of Revenue) alone will amount to almost 1/2 of what you and your employees see as net pay. In many other ways the government will regulate the way you do business. The government (U.S. and State Departments of Labor, EEOC) may attempt to tell you who you must hire, or not fire. Most of what unions won by collective bargaining (Fair Labor Standards) has been enacted into statute for the benefit of all workers. The government (OSHA, EPA) may impose work rules upon your operation. The government (FDA, Consumer Protection Agency) may impose rules about the content of your product. Consider as well the laws that enable customers, employees, and bystanders to sue you for virtually any unfavorable result. The more money (grants, loans or loan guarantees) you accept from governmental sources, the more intervention you should expect.

Your business plan is what documents your sales presentation for the loan. Large companies call this document a prospectus. It should describe your business: past, present, and future. Lenders expect optimism and respect realism. Disclose the risks and tell how you will deal with them. Tell your potential lender how (and when) you plan to repay him. Cash flow projection is more important than income projection when talking to a lender. Document your assumptions. Neatness counts.

Your lender should expect you to know how your business is working. Your management team should include leaders for sales, production and administration who help you to be “in control.” The people with whom you surround yourself will tell your potential lenders a lot about you. The credentials of your accountant may be among the most important indicators of your character to a lender because they tell how much you care about understanding your business. Your customers, especially, should appreciate your attention to detail. The accounting system is the set of processes that enable you to run your business without feeling blindfolded. You will always pay for good accounting, one way or another.

The “golden rule” — he who has the gold makes the rules. Expect your lender to look over your shoulder, and give you advice. KEEP YOUR LENDER INFORMED. Trust is very hard for you to earn, and very easy to lose. Your lender expects you to lose all of your own money — before you lose any of his. To rid yourself of a meddling lender, repay the loan.

If you want a “bad” loan, go to a lender who makes bad loans. Lenders, be wary of the borrower who does not ask much about the terms for a loan. Terms are not very important to a borrower who doesn’t intend to pay the loan back.

The news media are filled with stories about social problems, crime, drugs, poverty, sickness, etc. Every year the perception grows that “things are getting worse.” Will God punish our awful behavior, or will we just destroy ourselves? Possibly a new generation of children will spontaneously “turn things around.” In the short run what is the major obstacle to our solving social problems?

In my opinion it is MONEY.

Here is my surprise twist on the issue. We should spend LESS, not more. Most of you will be horrified by this assertion, especially if you or a family member or friend is employed in education, law enforcement, social work, or medical research. Heresy, you say. Spend less, ridiculous. How can we recruit talent to work on the problem without money?

We’ve got it backwards. The more money we devote to a problem, the more incentive there is to make the problem worse. Without a bigger problem, how can we get more staff or a bigger budget, in effect more money?

When we solve a problem the money supply dries up. How many people do you suppose would be put out of work if we could solve the poverty problem? The discovery of a vaccine for polio almost ruined the March of Dimes organization. Can we really afford to solve, the drug, crime, or poverty problems, or find cures for heart disease and cancer?

If we really want a problem solved, let’s eliminate the incentive for their being a problem. We should not benefit from local problems. When the crime rate increases, recruit volunteers and reduce police pay. Do not incarcerate U.S. criminals in U.S. prisons. Pharmaceutical companies earn revenues from selling cures and treatments. Research is a cost. By the way how many “drug pushers” do you suppose there would be if there were a free, medically supervised (pro bono, of course) source for those addicts truly in need.

Let’s recruit “time,” rather than money, to work on social problems. If the issue is worthy, people will come. A little inspiration can save a lot of perspiration. Those volunteers will be motivated to supply whatever other resources they need to find a way to profit from the cure. Or is having the “problem” is more valuable than its solution after all?

Business is color oriented — GREEN (not black or white).  We are making buying decisions more and more on the “quality” of the product rather than simply personal relationships.  The “old-boy network” is disintegrating (and rightly so) — partly because of investigative journalism.  Relationships do count, though.  Tie scores do go to my friends, but it has to be at least a tie.

Providers of whatever a business buys: material, labor, plant, equipment, operating supplies, professional services, etc., expect to be paid.  Business needs capital to operate.  There are 3 categories and each has a cost:

• Revenue           –           The cost is performance.
• Debt                 –           The cost is repayment plus a rental fee (interest).
• Equity               –           The cost is CONTROL.

If you’re an entrepreneur, which would you prefer?

Government is an expense.  We should not depend (long-term) on government as a revenue source.  One of the hallmarks of the US culture is self-reliance.  We are proud of being able to make our own decisions.  From the point of view of business, sales to government might be a “bootstrap,” but they should not become “the boot.”  From the point of view of customers, for government to tax away so much of what we earn is an insult.  That means that government does not trust us to make good buying decisions by ourselves.  “Dependence” on government is a bad idea.

As the costs of transactions declines, the average size (number of employees) of business units shrinks.  Big business revenues may be increasing, but their employee head-counts are decreasing.  New technologies are changing the nature of jobs, and who employs the people, now several times in one lifetime.  Performance of tasks that formerly required several employees can now be bought from a service vendor at a fraction of the old cost.  According to the Chicagoland Chamber of Commerce, about a year ago, there were almost 300,000 businesses in the Chicago metropolitan area. Approximately 275,000 had less than $1 million of revenues/each.  The 10,000 largest companies (with $20 million to several billions of revenues/each) accounted for only about 1/2 of total employment.  Selling to small business is big business (and getting bigger).

Applying a little reverse psychology, here’s a recipe for economic depression.

• Buy from strangers.
• Sell to our friends.
• Pay 40% of revenues in taxes to government.

My goodness, isn’t that what most of us are doing?

A common complaint among owners of small and disadvantaged (especially African-American owned) businesses is that “We can’t get our fair share of government contracts.” Allegedly, government purchasing agents respond that they can’t find enough “qualified” businesses to satisfy set-aside directives for purchasing from businesses having relevant preferences. For those wanting to sell to the government, though, do be careful. This business may be a helpful bootstrap, but it should not become the whole boot.

Registration to establish qualification for preferences and set-asides with purchasing authorities of city, county, state and federal governments can be perceived, at best, as a complex, time consuming and expensive process, and, at worst, outright scary. Despite encouragement to simplify procedures from regulations such as the Paperwork Reduction Act, the volume and nature of information requested is often intimidating. Forms for each agency are different, and qualification criteria are not necessarily the same. The situation is very frustrating.

There is someone, though, who is developing a solution to benefit all parties. James W. (JW) Stokes, Jr., Chairman and CEO of J.W. Holding Group and Associates, Inc., (Porter IN) has for the last 10 years been recruiting other minority businesses to form an alliance capable of “playing with the big boys.” In 1996 JW consulted with senior procurement officers from the Department of Defense to improve their new “Prime Vendor” program. Now a significant amount of military procurement activities are being outsourced to private sector distributors. Using that “Prime Vendor” strategy J.W Holding administered a contract worth more than $50 million and covering more than 18 months to provide food products in support of U.S. troops in Bosnia. JW and J.W. Holding have won several awards for this work.

To compete with large, “white-owned” distributor companies JW has formed a “virtual” organization composed mostly of relatively small companies which qualify for preferences (as J.W. Holding itself does) under federal and many state and local government procurement guidelines. J.W. Holding and state affiliate companies respond to bid requests and RFP’s (requests for proposals). J.W. Holding also qualifies sources. (And, more are still being sought.) An affiliate, eQuality Seal Corporation, manages warehousing and transport activities. Qualified sources (at least 51% being small and disadvantaged companies) provide the products and transportation. JW’s Operation Pride offers administrative support services (i.e., accounting and human resources help) to members of the team. The “virtual” organization provides the opportunity for the owners and employees of each small business to profit from the fruits of their own labor. For customers (whether government or private sector) there are no hidden costs.