I recently met a business owner whose business was slammed by the Great Recession. It got to the point where family members had to lend the firm money. Their bank then pulled their line of credit so they’re now with a factor, at a very high interest rate.
I’ve been around long enough to know banks usually subordinate owner debt, meaning it’s considered equity, and well behind any bank loans when it comes to repayment. However, this owner said no, his bank doesn’t do that.
In the car after the meeting I called a banker friend with his bank, told her the story, and said, “I bet his banker is in a branch and isn’t a business banker.” Sure enough, that was it, and she said they subordinate debt all the time (so this was an opportunity for her).
This story brings up a good point – you can’t be everything to everyone. The branch banker should have brought in a business banker (and should be glad the client didn’t find this out from another bank). I don’t help startups, other than consulting practices. Business attorneys don’t do family and divorce law. You get the point.
Know what you do well and do more of it. A client of mine, in the market to grow by acquisition, gave me a tip for others (this will be in my upcoming book on growth by acquisition). He said it’s important to take stock of what you do and do well, and know what you offer the marketplace. Only then can you best serve your customers and know what kind of companies you should acquire, including what kind of operational issues you can target and improve.
A good tip for all of us is to know what we do well, i.e. our competitive advantage, don’t worry about what we don’t do, and grow by leveraging our competitive advantage.
“Any man more righteous than his neighbors constitutes a majority of one.” Henry David Thoreau
