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Mia Hubbard with Regions Bank and Amy Greiner with Kingsview Wealth Management

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Mia Hubbard and Amy Greiner

Mia Hubbard/Regions Bank

Regions Financial Corporation (NYSE.RF), with $144 billion in assets, is a member of the S&P 500 Index and is one of the nation’s largest full-service providers of Consumer and Commercial Banking, Wealth Management, and Mortgage products and services. Regions serves customers cross the South, Midwest, and Texas, and through its subsidiary. Regions Bank operates approximately 1,400 banking offices and 2,000 ATMs. Regions Bank is an Equal Housing Lender and Member of FDIC. Additional Information about Regions and its full line of products and services can be found at www.Regions.com.

Amy Greiner/Kingsview Wealth Management

Kingsview Wealth Management provides personalized, confidential financial planning and investment management to individuals, pension and profit sharing plans, endowments, trusts and small businesses. Advice is provided through consultation with the client and may include: determination of financial objectives, identification of financial problems, cash flow management, tax planning, insurance review, investment management, education funding, retirement planning and estate planning.

Amy is a CERTIFIED FINANCIAL PLANNER ™ with over two decades of experience in financial services.

Gwinnett Business Radio is presented by

Decision Vision Episode 101: Should I Enter Into A Business Partnership? – An Interview with Kenji Kuramoto and Matthew May of Acuity

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Decision Vision Episode 101: Should I Enter Into A Business Partnership? – An Interview with Kenji Kuramoto and Matthew May of Acuity

How do you put together a successful business partnership when the company has already been around for quite a few years? Kenji Kuramoto and Matthew May, co-owners of Acuity, join host Mike Blake to discuss why their partnership came together, why it’s worked for them and their company, stress points they’ve had to navigate, and much more. “Decision Vision” is presented by Brady Ware & Company.

AcuityCFO, LLC

Acuity was started in 2004. Founder Kenji Kuramoto built a CFO practice knowing he could help businesses by giving them the financial tools and advice they needed to reach their full potential. Along the way, he discovered that their clients had additional financial needs, including simple bookkeeping services. Acuity realized they could better serve small businesses and challenged themselves to expand their offerings.

In 2013, Matthew May joined Kenji, and Acuity was relaunched as a full-service financial firm, tackling everything from invoicing and bill pay to industry-leading financial strategy. As accounting experts, Acuity excels at pairing sound financial advice with modern technology, and they only consider themselves successful when they deliver practical accounting solutions that allow their clients to keep growing.

From balancing the books to assisting in a first acquisition, Acuity built its foundation on meeting clients where they are and helping them take the next step — wherever that may lead.

Connect with both Kenji and Matthew on Twitter:  Kenji Kuramoto | Matthew May

Mike Blake, Brady Ware & Company

Mike Blake, Host of the “Decision Vision” podcast series

Michael Blake is the host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms, and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth-minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision-maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast.

Past episodes of “Decision Vision” can be found at decisionvisionpodcast.com. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

TRANSCRIPT

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional, full service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Mike Blake: [00:00:21] Welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owners’ or executives’ perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.

Mike Blake: [00:00:40] My name is Mike Blake, and I’m your host for today’s program. I’m a director at Brady Ware & Company, a full service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia. And Brady Ware is sponsoring this podcast. This podcast is being recorded in Atlanta per social distancing protocols. If you like this podcast, please subscribe on your favorite podcast aggregator, and please consider leaving a review of the podcast as well.

Mike Blake: [00:01:07] So, today we’re going to talk about the decision of entering into a business partnership. And I feel I need to do a little bit of a preamble to this, because if you’ve been listening to the show or if you can count, you know that this is episode number 101 that we are recording. So, we just passed the century mark and we’re very pleased about that, and we’re pleased that people choose to listen. There are lots of things you can do on the Internet, and we’re glad that you decided to make us one of those things.

Mike Blake: [00:01:41] But we are going to kind of change the tenor of the show just a little bit. Now, we’re not going to go away from talking about individual business decisions, that’s why we do this. And, frankly, I can’t think of anything interesting that I could talk about with others or with you for a 45 minute period. But we are going to do something a little bit different because we are always looking to improve, of course. And that is, most of our guests up to this point have been expert advisors. And look, there’s nothing wrong with that. I consider myself an adviser. Some of my best friends are expert advisers. Our guests are, in fact, expert advisors, although they’re not coming on the show today necessarily in that capacity.

Mike Blake: [00:02:29] But I do think there’s value to having a conversation, not just with an expert about a particular decision, but somebody who has actually done it. Somebody who actually had to pull the trigger, do the analysis or not, and live with the results, whatever they may be, positive or negative, because I think that’s just a different perspective. And so, that’s going to mean two things in addition to the fact that the nature of our guests will change. Now, we’re still going to have experts on, don’t worry about that. But, also, I’m not going to be afraid necessarily to repeat a topic, because if I think that somebody has a different take on a topic and everybody comes into a decision with a different background and a different bias and, frankly, a different set of priorities and circumstances, you can have, I think, a constructive interview or conversation multiple times about the same topic and learn something different.

Mike Blake: [00:03:30] So, if you come on, you start to see these episodes, download into your phone or your computer or you look on our website, and you see repeats, don’t worry. We haven’t all of a sudden become a skipping record. But simply that we’re changing the tenor of the show, that we’re just not going to be afraid to go back and look at the same topic from a different angle. And, as you know, we can’t cover everything that we would like to in a 45 minute period. There are times when we could have easily had a three hour conversation. So, I hope you’ll agree with that. I think that’s going to be an improvement to the show.

Mike Blake: [00:04:05] Finally, a bit of housekeeping. We looked at our numbers today – really, I looked at them for the first time in a long time – and in addition to now 101 shows, I learned that we have now exceeded 15 million downloads and we’re getting into 25,000 to 30,000 downloads in the first 30 days territory, which puts us in the top 2 percent of all podcasts. And I just want to take a moment to acknowledge everybody that has made that possible.

Mike Blake: [00:04:38] I’m the front man, the ugliest one we could possibly find. But between Brady Ware’s support of the show – and I’ve mentioned this before, they’ve given me a blank check – they don’t tell me what to say or not to say. They don’t tell me what to talk about or not to talk about. I’ve been critical of my firm on occasion on the show. And it’s to their credit, they allow me to do that. Maybe it means they haven’t listened, but I’m just going to take the sunny side of the equation. You know, our marketing department has done a great job with us. Our business partner, Business RadioX, has helped get the show exposure that it could not have obtained organically.

Mike Blake: [00:05:13] And our guests that have devoted their time to being on the show. You know, me speaking into a microphone, that’s bad radio, even by Internet standards. And so, having guests that are willing to come on and take time out of their busy day to be on the show, you know, there is no show without them. So, as you can tell, this is a massive team effort.

Mike Blake: [00:05:32] And then, finally, you, the listeners. The listeners that have tuned in and have commented, have left reviews, and helped the show get out to help other people. Again, if there’s no listeners, I may just as well speak into this microphone turned off. And that’s not really my jam. So, I just wanted to acknowledge that the show has come a long way in under two years, and we hope for even better and more powerful things in the year ahead. All right. Stump speech over.

Mike Blake: [00:06:07] Today, we’re going to talk about this decision about entering in a business partnership with two longtime friends, Kenji Kuramoto, who is Chief Executive Officer, and Matthew May, who is Vice-president of Sales and Marketing, of Acuity, which is an Atlanta based firm that provides a wide array of accounting related support services. And they’ll probably correct me in how I’m describing it, but that’s the way that I described it. And I’ve known them before they’re in this partnership. And they’ve been in this partnership for a bit now.

Mike Blake: [00:06:40] And just as one person observer, you know, I think they are the fastest growing accounting services firm, certainly from an organic standpoint in the Atlanta market. There may be a couple of others that have exceeded them because they’ve gone on a massive acquisition spree. But in terms of organic, I mean, these guys are just killing it. You see them on social media, it’s all smiles. They don’t look like accountants. They almost make me want to be an accountant, except I’m a lousy accountant myself. But what I want to do is, I want to find out about these guys and what makes their partnership tick. It seems to work so well, but we’ll find that out. Maybe there’s dirty laundry that’s going to be aired right on the show. Kenji and Matthew, thank you for coming onto the program.

Kenji Kuramoto: [00:07:25] Happy to be here, Mike.

Matthew May: [00:07:27] Thanks for having us, man.

Mike Blake: [00:07:28] So, I’d like you guys to talk about your origin stories. I’m going to just invoke my inner nerd here. You know, before you became partners of Acuity, what were the tracks that kind of led you up to that point? Kenji, let’s start with you.

Kenji Kuramoto: [00:07:45] Sure. So, coming out of college with an accounting degree, I did what I thought everyone was supposed to do, you go work in big global public accounting. So, my first stop was in the Atlanta office of Arthur Andersen. You know, that firm that people used to know about that –

Mike Blake: [00:08:01] I remember them.

Kenji Kuramoto: [00:08:02] Crazy things happened too. I was in their audit practice for about four, almost five years. I got out before that crazy Enron thing or whatever happened, but it was during the dot com kind of the initial kind of take off back around 2000. So, I jumped over to a technology services company who I thought was going public because that’s what everybody did back then, was to go public.

Mike Blake: [00:08:31] Absolutely.

Kenji Kuramoto: [00:08:31] I went over as their controller, ultimately became their CFO after the bubble burst. And so, I was a young CFO for about three or four years at a technology company in Atlanta called Intelenet. And that’s actually after Intelenet got together with, actually, another former business partner – so I’m sure we’ll talk about that later – to start Acuity. And that was around ’04, and ran that up for a number of years, bought out my other partner, ran it by myself for a little while – which is an interesting period – and quickly got Matthew to come join up with Acuity.

Mike Blake: [00:09:10] All right. So, let’s put a pin on that. And now, we’ll do a screen wipe here. Matthew, what about your origin story? What radioactive insect bit you to become the man you are today?

Matthew May: [00:09:22] Well, first, I’m a lot younger than Kenji. Let’s just get that out there. Everybody thinks Kenji is younger than me, but I am a lot younger than Kenji.

Mike Blake: [00:09:30] I didn’t want to have to be the person to say it.

Matthew May: [00:09:32] It’s like a-year-and-three months, I think, he’s older than me. And he’s, like, not just – because this is how he bicker. He’s like ‘You’re older than me. It’s a-year-and-three months.” So, I went to Baylor University. I was an accounting grad. I did the same thing, I went to Big Six right out of college. I did do a little more kicking around Big Six than Kenji did. I switched firms once. I did a startup in ’99, where I was the controller. I was like the 11th hire. We ended up selling that right before the bubble burst for cash instead of stock, which was really smart. You know, that’s one of the days when a million dollar revenue company could sell for $100 million dollars, which was kind of crazy.

Matthew May: [00:10:18] I worked for the Fortune 500 company, [Levanos], it was like the 15th largest company in the world or something at the time. I think we used to call it Fortune 15. I learned about kind of working in a big environment in the shared service center. I actually came back to public accounting. Then, when I moved to Atlanta, I switched from Ernst and Young, where I’d been almost ten years, to Cherry Bekaert, where I made partner. And then, I decided to become a recovering auditor, which, I really am a fan of recovering auditors out there. I sympathize with you. So, we’re a large and growing group. And, you know, what was seven or eight years ago, I joined up with Kenji and bought half of Acuity from him. And the rest, as they say, is history.

Mike Blake: [00:11:06] So, Matthew, you brought up something I’ve always wanted to ask you about and, finally, I get the chance. And that is, I mean, you accomplished what many in public accounting spend their entire lives trying to accomplish is to make partner in a significant firm. Although Cherry Bekaert is not a Big Four, it is a significant – I don’t know what size rank it is, but it’s bigger than my firm.

Matthew May: [00:11:33] It’s number 25. It’s a top 25 at the time. I think it’s somewhere between 20 and 25 today. It’s a big firm with smart people that challenged me that we’re great. It was a wonderful experience to be able to do that. That was a great achievement.

Mike Blake: [00:11:53] So, you do that, right? And I mean, when you reached partner – I haven’t done it myself. I think many people feel like you’re sort of at the top of the steps of the Philadelphia Museum in Rocky. You sort of put your hands up and there’s music going on in the background. That’s the top of the profession, unless you get to managing partner, et cetera. You do that and then, really, in my mind, not that long afterwards, just say, “I’m going to go hang with Kenji and do what he’s doing.” What was in your mind that said once you kind of accomplished that thing, you’re like you’re just going to do something else?

Matthew May: [00:12:37] Well, it’s kind of like the analogy I give when tech clients, like, raise money. Like, it’s not the destination. So, making partner is not the destination in accounting. Although, in your early years, your first ten years or 15 years period, that’s all you go for. If you split your career up and when I reflected on it, that was like basically saying, “Now, I have to make the decision. Do I want this to be my career for the next 20 years?” So, this is kind of like when you raise money in a tech firm, raising money is not the thing. It’s what you do with that money is how you’re judged and things like that. And I did some reflection – and we’re going to get into the story a little bit – when this opportunity came up and I did what do I want the next 20 years to look out and went this way instead of sticking with it.

Mike Blake: [00:13:32] And I promise we’ll get to the actual topic, but I do got to ask sort of a follow up. In my view, being partner now is not the same as it was 25 years ago. My father was a partner in Ernst & Young in the Boston office, and he was there forever until Sarbanes-Oxley, basically, killed his business overnight. But, you know, I think, in our generation – and I’m older than Kenji so maybe I’m painting this with a too broad a brush but bear with me. I think in our generation just becoming a partner at a CPA firm is just different. I’m not going to say it’s better or worse, but I think the experience itself is different. Would you agree with that?

Matthew May: [00:14:12] I would agree with that. But I think there’s just part of it there’s a little bit of mystique to it as well that once you get there, you realize, “Oh, do I want this to be my career? Or was I just a type A? Like, I have been told all my life you need to make partner,” right? I left public and came back so I could make partner. I think I left for four years.

Mike Blake: [00:14:36] So, you have these two tracks. Interestingly, both of you came in from partnerships in one way or another – I didn’t think of that until just now. But one way or another, you decided that another partnership was a good thing. So, talk about the story, how did you become business partners? Who asked who out first? Who said I like you first? How did that all sort of work out?

Kenji Kuramoto: [00:15:03] I’ll tell this one. I love telling this one. It’s a distinct possibility, Mike, you may have been almost in the room or very close by when this was happening, because this actually occurred at – we used to host this Acuity friends and clients kind of party at the end of every year. Actually, we wait until January –

Mike Blake: [00:15:28] I’ve been to one of those.

Kenji Kuramoto: [00:15:28] – just after the holidays. Yes.

Mike Blake: [00:15:29] Those are mad joint, man. I’ve been to one of those.

Kenji Kuramoto: [00:15:33] That’s right. And so, the funny thing was because all of our friends and clients, all of our friends are other accountants. Honestly, you look around the room and there’s just a whole bunch of our other fellow accountants who are friends there that we’re referral partners and such. And we always have it at a local watering hole in Atlanta. Taco Mac from back in the day, they let us use that, they were a client. And, honestly, we get after a whole bunch of beer and hang with a bunch of our friends. And so, at one of those events, Matthew, of course, was there. Again, Mike, you may probably be in the room somewhere.

Kenji Kuramoto: [00:16:07] And he and I, after maybe a few beverages, started sort of talking about it more. And I had already at this point bought out my former business partner. And Matthew and I had been friends. We had Falcons tickets together. And so, it was certainly good to see him. But we stepped outside, kind of January in Atlanta, out of this kind of little speakeasy little bar kind of area and, you know, trying to clear my head a little bit. But I said, “Listen, this is hard. This is hard going alone and this is tough stuff.” And Matthew is always interested in what we were doing over at Acuity. He’s kind of inquiring. And just like you had pointed out earlier, with him grabbing that kind of partnership brass ring, you know, I’m thinking, “Oh, he’s found that lifelong career piece.” But I’m kind of in his ear a bit like a, “Ha. Ha.” I turn away from that like, “I could really use you over here at Acuity.” And I always remember – do you remember what you said, Matthew, when I was joking, like, “You should come work with me.” What you said?

Matthew May: [00:17:03] I probably said, “Don’t joke around about stuff like that.”

Kenji Kuramoto: [00:17:07] Don’t joke around. He said, “Don’t joke about that.” I thought, “Wait a minute. Is this guy actually, like – come on. He’s not really considering. He’s a partner at a great firm.” But that’s actually how it started outside after many beers at one of our annual events. Just kind of talking about the work –

Matthew May: [00:17:28] I was interested. He was drunk. I was actually leaving to go home early and he was already in. So, when he was walking me out, like, I thought he was just being nice and walk around as we went out.

Mike Blake: [00:17:40] He was walking you home, basically.

Matthew May: [00:17:44] He did. I think he even had his arm around me.

Kenji Kuramoto: [00:17:46] I made my move right there. I knew he was vulnerable.

Mike Blake: [00:17:49] So, is the key to initiating a partnership is there should be alcohol involved? Is that a learning point from this conversation?

Matthew May: [00:17:57] For at least one of the people over in his end –

Kenji Kuramoto: [00:18:00] Well, I will say –

Matthew May: [00:18:02] I mean, you do have to ask.

Kenji Kuramoto: [00:18:03] It stayed a recurring theme in our partnership. We certainly enjoy that time together having a beer for ourselves.

Mike Blake: [00:18:13] And you know, that part, I think, is important all joking aside, you know, especially at the outset. I think you may have added a partner since then. I’m not sure. But at the outset, if it’s just the two of you guys, you know, you better enjoy spending time together because you’re going to be doing a lot.

Kenji Kuramoto: [00:18:32] That is for sure. For sure.

Mike Blake: [00:18:40] So, I’m guessing that then because of the – well, no. I’m not going to guess anything. I’ll let you answer the damn question. After you guys had decided that a partnership was a possibility, something that is potentially desirable, what were the steps after that? I mean, it’s one thing to have – and I can speak from experience – it’s one thing to have Falcons tickets with somebody. It’s another thing to make them your business partner and place your livelihood in their hands. And so, was there any kind of vetting process, a feeling out process, anything that happened after that one initial date? Or did you rush right to Vegas and and go to the chapel?

Matthew May: [00:19:24] Wow. So, yeah, we had some interesting discussions. So, we used the same attorney to draft the documents. We did it in relatively short order as far as the fielding points I did take. After we kind of have this kind of mapped out, I did go back to Cherry Bekaert and talk about what my long term thing looks like there so I could make a decision and figure out what was going on. So, that took probably 30 days. And then, I ended up having a 90 day stick to my contract where my partnership agreement required me to stay 90 more days after that.

Matthew May: [00:20:02] But we had some great discussions. I think we got, like, the bigger points done in about an-hour-and-a-half, probably, at a Mexican food restaurant about a week later — to what ends up there. But we had some funny discussions in there, some things that would probably say a lot to us. Like, I initially wanted the deal to be 40.95 to 50.5 or 49.51. And Kenji was adamantly opposed to that. I mean, I was going to take the minority. And Kenji was adamantly opposed to that because in his previous partnership they had been not 50/50. So, we were negotiating each other backwards. It was weird. So, it was kind of some odd discussions. That was the oddest one for me. I was like, “You know, I think I need to have 49 percent.” And you’re like, “Nope. Not doing that.”

Mike Blake: [00:20:57] So, Kenji, why was that important to you? And I’m really sort of drilled down on this because there’s a lot of common wisdom out there that says that a 50/50 partnership is a bad idea. In fact, I make a lot of money helping 50/50 partnerships unwind, unfortunately. Hopefully, that will never be the case with you guys. But why did you want to do that?

Kenji Kuramoto: [00:21:20] Like Matthew mentioned, part of that had been from previous experience. I had bought out a previous partner, he was the majority and I was the minority partner. And that ended very amicably. That partner is still a friend of mine today. He’s a huge supporter and cheerleader for Acuity. But that was always something that was challenging for me as a minority partner of just feeling like we were imbalanced. And even my previous partner realized that, too. He felt like it was difficult too. Kind of as time progressed, we felt like that should have evened out a bit more. But just some of the mechanics of equity made that challenging.

Kenji Kuramoto: [00:22:02] And so, I had that experience of not feeling equal, even though we tried our best to operate that way, we did a pretty good job operating as equals. That said, I knew kind of in my heart of hearts coming into this the next time around that I wanted to make sure we were equally kind of hitched up and yoked on this one. Like, it just wanted that all of our decisions that you can never kind of look at one another and go, “Well, of course, you like it this way because that benefits you.” So, that was after, I guess – gosh – eight, nine years. So, I had a little bit of experience under my belt. I had a short window of time, about a year of doing it solo, which I thought was going to be fantastic. And I ended up coming away from that going, “That’s terrible. I hate it. It was awful.” I mean, the business was just on a downhill trajectory, which is probably why I was out drunk begging Matthew, “Please help me.” Everyone thinks this is going great. I’m struggling here.

Kenji Kuramoto: [00:22:57] So, I knew I needed a partner. And I needed a partner, you know, one that I just could feel completely vulnerable with. And likewise, he should too. And I think having that aligned equity, a perfectly aligned equity, was at least one way to make sure we didn’t get on different pages.

Mike Blake: [00:23:14] So, let me follow up on that, what is it that you felt that you’re missing at the time that Matthew was the solution to?

Kenji Kuramoto: [00:23:23] So, it was interesting because being such good friends – and, actually, Matthew and I were really strong referral partners, that was another thing we actually talked about was, “Wait a minute. Are we better together or apart?” Because we do a lot to help each other as referral partners in each other’s firms. And we got over that and realized we think we’re better together.

Kenji Kuramoto: [00:23:50] But when I bought out my previous partner, I had a number of ideas that I wanted to kind of get rolling that I thought could be beneficial for the startup business community, and entrepreneurs, and for us as a firm. And I had some good foresight on that and got some of those going, but, essentially, created another line of business that operated very different from the traditional CFO services that we were providing. And I just failed to take into account that we’re really kind of running almost two different business models and businesses. It just doubled kind of the workload. I’m still trying a little bit to manage. Should I be out there billing myself as the owner, doing all those things, that I’m actually working on the business? And all those are kind of happening at once, realizing that I need some help.

Kenji Kuramoto: [00:24:35] I had tried empowering a couple of our other more senior employees to say, “Hey, maybe I can get them to help share some of this management strategy kind of leadership load.” And it didn’t work. And so, I realized like, “Okay. This may be a good idea of this new direction line of business we’re going in.” I don’t think I can get it off the ground. There’s just not enough hours to the day for me to pour into it, to try to keep the other lines of business going, to keep cash flow in the firm going enough. So, it was, I needed someone else who saw the vision – and this is something Matt and I talked about what we were building and believed in it. It just had the energy and some of that. Not just an employees vision of like, “Hey, that sounds good. If you pay me a salary, I’ll do it.” It was a, “No. I’m a believer. I’m willing to stake some of my reputation and some equity in this thing to go forward.” And so, that’s where I knew I needed help there. And Matthew was the perfect one to bring in to do that.

Mike Blake: [00:25:33] So, Matthew, on your side, you know, what was it that made you so attracted to this particular partnership? Because a guy as capable as you with your pedigree, you could have done a lot of things. You could have flown a lot of airlines, but you chose to fly Acuity. And Kenji, what made that attractive to you?

Matthew May: [00:25:59] Well, the sad reality of being a partner at a bigger firm is that you have to deal with bigger clients. And I’ve always had that passion for the smaller clients, the million dollar revenue clients, not the $100 million revenue clients. You come and do their audit like it’s a check-a-box thing, you know. We add any value. And I felt like I’ve always enjoyed just getting in the ecosystem. Being in a lot of businesses, helping out a bunch, and helping five or six $100 million clients versus how could we help one hundred startups. You know, like, do things better just got my juices flowing.

Matthew May: [00:26:39] And then, when kind of the other things kind of – I did a bunch of checklist stuff about the pros and cons of keeping with this joker. But one of the couple of things that I – and my dad is an entrepreneur so I talked to him a lot. He had two failed partnerships, so I assumed he was going to be, like, really anti-partnership. But it started a bunch of great conversations with him about how long we had been, that’s why he kept trying to do the partnerships even though two of them failed. It’s just a lonely place to be if you try to do it by yourself. So, I could have tried to do something by myself, but then I would have been in that same spot with my dad where it was very lonely.

Matthew May: [00:27:23] And then, a couple of things aligned really well with Kenji. And the oddest one, I think, that I keep always pointing back to is our kids are the same age, so I knew that we were going to be able to invest in the company at the same time and need cash from the company at the same time. And I think a lot of people underestimate kind of those kind of things. So, I knew I had seven years before my kid goes to college that we could invest in the business and grow it as big as we could. And then, we would need some cash flow so we could send the kids to college. So, we had a bunch of things like that lining up outside of our kind of mutual interest.

Matthew May: [00:27:59] And then, the biggest negative is, I was like, “Well, you’re one of my best friends. I’m probably losing my best friend at this point because I would put us more like very sibling like now versus friend like.” And that was kind of a negative to me at the time. I was like losing kind of one of those friendships which are hard to come by, right?

Mike Blake: [00:28:23] They are. So, you said a couple of things I want to pause on, because I think they’re so insightful and underrated. That loneliness thing, you know, I’ve been a sole practitioner and the loneliness of being in business for yourself is underrated. And if you’re a social person – I’m not. I’m an excessive introvert. You can bury me in the ground in a missile silo for six years, I’ll be fine. But I’m weird. My wife, on the other hand, has had a number of businesses. And without fail, the times when she has been happiest and most successful was when she simply had a business partner. Someone to shoulder the load, that could shoulder the emotional toll that being a business owner takes on you. And it does, even if you’re successful. It does.

Mike Blake: [00:29:16] And the fact that you bring that up, I think, is a really important point to bring up to anybody listening to this podcast thinking about a partnership, is that, that social is such a big difference. Even if you only have one business partner, there’s such a big difference in the dynamics and the emotional support you get for running a business, if it’s the right business partner. And it seems like that’s – I see Kenji nodding, so it sounds like you find that to be the case as well.

Kenji Kuramoto: [00:29:42] That was my experience, not as long as Matthew’s dad, who is the entrepreneur so much longer than I was by himself. But that year that I was getting to run the business the way I wanted to, which was exciting, I failed to recognize that aspect of loneliness. And I am an extrovert. I like being out and about. And I’ve learned, especially as I’ve kind of matured, that I operate better with a partner. I operate better in a group in community. And I saw it firsthand for that year of where, “Gosh. I’m at one of the most exciting points. I own my own business. And I’m getting pats on the back from everybody. And I’ve got new things launching.” But it was incredibly frustrating and lonely.

Kenji Kuramoto: [00:30:25] And, you know, even I tried to empower some employees to kind of help offset that, it didn’t work. And so, I do think it’s incredibly underestimated. So, knowing yourself a bit, what you like, are you going to be kind of missile silo Mike or are you going to need to kind of be a little bit more of someone who you need someone. There’s probably other aspects of your life you can look at and say, “Well, where have I gotten better productivity or achievement out of it? Has it been like when I’ve gone into that silo or is it when, like, I just had to get around other people who are helping push me?” And that may help you get some thought process and direction around the partnership concept.

Mike Blake: [00:31:03] And, you know, there’s another kind of lesson point there, too. And something I tell my clients is that, you know, you can try to get your employees to behave like owners all you want, but unless they’re owners, you just ain’t going to get there.

Kenji Kuramoto: [00:31:20] Absolutely. I mean, it’s very rare. We’ve tried it a few times. We have one exception to that today, I mean, Matthew and I don’t have any other partners, but we do. Our COO, Lisa, we absolutely refer to as a partner. And I think at this point, we just probably haven’t wanted to burden her with some of the aspects that some people don’t think about coming with Acuity. But she’s been one exception of, again, the vast minority of people that really helped us think about the business. We consider her and call her a partner. But by and large, it’s not a direction that I’ve seen most of our employees step up to.

Mike Blake: [00:31:57] Probably the exception that proves the rule as much as anything else.

Kenji Kuramoto: [00:32:00] Absolutely. Absolutely.

Kenji Kuramoto: [00:32:02] And the other part Matthew brought up that I think does not get talked about enough as partnerships are formed, is the priority to take out cash. And, boy, does that come up. If you walk into a partnership assuming that your cash needs or desires are the same as other partners, then they aren’t, that is just a killer. So, you know, whether you said that explicitly – or, again, I think taking the cues from the fact you’re in a similar life stage and, probably, similar kind of financial position, if you will, but understanding disposition of cash and profits, boy, that’s really important to get on the table early. Because if you have one person that just wants to leave it in because maybe they can, but another person that needs to draw because otherwise you’re on food stamps. Boy, don’t assume that, right?

Matthew May: [00:32:54] That was probably the hardest part of our partnership where we were most disaligned was while I was paying off a debt buying the company. Like, we had fundamentally different cashflow for the first four or five years of the company, because most of my cashflow – almost all my free cashflow was going to debt service. And Kenji’s is going to whatever Kenji wants to do, you know.

Mike Blake: [00:33:18] Falcons tickets for some reason.

Kenji Kuramoto: [00:33:18] Falcons ticket, that’s right.

Matthew May: [00:33:21] That was the biggest disalignment that we ever had in our partnership. It was that for several years.

Kenji Kuramoto: [00:33:30] And it was the number one thing with my previous partner – as close as you and I were, as amicable as it was – which is an age difference. Like, he was older than I was. He had kids. Just like Matthew mentioned, seven years ago, they were heading off to college. My kids were still in middle school, elementary school. And so, he needed a different cash situation, which causes you to make different decisions about the business and how you invested it. And so, that was probably the number one reason why he said, “Hey, I’m going to go do something else.” Just because we were at different stages of life personally and had different needs. It’s an incredibly important aspect to consider before getting into a partnership with someone.

Mike Blake: [00:34:11] And this touches upon an important thing too. Matthew, you weren’t just given shares, right? If you’re on the outside of the accounting and legal world, you’re not given shares because they’d be taxable. If you do, you normally buy in. The company lends you money to buy into the company, basically. And it sounds like that happened here as well. And interestingly, you know, because of the debt service, you did have a bit of a cash disconnect. Did that ever become a source of friction? And if so, how did you work through it?

Matthew May: [00:34:47] It was hard. I worked to getting a home equity line of credit and then bothered Kenji with it.

Mike Blake: [00:34:51] Okay. That’s an answer.

Matthew May: [00:34:57] No. And I do encourage every business owner, too, before you get off W2s to get a home equity line of credit for the max value that you possibly can, because once you start drawing on that home equity line of credit, you have to make some big changes in your business to make cashflow different changes. But I don’t know if I did. Maybe I was stress for you, but –

Kenji Kuramoto: [00:35:20] Well, I think that one of the ways that we offset that, I think for me, it does cause stress. Because, again, I had a proclivity from day one to have just this very clear, perfect alignment. Because then, every issue that we’re approaching were coming from a common framework and a common place. So, it did stress me out. It stressed me out that you had that. But one thing, I think, what we did to mitigate that was, we were just very open. We know everything about each other. We know each other’s personal financials. I mean, we don’t just, “Hey, how much are you drawing out this month?” It is, we know each other’s mortgages. We know what our investments look like together.

Kenji Kuramoto: [00:36:01] I know it’s a little unusual, but for us having transparency and understanding of the situation that each other was in, I mean, it just allows for, if one of us needs something, we can help each other out. We get into this whole thing to help each other out. So, I know he and I don’t want each other to be in a place where, you know, one of us needs help and the other doesn’t know about that. That would be the most ridiculous aspect of the partnership or the friendship. It’s like, “Gosh. You just don’t step up and say something.” So, we’ve always been really good about just, “Yep. Here you go. You want to see the personal financials? Boom. Here they are.”

Mike Blake: [00:36:34] And I think another learning element from that is, perhaps a driver of the success that you guys have enjoyed with Acuity is your ability and willingness to be vulnerable with one another. I mean, really open the kimono like that that’s important to building relationships and trust. And I think a lot of partnerships do fall apart because there isn’t that level of trust and there isn’t that level of vulnerability. And, you know, like in a marriage, if you don’t have that, then, all of a sudden, you find yourself one day you think your marriage is great, the next day you’re hit with divorce papers because one of your partners was just simmering for 20 years, basically. And it sounds like you’ve taken intentional steps to avoid that.

Kenji Kuramoto: [00:37:26] We have. I think we’ve been very focused on being vulnerable and trusting each other. I will say that, however, we’ve been really lucky. And I mean that luck in that we realized there was just unique things about both he and I and our situations that I also felt like we have to take advantage of. For example, you heard we have this very eerie similarities in so many parts of our life. Matthew mentioned our oldest kids being – having kids being the same age, boy and a girl. One of each, the same age. We both married our college sweethearts. We both worked at Arthur Andersen right out of college. We worked in the same exact job in different offices. We’re both the oldest of three boys in our household. We have all these very interesting similarities. I was just at Matthew’s house this morning because we get together on Tuesdays to do our partner meeting.

Kenji Kuramoto: [00:38:19] And, you know, we find out that – this is kind of a silly one – but it does feel like this happens all the time with he and I. Both of our refrigerators broke down the last couple of weeks. I’m like, “You got a new refrigerator?” Like, “That’s the exact same one that I have too.” We didn’t talk about that. Like, that seems weird. And then, we find out that his 18 year old son starts his first job today at a restaurant. And my 18 year old started his first job yesterday. And so, we have all these interesting similarities. And I think that’s very fortunate and lucky. But I think that you take advantage of that. And this is just too – I don’t know what you want to call it to this matter or anything else, but that’s really special and awesome so why not take advantage of that? Because it’s showing us there’s some already good alignment there just in the way that life has kind of unfolded for us. Maybe that means we need to kind of be doing more together as business partners.

Mike Blake: [00:39:09] Well, I’ve heard – and I haven’t looked this up to see if it’s medically true, but I’ve heard that when women spend enough time with each other, that their monthly cycles will synchronize. But I’ve never heard about business people that have refrigerators synchronized if they work together long enough.

Kenji Kuramoto: [00:39:26] Like, it’s amazing.

Mike Blake: [00:39:28] Somebody is going to do a dissertation on that, I promise you. Someone is going to take this and go do a PhD on that. So, let me switch gears here for a little bit, because I want to take advantage of the fact that you guys work with so many clients and have over the years. And I’m sure many of those have been partnerships as well. Is that fair? And you’ve seen some of them succeed. You’ve seen some of them not succeed. And I love each of you to offer a couple of observations in terms of what’s made other partnerships successful broadly. And what has made other partnerships unsuccessful that might be cautionary tales for somebody listening on the program.

Matthew May: [00:40:09] Well, I think alignment is really key when you’re having that. When I think about alignment, I often think about what people have to contribute to earn their equity in the company. And I see a lot of startups, in particular, make the mistake of just saying, “Hey, you own a third, you own a third, you own a third.” And then, ten months later, one of the founders goes off and owns a third of the company. So, I like places where you have to actually buy in. Or if you don’t buy in, there is some portion of time that has to elapse for you to earn what your determined contribution is. But that’s a big red flag to me when I see companies that even though it started as a napkin, I still like to see you have to earn kind of your ownership somehow or buy your ownership somehow.

Mike Blake: [00:41:07] So, skin the game, right?

Matthew May: [00:41:09] Yeah. I mean, when you give things away for free, people tend to devalue them. I know that as a service provider. When we give away free services, nobody cares. But if we give service away for $10, they’ll be like, “I have to write a check for $10.” They respond to your emails and things like that. It’s the same thing with equity, like, you’ve got to be careful.

Mike Blake: [00:41:31] Kenji?

Kenji Kuramoto: [00:41:33] I agree. I think, Matthew started down this path as well, too, about kind of your values. Every time I see a partnership work well, they tend to be very aligned values of the owners involved. So, there’s really smart ways that he mentioned to mechanically build some components of equity. You know, it’s got to start from a sense of values. And it doesn’t mean you have to be exactly the same or buy the same refrigerators necessarily. There are plenty of differences that Matthew and I have. But when it comes to values, whether it’s us or other successful partnerships I’ve seen, all of them are very consistent where the partners share very much the same values and beliefs and desires for what they want out of that business. And the ones that get put together really, really quickly or treat equity as being some cheap, easy, free thing, where you just got to have a lawyer paper up, those are the ones that tend to be the problematic ones.

Mike Blake: [00:42:35] Well, that’s interesting. And that’s really sort of an interesting tale, too, because I know you do a lot of work with tech companies as well as I do. You know, there can sometimes be a tendency to treat stock certificates like you’re pulling them off of a roll of paper towels, basically. And, you know, one of the worst things you can have in any team, whether it’s a partnership or not, I guess, is a sense of entitlement.

Kenji Kuramoto: [00:43:02] Absolutely. And I think that from an accounting perspective – we’ll take it there as, in fact, I know there a lot who, maybe, who listen to the show or part of it – I was also very much shaped by looking at cap tables. I’ve had so many clients over the years, you look at these cap tables and they were just like, “How in the world did this happen?” You’re looking at this thing and we’re trying to write crazy formulas and tabs and things that well before there was such a thing as kind of equity software just to keep track of like, “What is happening? I get there’s been multiple rounds of funding, but what are all these people doing on the cap table?” And, ultimately, those are always problematic.

Kenji Kuramoto: [00:43:39] And I think Matthew and I have talked a lot about this. Others have been successful in their partnerships have talked about how much they honor and respect equity. Like, “Wow. The cleanliness of our cap table. The simpleness of our cap table. It’s something that when I hear people talk in those terms, those are people that have taken great care in how they distribute the equity and how they manage it. And I’ve seen the opposite side again, when it’s any kind of a spreadsheet that’s got the cap table on huge crazy spreadsheet, those are the problematic ones.

Mike Blake: [00:44:14] That’s actually interesting. I’m going to let that sink in and think about that. I think that’s a really interesting observation. So, in your partnership, I would characterize the two of you as, I guess, having complementary skill sets, but fairly compatible personalities. Is that a fair characterization?

Kenji Kuramoto: [00:44:38] I think so.

Mike Blake: [00:44:39] Or not? Are you different? I can tell, one of you is about to livethrough the Internet saying, “I’m a complex human being. What are you talking about?”

Kenji Kuramoto: [00:44:49] In fact, we’re very different in many ways. But like I mentioned, our values are super aligned, which is the basis of it. But we are very complementary. There’s some things that each other does that, you know, helps the other person. Like for me, for example, Matthew, in the way that he analytically thinks about deals or does some very strategic, very complex thinking, I mean, very non-linear, like, out there thinking is just mind blowing. It’s very frustrating at times, too. But it’s just something that I don’t have the capacity for. I’ve got to have this very concrete, linear process to my thinking. I have to kind of see the data. Matthew has just a very interesting abstract mind and, again, a lot of times it drives me nuts. But it fills a huge gap for us, especially when we’re in situations.

Kenji Kuramoto: [00:45:46] We just did our first acquisition of another firm, and, really, Matthew was the real architect of that. Like he, really, from a deal structure standpoint, is excellent at that and enjoys doing that. Whereas, me, that’s kind of stressful. Like, that doesn’t feel quite right, and I kind of muddle my way through it, and I second guess myself. Whereas, I think Matthew sees deals and complexity and kind of salivates. Like, “Yes. Let me get after this thing.” Is that fair?

Matthew May: [00:46:17] Oh, you’re asking me now?

Kenji Kuramoto: [00:46:20] I used to tell you but I’m doing nice with Mike here.

Matthew May: [00:46:22] I mean, if you flip that around and you say – you know, so we have a hundred people now. So, I mean, back in the day when we had eight or nine, it was not the same. But we have a hundred people now and Kenji is the one that’s predisposed to like, “Hey. Yeah. We’ve got to have, like, constant messaging.” And he’s doing the async videos where he’s getting our team updates every single week in that cadence and things like that. And that’s not something that I have the strength for. I believe in community building. I believe in investing in our team. But he’s got the DNA where it’s like built in where he’s going to do that stuff for our people.

Matthew May: [00:47:09] I think it’s really funny, our teams, we all did personality profiles and it ended up in one of those ones where you could be in one in four quadrants. We knew Kenji and I were going to be in opposite quadrants, but similar quadrants. But the top four people at our firm were all in different quadrants, it was crazy. So, our COO was more of the methodology person, will take ideas and put them into action and things like that. Then, we have, you know, our head of bookkeeping was the compliance minded person. I forget where we were. We were the crazy ones. We always are.

Matthew May: [00:47:44] But it was weird. I expected that he and I. But we had also unintentionally surrounded ourselves with people that also complemented ourselves, which I think as partners you’ve got to be really okay in your own skin in acknowledging that somebody can do things better than you. Because there’s lots of times where you got to set your ego aside. And if you have a big ego like me, those are tough days. You know, those are tough times.

Mike Blake: [00:48:19] We’re talking with Kenji Kuramoto and Matthew May of Acuity, and we’re talking about entering into a business partnership with the Decision Vision podcast. We’re running out of time but I have a couple questions I want to make sure we, at least, try to get to before we let you guys skedaddle and go back to helping clients and thinking about what the Falcons are going to do next year or are they going to draft.

Matthew May: [00:48:44] When in your mind does it make sense not to be in a partnership? Are there times where you just – you’ve probably had people come to you asking for advice and they’re thinking about entering a partnership. And maybe you’ve just sort of done, you know, the Warning! Warning! Will Robinson kind of thing and say don’t do it. What sort of things have you seen that are warning signs that maybe a partnership is not the right way for somebody to go?

Matthew May: [00:49:15] For me, when I came back from industry back into public accounting, that was a time where, I mean, I could have started something. But I realized I really needed to learn more. Like, I needed to kind of have a bigger baseline of a certain skill set and piece together some of the things I’m still working. And I guess the number one thing to me was kind of when you feel like you’ve stopped learning, I think is an okay time to start thinking about. Because I think a partnership is going out on my own and doing something new. When you stop that kind of big – I mean, you always keep learning – hurdle learning and you start kind of telling out the curve. I made partner, right? So, I think those are times when it’s great to think about.

Mike Blake: [00:50:07] Kenji?

Kenji Kuramoto: [00:50:07] I guess I have a harder time because majority of my career has been spent as an owner of something and being a partner to someone. So, certainly, I’m personally predisposed to that. But I’ll take it from a perspective of bringing another partner in, having to have to make that choice a few times, or when to encourage someone and when not to encourage someone. And, again, I think that so often when you’re trying to convince someone to join you as a partner, it gets a little easy to talk about all the wonderful great things. The profits we’re going to share. When we exit, here’s what’s going to happen. And you’re kind of the boss and the leader of things that no one can tell us what to do.

Kenji Kuramoto: [00:50:52] And when you start digging into, “Well, when we get sued, because basically, I guess, as a business, guess what happens? Pretty much everybody’s going to get sued.” You’re dealing with lawyers. You’re dealing with issues. You have to lay people off. And not to be the Debbie Downer, but it is important to speak to people who sometimes have, maybe, glamorized the, “I’m a hustler. I’m going to go and start up my own thing.” There’s a lot of people out there that say that. But, really, what they got to think about, you’re the person that’s going to be on-call to impact people’s lives and the lives of their families. And that could come in terms of, again, disastrous things happening with a client or in the business. And we’re going to count on you as a business partner. That’s someone you need to be held to be accountable to say, “Yep. I’m willing to jump in and help with that.” And that’s okay.

Kenji Kuramoto: [00:51:45] It’s completely okay if someone says, “You know what? I’m not really down for that. Like, I want to learn and progress in my career more. I want to be a contributor. But like, I’m also not looking to have to wear some of the burdens of being a business partner.” And I think it’s important to be able to have someone think through that as well too. Because if someone’s not ready for that responsibility yet, boy, you certainly don’t want to put them in there. There’s other ways to engage them within your organization as opposed to saying, “Great. Let me get you the stock certificate. Let me get you on here. We’re going to need to go ahead and get, you know, some signatures on the mortgage on your house and things like that stuff.” You got to make sure they’re all on board before that happens.

Mike Blake: [00:52:28] Guys, this have been a great conversation. I’ve only gotten through about half the questions I had prepared, which I expected, so maybe we’ll have you back on at some point. But if people want to learn more about building a successful partnership, can they contact you to ask a question or two? And if so, what’s the best way to do that?

Matthew May: [00:52:45] Oh, I’m TheTechCPA on Twitter, so you can reach out to me.

Mike Blake: [00:52:48] Yes, you are.

Matthew May: [00:52:48] TheTechCPA on Twitter. Or you can LinkedIn, too, I’m TheTechCPA.

Kenji Kuramoto: [00:52:53] I keep mine a little more simple, a little more humble than Matthew, I’m just kenjikuramoto on Twitter. A little harder to spell, probably. But you can find us both on Twitter.

Matthew May: [00:53:04] I just said tech, TheTech —

Mike Blake: [00:53:09] The Tech, I mean, that’s it. Don’t look no further.

Matthew May: [00:53:12] Look no further, folks.

Mike Blake: [00:53:14] Well, that’s going to wrap it up for today’s program. I’d like to thank Matthew May and Kenji Kuramoto so much for joining us and sharing their expertise with us.

Mike Blake: [00:53:22] We’ll be exploring a new topic each week, so please tune in so that when you’re faced with your next executive decision, you have clear vision when making it. If you enjoy these podcasts, please consider leaving a review with your favorite podcast aggregator. It helps people find us that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision podcast.

Enrique Alvarez with Vector Global Logistics and Shaun Collings with Regions Bank

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Shaun Collings and Steven Julian

Enrique Alvarez/Vector Global Logistics

You need a logistics and supply chain partner that can not only provide you with a good price, but a great value. Vector Global Logistics works with you to find efficient, cost-effective solutions for moving the products you care about from point A to point B. When you don’t have to worry about a successful arrival, you can focus on changing the world.


Shaun Collings/Regions Bank

Regions Financial Corporation (NYSE:RF), with $144 billion in assets, is a member of the S&P 500 Index and is one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, and mortgage products and services. Regions serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,400 banking offices and 2,000 ATMs. Regions Bank is an Equal Housing Lender and Member FDIC. Additional information about Regions and its full line of products and services can be found at www.regions.com.

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Decision Vision Episode 97: Should I Work With Startups? – An Interview with Harlan Jacobs, Genesis Business Centers

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Decision Vision Episode 97:  Should I Work With Startups? – An Interview with Harlan Jacobs, Genesis Business Centers, Ltd.

Harlan Jacobs of Genesis Business Centers joins host Mike Blake of Brady Ware & Company to discuss the issues involved in doing business with startups, whether as a mentor, services provider or corporation.   “Decision Vision” is presented by Brady Ware & Company.

Harlan Jacobs, President, Genesis Business Centers, Ltd.

Genesis Business Centers, Ltd. offers specialized services to high tech inventors and entrepreneurs in respect of assistance with raising initial seed and venture capital, as well as international licensing and/or joint venture agreements. Genesis also provides Acting CFO services.

Harlan Jacobs is the founder and president of Genesis Business Centers, Ltd., a diversified high tech, for-profit incubator program established in 1993. Mr. Jacobs is a seasoned CFO with over 20 years experience as a corporate controller and treasurer prior to becoming involved in the fields of incubation and early-stage venture (seed) capital. He was the CFO for FilmTec Corporation, a successful Minnesota high tech start-up company with a unique reverse osmosis membrane technology. Formed in 1977 with only $100,000 of founders capital, the company went public in 1979.

In 1985, with sales of $10 million and net income of $1.5 million, FilmTec was sold to Dow Chemical for $75 million in cash! Mr. Jacobs was actively involved in the acquisition negotiations.

Over the years he became interested in other early-stage, high tech companies like FilmTec. Most of the companies in which he invested were having great difficulty raising the first $250,000 of capital. Paying the rent and having adequate business advisory services available early-on were common laments among the management teams he interviewed for his prospective investments.

A business opportunity seemed obvious. In 1993 he founded one of the most progressive high-tech business incubator programs in Minnesota, if not in the U.S., by offering to barter rent and “Acting CFO” services for a negotiated equity position in its incubatee companies. This bartering program has become a cornerstone of the Genesis Incubator program.

In recognition of his efforts and success in helping small businesses raise capital and get off the ground, Mr. Jacobs was appointed by Senator Rod Grams to serve as his delegate to the White House Conference on Small Business in 1995, and again as his delegate to the Congressional Small Business Conference, held in Washington, D.C., in June 2000.

Successful graduates of the Genesis Incubator program include SurVivaLink, a manufacturer of portable battery operated defibrillators that was acquired by Cardiac Sciences (stock symbol: DFIB), NT International, a specialty sensor manufacturer that was acquired by Entegris (stock symbol: ENTG), and Excorp Medical, a bioartificial liver company whose system recently received FDA “orphan drug” designation, a significant approval step.

Other promising graduates and client firms of the Genesis program (and their technologies) include CYMBET, (infinitely rechargeable lithium ion polymer battery depositions on silicon substrates), Zivix, a new electronic guitar system for use with iPads™ and the like, GEL-DEL Technologies (tissue engineering), and Electronic Materials, LLC.

Electronic Materials may very well have a “basic patent” and therefore be in a position to engage in significant licensing transactions whenever an electronics company or others utilize a computer controlled ink jet nozzle for the deposition of electronic circuitry on flexible substrates. Genesis is assisting the company to secure licensing agreements on a global basis.

Jacobs’ personal track record of investment in private placement offerings such as in Recovery Engineering, Inc. ($1.00 per share in 1986–acquired by Procter and Gamble in 1999 for $35 per share) has helped to engender the confidence of those third parties who utilize the Genesis Incubator program as a high quality screen for selecting investment candidates.

Genesis works regularly with community development organizations that wish to bring high tech jobs to their communities. Genesis helps to establish business angel networks and community-based seed capital funds that receive funding from utility companies and commercial banks (in fulfillment of the letter and spirit of the law in respect of the Community Reinvestment Act) as well as from high net worth individuals who wish to help their communities to grow and prosper.

Mike Blake, Brady Ware & Company

Mike Blake, Host of the “Decision Vision” podcast series

Michael Blake is the host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms, and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth-minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision-maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast.

Past episodes of “Decision Vision” can be found at decisionvisionpodcast.com. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

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Show Transcript

Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality

Mike Blake: [00:00:22] Welcome to Decision Vision, the podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owner’s or executive’s perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.

Mike Blake: [00:00:40] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia. Brady Ware is sponsoring this podcast, which is being recorded in Atlanta per social distancing protocols. If you like this podcast, please subscribe on your favorite podcast aggregator, and please consider leaving a review of the podcast as well.

Mike Blake: [00:01:06] So, today’s topic is share work with startups. And I think a lot of people are faced with this choice. And the choice may come in one or two forms. It could be, like myself, in the form of being a trusted adviser and a service provider. And it can also be in the context of being offered employment. Startups, like any other company, they need good talent. I mean, great talent. And I would argue that startups need great talent more than anybody because they don’t have the margin for error that other companies do.

Mike Blake: [00:01:45] But it’s not that easy of a decision. Startups, they’re are different animal. They’re a different animal in terms of the pace of how they do things. By definition, you’re operating in an environment of tremendous uncertainty. How much and whether you get paid can be a significant question. You may be asked to take stock in form of compensation, or warrants, or equity, or something. And there are other complications as well.

Mike Blake: [00:02:19] And so, the thing about startups is that working with startups is pretty sexy. Back when we have cocktail parties again, they’ll make for great cocktail party stories. But what I want to get into today with our guest is, is it more than a cocktail party story? How do you think about it? How do you make the decision whether or not you’re open to working with startups? How do you make that work for you? And how do you get the best benefit from it? And how does the startup benefit from that?

Mike Blake: [00:02:49] So, joining us today is Harlan Jacobs of Genesis Business Centers, Ltd. Genesis Business Centers offer specialized services to high-tech inventors and entrepreneurs in respect to of assistance with raising initial seed and venture capital, as well as international licensing and joint venture agreements. They also provide acting CFO services. Harlan Jacobs is the founder and president of Genesis Business Centers, and they’re established in 1993. That’s 27 years. So, they’re doing something right because if they’re doing it wrong, they’re doing it for an awfully long time.

Mike Blake: [00:03:23] Mr. Jacobs is a seasoned CFO with over 20 years of experience as a corporate comptroller and treasurer prior to becoming involved in the fields of business incubation and early stage venture seed capital. Harlan is also active internationally and is acting executive director of the American Israel Chamber of Commerce of Minnesota and is the vice chairman of the Swedish American Chamber of Commerce of Minnesota. Harlan Jacobs, welcome to the program.

Harlan Jacobs, Genesis Business Centers: [00:03:48] Thank you very much, Mike. It’s great to be here. Thanks for the invitation.

Mike Blake: [00:03:52] So, let’s start off easy here. In your mind, what constitutes a startup? I want to get that out there because I think a startup can mean different things to different people at different times from different perspectives. So, in your mind, if somebody asks you to kind of define a startup, what does that look like to you?

Harlan Jacobs, Genesis Business Centers: [00:04:15] Great question. And I wish the headline writers in the newspapers and magazines would come on a standardized definition what’s a startup. To get to your point, basically, I think that the public would be well served, your viewers and readers, to understand that it’s usually a brand=new company that’s been formed or is about to be formed, and they intend to develop and commercialize a particular product or service, usually high tech, but not necessarily high tech, and there’s a sense that this new idea or invention has great value and unique characteristics that put it in the category of a breakthrough technology that could very well be disruptive; and therefore, generate sales and profits, and ultimately capital gains for the founders and the initial investors. That’s my nutshell version of a startup.

Mike Blake: [00:05:10] So, you have a background, you’ve had some success in large companies, and you’ve had success with with small companies and startups, and you work with startups now on a daily basis. What is s that experience like? How is it working with a startup versus a more established company? And maybe in your answer, you could touch upon what is that transition like? If you’re used to working in that larger environment, what is the culture shock like going from a larger company to a startup?

Harlan Jacobs, Genesis Business Centers: [00:05:41] Again, another great question. When I try to acquaint people who have no experience with startups but are enamored from their various cocktail party conversations that they’ve been a party to, and they say, “Hey, I’d like to learn more about startups,” I start them out with a differentiation as follows. In a startup, to make the payroll, you’ve got to be able to build a product, sell a product, collect the receivable, cover all the expenses, and then have money left to pay the payroll in yourself; whereas, the big company experience that many of these people come from is the idea of making payroll, as you call the payroll department, and they issue the checks.

Harlan Jacobs, Genesis Business Centers: [00:06:21] So, it’s a whole different world and a person has to be capable of doing many things. The person that’s involved in engineering but also has a flair for sales and marketing will be very valuable as opposed to the salesperson who can only sell or the engineer who can only do engineering. And it’s just literally a different world.

Mike Blake: [00:06:44] Yes. So, interesting you mention that. So, in your mind then, somebody who’s a good fit for a startup might be somebody who’s comfortable playing many roles as opposed to being strictly a deep specialist.

Harlan Jacobs, Genesis Business Centers: [00:06:55] Absolutely. The cross disciplinarian, to borrow a term, is a characteristic of many successful tech entrepreneurs. And in the company I was with back in the ’80s, Film Tech Corporation, we had an engineer who was also very good at sales and marketing. And so, he went out around the world and helped sell the reverse osmosis desalination membranes, even though he could have been back in the office helping with the engineering. And there was an example of a good successful cross disciplinarian.

Mike Blake: [00:07:29] So, you said something there initially, and you said something that I think a lot of people, they’re going to pick their ears, which is the difference in startup – and I think this is a really strong definition – a startup versus established company is how you make payroll. One is you’ve got to make sure there’s money in the account. The other is you call the payroll department. That might be enough to kind of scare a lot of people away if you don’t know how payroll is going to be made. In spite of that, why do you and others find it attractive to work with startups in spite of that uncertainty?

Harlan Jacobs, Genesis Business Centers: [00:08:06] It might sound corny to say, but there’s really a lot of excitement and energy involved in being with a startup. Whatever your relationship, whether you’re an employee, a founder, a service provider or an adviser, you’ve got a chance to bring world-class, disruptive technology to the marketplace, and you’re working with people who are extremely skilled in a particular technical discipline. And you might be part of the next Microsoft, you might be part of the next Medtronic, which is a success story here in Minnesota, or you might be part of the next film tech, which was the company I had the privilege of working with.

Harlan Jacobs, Genesis Business Centers: [00:08:48] And it’s very exciting to be part of that, but what a lot of people don’t realize is during the excitement, there’s also a lot of periods that are terrifying, frustrating, and you’re coming close to the edge of the cliff. And it’s easy to be excited and interested in the exciting aspects of it, and very few people have a comprehensive, in-depth understanding of the terror that’s involved in being part of a startup.

Harlan Jacobs, Genesis Business Centers: [00:09:17] I’ll give you an example. About 25 years ago, I was an adviser to a company, and I got a frantic call on a Sunday afternoon about 5:00 p.m. And I could tell that there was distress in the caller’s voice. And he explained to me that he didn’t know how he was going to make payroll. And I said, “Well, didn’t you plan for this?” He said, “Well, I was supposed to get a check on Wednesday from this guy, and then it didn’t come Wednesday. And then, the guy said he’ll put it in the Federal Express, and then it didn’t come on Friday. Then, he assured me it was there, and it didn’t come Saturday. But I released the payroll checks on Friday. What do I do now?” And a friend of mine who coined the phrase “the roommate factor.” What’s it like to be an adviser, or a board member, or an officer of a company that had all the other challenges? And then, all of a sudden, on a Sunday at 5:00 p.m., you hear about a new challenge that you can’t solve, and you just have to help the person through a crisis.

Mike Blake: [00:10:23] And that is sort of one, I think, of the attractions of being an adviser to a startup that there’s a clear path to making a difference, right? If I were an adviser to, say, Coca-Cola – and I’m not, but I’m just going to pick that because they’re down the street from me – I give them a piece of advice. If they take it, yay! If they don’t take it, life is going to go on, right? Coca-Cola has been around for 120 years. They will be around long after I’m anywhere near this place. With a startup though, the advice that you give them, the help that they give you through a crisis can often make the difference as to whether or not that company’s around or not.

Harlan Jacobs, Genesis Business Centers: [00:11:03] Absolutely.

Mike Blake: [00:11:04] So, do you have an ending to that story? How did they work their way through that crisis? Did they make payroll? They bounced paychecks, and the workers showed up with torches and pitchforks? What happened?

Harlan Jacobs, Genesis Business Centers: [00:11:17] Well, we we spoke to the banker and arranged for an immediate small short-term loan that required the founder to make a personal guarantee, which he promised his wife he would never do, but he had to. So, it wasn’t easy to talk him into it, but he had no choice. And it was his problem, he had to solve it.

Mike Blake: [00:11:41] Well. But the good news, and this is a topic for a different podcast, but he may not have thought of even that option if you haven’t been around him, a sort of an adviser to help him think of that. You’re in crisis. You’re hyperventilating because you think your company is about to collapse. And you might think the last thing that you’re going to be able to do is call a bank, the most risk averse of financing sources, and that’s going to be the source of your funding literally overnight, so that those checks clear.

Harlan Jacobs, Genesis Business Centers: [00:12:17] He was lucky, and it turned out well, and he learned a lesson, and eventually went on to great success. But it’s those kinds of experiences that when you sign on to be an adviser or a member of the team, whatever your status, it’s so hard to anticipate every possible thing that could go wrong. And at the end of the day, you’re dealing with people, not machines and not algorithms. And people can do odd things. They can be creative, and they can be destructive.

Mike Blake: [00:12:50] So, other than … and kind of on the payment side, and that is a risk too is that startups can’t service probably can’t pay you your full rate, and you may be in deferred … some people offer deferred payment programs. And I was, in fact, on the phone today with a law firm that has deferred payment programs for startups, and that payment may or may not materialize. But in addition to that, are there other risks of working with startups that somebody listening to this podcast should be aware of, whether they’re thinking about taking one on as a client or actually joining one as an employee or an officer?

Harlan Jacobs, Genesis Business Centers: [00:13:31] Beyond the obvious compensation issues, whether you get a paycheck, and it never happens, or whether you don’t get as much you’re supposed to get, or whether your fees are ever paid, or you get Chinese paper, and you put it on your wall 10 years later, there are other issues that anyone who’s going to join, whether as an employee, an officer, or a director, has to be mindful of. And I’m not giving legal advice but I can tell you my opinion that it’s very important for anyone who is in a role to be a helper in those capacities to be mindful of the fact that if you have check signing authority, whether you’re an employee or an officer, and if you’re a director, and the payroll withholdings aren’t remitted to the state and federal authorities in full on time, or whether the worker’s compensation insurance premiums haven’t been paid and/or if there’s back salaries and wages that haven’t been paid, you may be personally responsible and liable for that. I think the term is joint and several liability.

Harlan Jacobs, Genesis Business Centers: [00:14:39] Again, I’m not an attorney. I’m not giving legal advice, but as a person who is going to be in the trenches, one still needs to have a basic understanding of the law as it pertains to his or her personal liability. So, that’s a factor. And I’ve seen this before where, for example, in my field, someone says, “Oh, would you be our treasurer? We need someone to be the treasurer.” And I have to explain to them, “I will provide you the functions and benefits of the comptroller, or treasurer, or CFO, but I can’t accept check-signing authority because of the personal liability that’s associated with it.” And sometimes, they just don’t want to put the energy into understanding the nuance of what I’ve explained to them, but I have no choice. I can’t wake up some morning, and open my mail, and find out that the IRS wants me to pay $25,000 because I’m the only person they can find who was somehow associated in that check-signing capacity. So, that’s one of the issues.

Harlan Jacobs, Genesis Business Centers: [00:15:37] The other issue, if you’re a director, you may be liable for other damages, and the cost of defending yourself, whether the lawsuit is successful or unsuccessful. So, compensation is a whole different animal, but the downside of helping in a certain capacity is something that I think is not as well understood as it should be by someone who’s knowingly wanting to get involved. You can be an adviser or an ordinary employee and not have those perils, but if you’re a nice guy or gal, and you decide to accept the appointment as the acting CFO, and they want you to sign on the check form at the bank, beware.

Mike Blake: [00:16:22] And I think that’s really important that I want to kind of highlight this a little bit because one of the potential attractions of working for a startup is you may get a title that you might not have had the opportunity to get otherwise. You may just not have the seniority, haven’t put in your dues, or whatever it is. And all of a sudden, you become a chief something officer. And that sounds great, but being an officer of a company means something. And if you’ve got that O part at the end of your title, that does mean that, most likely … I’m not giving legal advice for sure, but there is a substantial risk that you’re being put effectively in a fiduciary position to shareholders and/or employees.

Mike Blake: [00:17:17] And this is under appreciated, as much as anything, that’s why people have that title to get paid as much as they do. It’s not just because of their skill set, and their seniority, and whatever education they have but, also, simply, the willingness to take on that responsibility because you can’t just walk away from it. And  that’s meaningful. And I can’t agree with you more that once you light the stars out of your eyes, sit down with your own legal counsel and work through what being an officer really means and put you on the hook for. And that will likely also differ state to state. So, that’s one of those things, I think, is going to be more local in terms of how the law works than is national in scope.

Harlan Jacobs, Genesis Business Centers: [00:18:07] I would add that there’s, also, the potential damage to one’s reputation and standing in the community. One might be enamored of a new pump or a new contrivance of device and not have a good grounding in the laws of thermodynamics and inertia, and doesn’t know how to perform, and wouldn’t know what the results were from a test that did a mass energy balance. But at the end of the day, if that company raised money, and it took two and a half years to find out that the basic principles of physics or the operation of it wasn’t either possible or cost effective, then everybody turns to anybody who can be pointed at and blames them for failure to provide proper oversight.

Harlan Jacobs, Genesis Business Centers: [00:18:56] And it’s a classic unknown unknowns, and it’s a danger to one’s reputation. And look at the people – and I won’t cite the exact name of the company that starts with the letter T, but there was a company in California that raised a lot of money and had some cabinet members on its board of directors, and it ended up being a well publicized failure. And I have to watch my words judiciously here, but think of all the people who get invited to a board, and they’re enamored like a moth to the flame, and then two years later, they find out it was either a hoax or it should have been understood that it could never possibly work, the thermodynamics weren’t there, the chemistry wasn’t there, the cost effectiveness wasn’t there. So, another point of risk.

Mike Blake: [00:19:49] Yeah. That actually gives me a … I’m going to write down a note here. We really should have a podcast, should I serve on a board, because that enters into that discussion, right? And there’s a lot of attractiveness to serving on a board. It’s prestigious. It can be very well compensated. It can be a very rewarding work. But there is a downside that if things don’t work out, you can very easily be left holding the bag.

Mike Blake: [00:20:15] So, Harlan, you’ve been working with startups a good chunk of your career. And I’m curious, in your in your experience, what are the most frequent needs? What does startups most frequently need help with?

Harlan Jacobs, Genesis Business Centers: [00:20:33] Well, another friend of mine coached the phrase, came up with a phrase, coaching and cash, capital and coaching. They clearly need capital, but they also need to understand how to start a business, how to grow a business, how to utilize the capital, so that they can go back for another round of capital when they’re, in all likelihood, going to need several rounds of capital. So, they have to be educable. They have to be able to process advice.

Harlan Jacobs, Genesis Business Centers: [00:21:06] Not every piece of advice that I or anybody is going to give to a client is going to be the absolute best advice to take, but they have to be able to listen to advice, and to know how to separate the wheat from the chaff, and follow the good advice more often than not. And if they listen to experienced people, they’re going to be better off, they’ll have higher prospects for success in growing their business and raising capital, utilizing the capital successfully, and going back, and getting another round at a valuation that doesn’t result in what we sometimes call a down round or a cramdown.

Mike Blake: [00:21:47] So, the capital on the coaching side, what do you find yourself coaching people most frequently about?

Harlan Jacobs, Genesis Business Centers: [00:21:56] I’m so glad you asked that question. If there’s one thing that I’d really like to do with the entrepreneurial world to help them would be to help them get away from percentages. I wish I had a $20 bill, a crisp $20 for every time an entrepreneur has come to me, and it must be in the DNA, they start telling me about how they want to do this percentage to this person, that percentage, that percentage. Stop. Again, I’m not giving legal advice, but I say the person is going to remember five years from now that they had 2% of the company. Now, what you should have said at that was at that point in time, you’ll have 2% of the company, and we’re going to have successive rounds of capital, and eventually, you’re going to have a much smaller slice of the pie, but the pie is going to be much larger.

Harlan Jacobs, Genesis Business Centers: [00:22:50] I wish I could get most entrepreneurs, especially the people who come from a scientific technical domain, to understand that shares are issued in exchange for services and capital. And at some point in time, those shares have a percentage relationship to the total number of shares issued in outstanding. But get away from the concept of an absolute percentages. You don’t take percentages out of the corporate treasury and bestow them at sword point on someone’s shoulder. You issue shares of stock, and then you can calculate the percentages of ownership in a table.

Harlan Jacobs, Genesis Business Centers: [00:23:27] And that can get them in so much trouble because they didn’t intend to mislead anybody, but five years from now, when somebody has a big success, their attorney calls him up and says, “Well, John Jones or Susan Smith said, you promised them 2%,” and you have to make a settlement to make the problem go away.

Mike Blake: [00:23:48] That’s interesting. So, I imagine a lot of those cases is there’s that promise. That’s not even a written promise, is it?

Harlan Jacobs, Genesis Business Centers: [00:23:56] Right.

Mike Blake: [00:23:56] It’s just a verbal promise. And I think a lot of people don’t understand this. And again, I’m not an attorney either but I have seen it where that implied promise is, at least, enough to get you to court. You may not win, but winning a court case is distracting and expensive, right? And there’s just enough leverage. As long as you get a judge to take the case, then that person that claims that have received the promise, they all of a sudden have a lot of leverage.

Harlan Jacobs, Genesis Business Centers: [00:24:30] I think there was a movie made about a famous case in the last 10 years, but I’ll leave that to your listeners’ imagination to figure out which one I’m talking about.

Mike Blake: [00:24:40] So. I think a common misperception or just a common perception of startups is, I mean, they just can’t pay. And you’ve been working with startups for 27 years. I can’t imagine that they’ve done that all for free. So, I’m just going to put the question to you. Can startups pay?

Harlan Jacobs, Genesis Business Centers: [00:25:02] Some can pay a small amount initially, and some can offer you a generous amount of founder’s stock, and some can offer a generous stock option or warrant depending on whether you’re an employee or whether you’re an independent contractor. I caution everybody who’s inclined to take less than market rate compensation in cash that they should be mindful that the percentages are very low. The percentage of companies that have a liquidity event of meaningful return on capital could be as little as one out of a hundred.

Harlan Jacobs, Genesis Business Centers: [00:25:37] And so, I try to put it in perspective, I explain to them, you might have to work with a hundred startups over the next 20 years for which you take warrants, or founder stock, or options. And maybe one out of a hundred, maybe two or three out of a hundred will give you a return on investment. So, it’s not for the fainthearted, and it’s not for people who have to put braces on the kids’ teeth, and send high school students on to college, unless they’re independently wealthy to begin with.

Mike Blake: [00:26:07] So, you mentioned something I want to touch upon, and I hope we’ll spend some time here because I do think it’s important and it’s complicated. And that is you may very well be offered stock, or warrants, or options in lieu of cash payment. And in your mind, how do you think through that, whether or not you’re willing to accept them at all, whether you’re being offered enough, or if there are terms that are being sufficiently flexible that you can actually do something with them? Can you walk through how you think about that in terms of being offered equity, or what you think best practices would look like?

Harlan Jacobs, Genesis Business Centers: [00:26:47] Sure. Well, for acting CFO services and for helping a scruffy little startup to raise its first quarter million to a million dollars’ worth of capital, in the past, sometimes I’ve accepted 10 percent of the founders stock. I’ll give you a case in point, without embarrassing the company. I had a company that I once owned 5% of the company for a remittance of $50, and I now own 0.0005% of the company. The company had eight venture capital rounds, preference rounds, where the B investors had their way with the A investors all the way up to the only guys that had a decent percentage of the company with a final in the eighth round. Sad story.

Harlan Jacobs, Genesis Business Centers: [00:27:40] So, having said that, it didn’t turn out well, but I made the calculus up front that if I own 5% of the company, maybe by the time there was a liquidity event, I might have 0.5% of a very large pie. And if they sell the company for a couple hundred million dollars, you take 0.05% of that proceeds of the liquidity event, that might be a meaningful amount of return on investment and capital gains rates versus maybe the $25,000 that you could have received if they would have had cash and paid you at market rates at that point in time.

Harlan Jacobs, Genesis Business Centers: [00:28:22] So, it’s your classic trade-off. You can’t do it every day. And sometimes, what you have to do is a combined cash and warrants approach. And sometimes, you just have to insist on cash. And I’ve had cases where people have come back to me, literally, this year from 2012. They weren’t quite ready in 2012. And this year, they were finally ready. And I was grateful that they kept me in line and got back to me.

Mike Blake: [00:28:53] I think that’s important is just because you no to stock now, that doesn’t mean that that opportunity will come back around later, right? So, I think what’s also kind of interesting about the dynamic of that equation is you are giving sort of a signaling effect. If somebody comes to me for advice, or they want me to provide a service, they offer stock, and I say yes versus no. I’m, in effect, blessing that stock or not blessing that stock by being willing to exchange my time for it. And that can sort of lead to its own challenges in that conversation.

Mike Blake: [00:29:41] And maybe someone’s listening to this, and they’re offered stock, they really just don’t want stock, but they like to work with the company, can you offer some advice and kind of what you say or how you handle that conversation? They say, “Look, just because I’m not taking stock doesn’t mean I hate your company. It just means I’m not taking stock right now.” How do you handle that conversation?

Harlan Jacobs, Genesis Business Centers: [00:30:06] Well, in terms of the interpersonal dynamics, the diplomacy, the desire to maintain goodwill and cordial relations with the person, obviously, one has to be tactful. Sometimes, it’s just a matter of explaining the truth. My spouse won’t let me work for stock anymore. We’ve had a couple of wallpaper items we put on the wall, they’re decorative, and the stock wasn’t worth anything. And again, as you point out, you never know when the people might come back after they do have some funding. I’m not sure if that responds to your question. Would you mind going over it again?

Mike Blake: [00:30:48] Yeah. Well, I think we’re headed in the right direction. So, that the question simply is or the question is, there’s a risk of offending somebody to some extent when you decline to take stock in their company, right? I mean, they think their company is great. And of course, even if you’re going to work for the company, if you’re going to be an adviser, they have an idea in their mind, they would like you to believe in the company as much as they do, right? But I think that that’s not appropriate. I mean, it’s great if you do happen to share the founder’s zeal, and that’s great. But it’s not appropriate that an adviser or an employee necessarily have the same fervor and devotion to the company and to the idea of the company as the founder because nobody can act like a founder unless they’re a founder, right?

Harlan Jacobs, Genesis Business Centers: [00:31:41] Well, your points are well taken. Here’s one of the ways I helped put it in a framework that depersonalizes it and helps to make sure that the person’s feelings aren’t hurt or their self-image crushed. I explain to them, this is a rank startup. I said, “You’re going to need $250,000.” A person sometimes says to me, especially a scientific technical person, “What do you mean $250,000? I’ll work for free for a couple of months.”

Harlan Jacobs, Genesis Business Centers: [00:32:07] I said, “You’re going to need $50,000 of cash for the retainer with the patent attorney. You’re going to need $50,000 retainer with the securities counsel and general counsel who are not going to work for you until you pay them a cash retainer. You’re going to need to go to some trade shows and do some travel. And that’s going to be $50,000. And you’re going to need some walking around money, and money for deposits, and a few other things. These people are not going to take stock from you. You have to have cash.” And then, that puts it in a framework where I can become part of that professional or third-party milieu where we have to be paid.

Mike Blake: [00:32:45] Now, I’m fortunate. I have built it out because I’m a business appraiser, I cannot. I’m ethically prohibited from taking stock in a company because they create a conflict of interest. So, I’m fortunate. I have an automatic jail free card. So, there’s a school of thought that suggests that it may be worthwhile going to work for a startup just because of the experience that it will give you. Do you think there’s something to that? Is there something that putting some time in with a startup, even if the pay isn’t there, just because it would give you a chance to learn new skills that you wouldn’t ordinarily have the the opportunity to do?

Harlan Jacobs, Genesis Business Centers: [00:33:27] In an absolute sense, if a person can afford the risk or can literally afford not to have any meaningful compensation for a period of time, and they have a well-defined need to learn certain skill sets, and to firsthand experience the problem, stresses and frustrations of a startup company, then by all means, they should do that. I haven’t met too many people who wanted it as a merit badge or something to add to the resume that they’ve had firsthand experience of the frustrations and problems associated with the startup. They, more likely, are inclined to get involved because they’re excited about the project.

Harlan Jacobs, Genesis Business Centers: [00:34:10] That might be a golfer and it’s a new golf club. It might be a heart surgeon and a new heart valve. It might be a person who has an airplane and a guy or gal who’s taken an iPad and substituting that for the $50,000 instrument control panel that they’d otherwise have to buy. In those kinds of situations, it makes sense for them to maybe jump in and join. But just to add to your resume, I guess I would have trouble selling that to anybody.

Mike Blake: [00:34:41] What about using work with a startup in order to help build a network and a personal brand? And I can see two scenarios in which this might be plausible. One is you’re out of school, you’re just starting out, and you’ve got sort of a blank slate professionally. Or second, you’re sort of transitioning out of a more conventional role, and you want an opportunity just to start to meet the people in the startup realm, wherever you are. And that could be a local geography. It could be national. Is there something to a thesis of saying, “This is a way to jump start building a network in the space where I would kind of like to be in”?

Harlan Jacobs, Genesis Business Centers: [00:35:24] Well, it’s a great question. If someone were coming right out of college, and the employment market wasn’t very good, and he or she wasn’t burdened by immediate payback of a substantial amount of student loans, then they could very well say to themselves in good conscience, “Hey, why don’t I go to work for this local startup? Maybe they’ll pay me. Maybe they won’t. Maybe they’ll pay me minimum wage. And maybe I’ll get some stock. It’d be great experience. And a lot of people my age, people I have common interest in are there, and who knows where it could lead.” So, that might make sense.

Harlan Jacobs, Genesis Business Centers: [00:35:59] For the person who’s 45 to 55 years old, and has family obligations, and probably hasn’t fully set aside resources for retirement, I don’t think that would be well advised. So, it’s clearly tailored to a person’s personal resources, and risk level, and ability to handle frustration. It’s. tough.

Mike Blake: [00:36:25] Yeah. And when I hear people that do that, to me, it just says it’s a dressed up way of saying, “I’m doing an internship.” And if you can do an internship, that’s fine. There’s nothing wrong with it. But like you said, I think a lot of this, just like we talked about in our podcast, not about whether or not you should do it, but part of that thought process is, can you afford to do it, right? What is the opportunity cost of taking on that kind of responsibility versus pursuing something else?

Harlan Jacobs, Genesis Business Centers: [00:36:59] Sure. Can I go back?

Mike Blake: [00:37:01] Please.

Harlan Jacobs, Genesis Business Centers: [00:37:01] Could I go back to one of your other questions? I just wanted to add something to cases where I’m looking at an opportunity. Is it timely? May I do that?

Mike Blake: [00:37:10] Yeah, go right ahead.

Harlan Jacobs, Genesis Business Centers: [00:37:11] Okay. So, I have a rule of fives as to how I size up opportunities, especially as it relates to taking all the compensation as founder stock. And in a nutshell, it’s, does the company have world-class disruptive technology that has robust intellectual property, can be protected by a combination of patents and trade secrets? That’s one. Two, does the company have market prospects for being able to achieve a hundred million dollars of revenue at 60% or higher gross margin within five years of funding? It’s the second one.

Harlan Jacobs, Genesis Business Centers: [00:37:45] Does the company’s management team have a demonstrated track record of achievement in its scientific or technical realm? That’s the third. Does the founder’s team enjoy a good reputation and for integrity and the ability to listen and process advice? That’s the fourth. And the fifth one is, does the founder’s team have a commitment to a liquidity event in a reasonable time event horizon. Those are the five things that I apply when I’m doing my mental version of the Black-Scholes formula.

Mike Blake: [00:38:15] Okay. That’s a pretty good checklist. So, let me switch gears here. If you get involved in a startup, we talked about this a little bit, and I want to expand upon that, as we talked about, there are some risks. There’s a financial risk to some extent. There may be other risks. When you work with startups, how do you protect yourself to make sure that your risk is managed appropriately?

Harlan Jacobs, Genesis Business Centers: [00:38:53] Beside the earlier point about not taking check-signing authority and to protect my reputation, I try to do as much due diligence as I can on the science and technology, not as an expert, but I will go to people who know something about metallurgy, or somebody who knows something about biochemistry, or somebody that knows something about a particular global marketing opportunity. I may not always get sufficient information but, at least, I’ve avoided the possibility of overlooking something that, somewhere down the road, people will point to and say, “Why didn’t you know? Why didn’t you find out this or that kind of a thing?”

Harlan Jacobs, Genesis Business Centers: [00:39:36] One of the real tough things with entrepreneurs is you never know. You’ve just met somebody, and start doing a criminal history on them, and a bankruptcy search, and a few other things that are sometimes difficult or less unpleasant to do, you just never know what the person’s really like or really capable of. One of the risks to the entrepreneurial team is that, oftentimes, there’s a high incidence of family stress that can lead to divorce. I’ve met a number of entrepreneurs who are ultimately very successful. They’ve been through several marriages, and they’ve had problems with some of their children. And it’s that old saw, if they can mistreat their spouse this way or that way, maybe they’re going to eventually mistreat you as a professional. And when people are cornered, and they have real serious problems, you just never know what’s going to develop.

Harlan Jacobs, Genesis Business Centers: [00:40:45] Nothing’s perfect. You can never be fully protected. You just try to do your best with reference checking and checking on the technology. And I guess the bottom line, it makes it easier for me to accept a client after I’ve introduced him to three attorneys, and three CPAs, and three patent attorneys, and three bankers, and three insurance agents, and three of this, that, and the other, and I see that they’ve taken on a prominent attorney whom I respect and a prominent CPA whom I’ve respected, et cetera, et cetera, and they are they’re associated now with good professional people to give them good, strong professional advice. That helps me to get a better comfort level, and it also increases the chances that there will be guardrails that will keep these people from going over the cliff.

Mike Blake: [00:41:37] And what about documentation and contracts? Do you think that’s a big part of that too to make sure that your scope is limited and there’s some sort of indemnification where possible?

Harlan Jacobs, Genesis Business Centers: [00:41:47] Absolutely. I find good fences, make good neighbors, and I explain to them, “Here’s what I’m going to put down on a piece of paper. Here’s what I’m prepared to do. And this is the compensation I’ll accept. And these are the contingencies, and the terms and conditions under which we’re going to operate.” And in my case, I have to explain to them that I may have two, three, four, five, or six parties for whom I’m providing similar services at the same time, but they’re not directly competitive, and there’s no conflict of interest. And on any given time, you might call me with an immediate problem, and I might be unable to give you immediate attention, and you just have to understand that it’s kind of like being a cardiologist in a small town, not everybody’s going to have a heart attack at the same time, but if they do, how do you spread yourself around?

Harlan Jacobs, Genesis Business Centers: [00:42:39] So, you do your best, you have a written agreement. And to extricate yourself from what could be a difficult situation, I always try to make an initial term that has limited duration, so that if I can see things aren’t working out very well, then we just don’t renew because a renewal requires bilateral mutual agreement to renew. And if I declined to renew, then it’s easier that way than just to pick up the phone all of a sudden say, “Hey, I’m just not comfortable. I don’t want to keep working with you. Goodbye.”

Mike Blake: [00:43:14] Yeah. And the contract part, I want to to pause on that for just a second because I think one can be lured into not having documentation when you really should. One, because the startups don’t want to deal with it, right? The startups sort of take as a badge of honor this, “We operate loosey-goosey. We operate out of the lines of of of normalcy. And we don’t care about rules and everything else.” They may also be run by 24-year-olds that don’t know anything, and haven’t had the bruises, and broken bones, and scars that come from not signing agreements.

Mike Blake: [00:43:50] And I think if you don’t come from that world, you can be lulled, you can be seduced, really, into thinking, “Well, that’s just the way startups are. We’re not going to sign agreements. And we’re all just going to do handshakes, and exchange Twitter accounts, and everything’s going to be great.” But for most people, some sort of documentation of the nature of your relationship, and where your liability and responsibility begins and ends. Don’t give in to the temptation to sort of throw that out the window. That’s worth keeping.

Harlan Jacobs, Genesis Business Centers: [00:44:24] That’s good advice. One of the other things I do oftentimes before I’ve accepted a consulting assignment is I will meet with people for coffee and give them some advice over the phone. And I’m always careful to explain to them, “I’m going to help you at this point in time up to a certain point. And for these services that are gratis, I’m happy to help you. At some point in the future, I’m going to come back to you and say, ‘Okay, the introductory period is over. If you’d like to have ongoing services, then, now, we need to have an agreement for services.'” And by telling them that in advance, and then by actually doing some things that are hopefully useful for them, and they appreciate it, it’s more likely that they’re going to take me up on the consulting assignment at the future point.

Harlan Jacobs, Genesis Business Centers: [00:45:15] So many of them are afraid that they signed a contract with you, and you take the retainer, and you do nothing. And I can understand that anxiety on their part. So, I always like to help people with a little bit. And then, if I’ve actually done something pretty good for them, and I say to them, “Okay, now it’s time for the contract,” and they say, “No, thanks,” then, I look up and I go, “Thank you,” because I’ve just found out that this is one of those persons who’s a taker and believes in a sense of entitlement, and I’d rather know that now than a year and a half from now. So, “Thank you. Good luck to you,” and that’s fine.

Mike Blake: [00:45:53] So, that touches on another point. We’re talking with Harlan Jacobs, and we’re talking about working with startups. And I can’t speak for the Minnesota environment but down here in Atlanta, we do have, I think, a very strong pay-it-forward environment here. Many of us who have experience will make ourselves available to give advice and support to startups. I’ve had monthly office hours for a long time. And I’m curious what you think about that model. Is that something you’ve ever done yourself? Have you seen others do it? Do you think it makes sense? Do you think it’s crazy? What does that sort of thing kind of sound like to you?

Harlan Jacobs, Genesis Business Centers: [00:46:37] Well, first off, I compliment you for being part of a community here that does that and for you yourself doing it. That’s a common ethos here in Minnesota. In fact, we’re the home of what’s called The 5% Club, where major corporations, starting with Pillsbury and General Mills, gave 5% of their pre-tax profits to charity.

Harlan Jacobs, Genesis Business Centers: [00:46:58] Now, as to in-person service, paying it forward, paying it back, yeah, that’s part of our ethic, our social ethic here in Minnesota. And I think it’s great. And it helps us to make up for the fact that we’re not a bastion of venture capital. I’ve seen great ideas here fail to get local funding, and these things would have got funding in Silicon Valley; and therefore, they need a lot of extra coaching and talent.

Harlan Jacobs, Genesis Business Centers: [00:47:26] Another problem that we have, which we try to overcome in the mentorship thing, is in Silicon Valley, you fail, and that entitles you to a hearing with the venture capitalists to do another deal. In Minnesota – I don’t know what it’s like in your community – you still get this … remember the book, The Scarlet Letter? Here, you get a scarlet F on your jersey for failure, and you hardly ever get a second round of capital from anybody for your next company if you’ve had a failure in your first company. And that’s a problem that we have here, and it requires extra care and attention on the part of those of us who can help these people.

Harlan Jacobs, Genesis Business Centers: [00:48:05] I was going to be an actuary, and in college we had to study statistics. And I remember a type two error is the rejection of a valid hypothesis. And I’ve seen so many valid hypotheses go unfunded here. In fact, I have companies in the medical device realm, helped them get started in 1996, and they’re still looking for more funding, and the technology is still viable. There’s been no shelf life for it. So, you just have to keep helping these people, whether it’s their first time or whether they’ve been at it for a period of time. It might sound arrogant to say, but it’s sort of a modern-day version of noblesse oblige. If you’ve benefited from other people’s help, it’s time for you to help other people.

Mike Blake: [00:48:51] Yeah, we have a similar concept. We try to push the buttons of the elevator that goes down to pick the next guy up. But we do have that scarlet F here as well, which is unfortunate because I don’t know if there’s any better education than a business failure. And in fact, one of our early podcasts, Miles King came on, I want to say it’s podcast number 12, or 13, or 14, something like that. And he was on a program whose title was “Should I Close My Business?” And he’s had to close a couple of businesses, and he was a courageous guy to come on, and was willing to sort of lay it out there and talk about the failures.

Mike Blake: [00:49:32] And one thing he made very clear, and I’ve learned about him as I’ve gotten to know him, is that the success that he enjoys now is a direct result of what he learned from the previous failures. He didn’t raise external capital. He just simply worked his ass off and bootstrapped it. But I remember when I asked, his first venture was a pizza restaurant and it failed. And I said, “What was your thought process about starting another?” He said, “I had to start another one. Otherwise, everything I invest in the education in the first one would have gone to waste.” And, unfortunately, that’s something only time is going to figure out. There are very few places, unfortunately, that celebrate failure, that see that as the education that it is. And unfortunately, this got to sort of take time.

Mike Blake: [00:50:26] Harlan, we’re running out of time here, and I want to be respectful of your time and, of course, that of the audience. This has been a neat conversation with a lot of good nuggets in it. If people like to contact you for more information to carry on this discussion, can they do so? And if so, what’s the best way to do that?

Harlan Jacobs, Genesis Business Centers: [00:50:45] Sure, I’d be very pleased to hear from any of your colleagues and viewers. Telephone number is 612-701-8153. And the email address is harlangenesis@mac.com. And I’m on LinkedIn. And I guess that’s probably the best way to try.

Mike Blake: [00:51:11] Well, thank you. That’s going to wrap it up for today’s program. I’d like to thank Harlan Jacobs so much for joining us and sharing his expertise with us. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

J.D. Mealor with Regions Bank and Luke Jeraci with USHEALTH Group

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Steven Julian, J.D. Mealor, Luke Jeraci, Mike Sammond

J.D. Mealor/Regions Bank

Regions Financial Corporation (NYSE:RF), with $144 billion in assets, is a member of the S&P 500 Index and is one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, and mortgage products and services. Regions serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,400 banking offices and 2,000 ATMs. Regions Bank is an Equal Housing Lender and Member FDIC. Additional information about Regions and its full line of products and services can be found at www.regions.com.

Luke Jeraci/USHEALTH Group

USHEALTH Group is flexible, affordable and secure. Their full portfolio of plans lets you tailor coverage to YOUR needs and you can rest easy knowing that:

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Decision Vision Episode 90: Should I Franchise my Business? – An Interview With Lauren Fernandez, The Fernandez Company

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Decision Vision Episode 90:  Should I Franchise my Business? – An Interview With Lauren Fernandez, The Fernandez Company

Lauren Fernandez of The Fernandez Company joins host Mike Blake to discuss what considerations business owners should weigh before becoming a franchisor, the legal foundations a franchise organization must establish, the success factors in running a franchise organization, and much more. “Decision Vision” is presented by Brady Ware & Company.

Lauren Fernandez, The Fernandez Company

The Fernandez Company specializes in helping restaurant brands grow from 2 units to 20 and beyond. Lauren Fernandez is fully immersed in the restaurant industry as an operator, developer and executive with deep business and industry understanding. The Fernandez Company generates new revenue streams for companies, particularly in the food & hospitality industries. They diversify revenue streams outside the four walls of a restaurant by creating new channels of revenue in the areas of organic expansion, franchising, product development and licensing. They create this growth for their clients through  their process of strategic consulting, management support and investment.

Learn more at their website.

Mike Blake, Brady Ware & Company

Mike Blake, Host of the “Decision Vision” podcast series

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast.

Past episodes of “Decision Vision” can be found at decisionvisionpodcast.com. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

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Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Mike Blake: [00:00:21] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owners’ or executives’ respective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.

Mike Blake: [00:00:40] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia. Brady Ware is sponsoring this podcast, which is being recorded in Atlanta per social distancing protocols. If you like this podcast, please subscribe in your favorite podcast aggregator, and please consider leaving a review of the podcast as well.

Mike Blake: [00:01:05] Today’s topic is, Should I Franchise My Business? So, we’ve had conversations about franchising before. Mainly, the one that I’m thinking of is with Anita Best. It was very early on in the podcast series. I think she’s in the single digits. And she’s a person that is an expert in helping people find a franchise to buy into. So, if you want to become a franchisee, how do you figure out the right one? And if that interests you, please go back and listen to it. It’s a good, informative show.

Mike Blake: [00:01:41] But being a franchisee is only one-half of the equation. The other half is, should I become a franchisor? Which means that you’re going to make your business and your business model available to other people that would like to participate in it in a hybrid sort of operational and ownership way.

Mike Blake: [00:02:08] And franchising is actually kind of interesting. I did a little bit of background research. Uncharacteristically of me, I did some background research prior to this interview. And it turns out that franchising actually dates back to the medieval Catholic Church. It turns out that the initial territories, if you will, or dioceses, as we call them in Catholicism, were apportioned in Europe in a way that were set up effectively as franchises, including a certain portion of revenue generated by that church would be sent back to, for the most part, the Vatican. The seat of Catholic Catholicism was in Southern France for a brief period of time, but mostly to the Vatican. And of course, in exchange, the Vatican lent the brand name of Catholicism, and the rights, and rituals, and so forth, and all the other things that Catholicism brings to the table.

Mike Blake: [00:03:07] So, I had no idea that franchising goes back that far. And that’s a far cry now from starting a McDonald’s franchise, or a car wash franchise, or a dry cleaning franchise, but it just goes to show you that that business model has been around for a very, very, very long time. And anything that lasts that long probably has something going for it, despite all the change that’s occurred.

Mike Blake: [00:03:38] So, clearly, it’s a topic that’s worthy of discussion. And I have a feeling that there are some folks that are in businesses right now, either as an owner or as a key decision maker, that are thinking about the issue or the question, should I franchise my business? So, I have leant with you the sum total of my expertise on this topic, and that means we have more time to fill in the podcast.

Mike Blake: [00:04:01] And today, joining us to fill that time with expertise is Lauren Fernandez of the Fernandez Company. They are simple, effective and elegant, providing growth solutions for food and hospitality. At the Fernandez Company, they generate new revenue streams for companies, particularly in the food and hospitality industries. They diversify revenue streams outside the four walls of a restaurant by creating new channels of revenue – and we’re going to talk a lot about this – in the areas of organic expansion, franchising, product development, and licensing. They create this growth for their clients through their process of strategic consulting, management support, and investment.

Mike Blake: [00:04:38] Lauren is the founder of The Fernandez Company. The culmination of over a decade of practice as a trusted brand consultant and legal adviser with all kinds of clients from startups to multinational companies. Lauren started the Fernandez Company after starting funding with private equity and selling an eight location restaurant chain at a substantial return. She consults with companies on all aspects of restaurant and franchise development, brand licensing, product development, and market implementation. She focuses her practice on regulated industries, particularly in the food and drug space.

Mike Blake: [00:05:10] Before forming the Fernandez Company, Lauren served as the general counsel for Focus Brands, where she was instrumental in the rapid growth of the licensing program. Prior to joining Focus Brands, she was part of an elite team at Novartis CIBA Vision that successfully launched the company’s first new product in over a decade. She started her career in one of Atlanta’s most respected intellectual property boutiques, Gardner Groff. Lauren holds an undergraduate degree from Stetson University, as well as a juris doctorate and MBA from Emory University. She serves on the advisory board for the Atlanta Community Food Bank. She’s also a dedicated fundraiser for the Leukemia and Lymphoma Society and was named the 2015 Woman of the Year for raising $95,000 in less than three months for cancer research. She’s a native of the Tampa Bay area but has lived in the Atlanta area for over 15 years. So, she’s almost accepted as a near native. But she’s native to our hearts and native to the podcast. Lauren Fernandez, welcome to the program.

Lauren Fernandez: [00:06:06] Thanks for having me. That was quite an intro there.

Mike Blake: [00:06:09] So, before we jump in, I want to ask you this, $95,000 for cancer research. First of all, thank you for doing that. My mother is a two time cancer survivor. What motivated you to do that?

Lauren Fernandez: [00:06:27] Well, it’s actually a very personal cause for me as well. In the early years of my law school education, my mom actually passed away from an extremely rare lymphoma. And for years I wanted to do something to help fund research. And as you know, there are hundreds of different types of blood disorders that are classified as leukemias or lymphomas. And the research, because there are so many differentiated different blood cancers, it is very difficult to tailor research to actual treatment plans. And one of the things I love about Leukemia and Lymphoma Society is they put those dollars that we raise almost dollar for dollar directly into tailoring research to effective solutions to target cures for these cancers.

Lauren Fernandez: [00:07:13] And I’m so pleased that we were able to fund not one, but two separate research studies that directly targeted T-cell lymphoma, which had affected my mother. And the survival rate for that cancer in the last 15 years has shot up from nearly four percent, which is abysmal to the double digits, which is fantastic. So, I was very blessed to be a part of that and to use my network and my friends and family to help us all fundraise, to fund those two research studies. It was very important.

Mike Blake: [00:07:46] Yeah. It’s remarkable. And I’ve noticed, I don’t know anybody who’s suffered with that particular cancer. But there’s been a lot of progress there. And that’s one area of cancer where there’s a lot of movement, too. So, again, thank you for contributing to that success.

Lauren Fernandez: [00:08:02] It’s my pleasure.

Mike Blake: [00:08:02] So, getting into your area of expertise, let’s help people understand that may not necessarily be expert. What does it mean to move into a franchise model? And how does a franchise model differ from other, maybe, more conventional business models?

Lauren Fernandez: [00:08:21] Right. So, franchising is actually a little bit of an American invention in terms of its legal structure and recognition and regulation. The United States is pretty much the leader in the law defining a franchise. We have the FTC in the United States who helps regulate the disclosures attached to franchising. But it might surprise most people to know that on a state by state basis, that’s where we look to for the governance regarding business relationships and specifically franchises. So, there’s about 15 to 16 states that have specific franchise rules and disclosures that are tailored to that type of business model.

Lauren Fernandez: [00:09:07] So, what is it exactly? Well, the true answer is it varies a little bit from state to state. But in reality, we can talk about it generally in the common denominators of what forms of franchise. So, a franchise is generally defined as three key elements. One, you have the brand. You have the trademark. And that trademark is licensed to an individual who, two, wants to use a proprietary system to run a business. And three, that person who has the system, i.e. the franchisor, is the person who’s controlling the quality and the execution of that system. So, there are some quality controls and guidance that are provided along with the ability to and the license to use the brand and the System.

Lauren Fernandez: [00:09:54] Now, when we say the System, we use that term kind of capital S, System. What does that really mean? Well, it could be anything, like if you’re in a restaurant, it could be methods, it could be floor plans and designs for the restaurant, it could be recipes, menus, interior decor, operational training, et cetera. Often you will also see franchisors manage things like marketing through a marketing fund. So, the idea here is that you are taking a workable, ostensibly profitable business model and licensing it for your use as an entrepreneur. So, it’s kind of like being an entrepreneur, but with guide rails, if you will.

Mike Blake: [00:10:37] And that’s interesting because I think that’s a very important point that I want to highlight, because I think when most people start to explore franchising, they think about the brand. Because the brand for us, as consumers, is a front facing part. But the part that strikes me that is actually the harder part to really nail down is that that system that you’re going to sell and then put people in a position to execute with their own dollars. So, I’m glad you mentioned that, because I think that’s a very important kind of learning point for our audience. So, if I have a business now and I start to think about franchising, I’ve heard about it from someplace. In your experience, what motivates people to start to consider franchising? Why are people asking you about it? Why are your clients asking you about franchising?

Lauren Fernandez: [00:11:30] This is a great question. And this is just my instincts and from many years of talking to people who are interested, I believe it’s because they are genuinely interested in growing their revenue and growing their business, whether it’s a restaurant or a service industry, et cetera. And that just is the most common way that they know of or have heard about, whether it be through television or movies or they’ve seen other success stories on Shark Tank, et cetera. And so, they think that that is the natural way to necessarily grow their business.

Lauren Fernandez: [00:12:10] However, I like to ask the why question. Why are you looking to grow? What’s really behind that? Do you need an exit strategy? Are you not making enough money? Do you need to fund two kids going to college? I think when you really spend time – and in our case with our clients, this is at least a two hour interview where we spend a lot of time getting to know them and their goals. And then, I think the question is, is franchising the appropriate fit for growth if that’s what we’re going for? I would say about 90 percent of the time you hear two things when we ask that why question. They want to grow their business and they want to make more money. But it doesn’t necessarily always follow that franchising is the right answer. Because with franchising, there’s a lot of other things that you have to consider, including supporting a franchise system, operational costs, loss of control to some extent, et cetera, that I think lots of people don’t necessarily think of when they consider franchising.

Mike Blake: [00:13:14] And I suspect – and you tell me if I’m wrong – at the end of the day, a lot of this boils down to the prospective franchisor is trying to figure out how to achieve scale and probably try to do it relatively rapidly, right? At the end of the day, to me, that’s what that sounds like. Am I off base or is that close to being right?

Lauren Fernandez: [00:13:33] I think sometimes that’s one of the reasons. But, ultimately, I think, again, that why question, yes, there is always ways to grow your business and to create scale in your own business without necessarily engaging in franchising as the appropriate model. And so, for us, even especially having been a franchisee myself and an owner-operator, I think really understanding their pains and their day to day operations, like what’s really going on? Why do you feel like you can’t scale it yourself? Why do you feel like you need other people to partner with you as franchisees in order to achieve scale? I think really driving down in those deeper questions gets us really to the problems they’re facing so we can solve them better. Because I will say this, while, franchising, I very deeply believe in it. I think it’s a wonderful way to kind of harness the American entrepreneurial spirit. It provides viable growth for a lot of different people, both the franchisor and the franchisee. It is not always the answer for growth. There are many different ways you can grow your business.

Mike Blake: [00:14:40] So, I want to dive into that here. I haven’t ripped off the script in a long time, but I’m going to rip it up a little bit today, because what you’re describing to me is that that process or the thought process, at least, when you consider franchising, it sounds like maybe a symptom of potential issues in the company that franchising is not going to solve the problem, in fact, it may make it worse. It sounds like that probing that you do helps identify whether or not the problem they’re solving is even franchise appropriate. And by definition, I guess, can be solved externally as opposed to something that really is an internal problem. Is that fair?

Lauren Fernandez: [00:15:22] No. I think you absolutely nailed it. And it’s not to say that there are people out there who are ready to franchise and who are good to go the minute they walk in the door. But in my practice, one of the things we do is our initial consulting in the first three to six months is, what I would call, tidying up. We go into the business, we really start to understand it, and we solve for what we know will be problems later. Because you cannot copy, paste, repeat and rapidly grow, whether it’s through your own organic growth or through franchising or any other channel, unless you really clean up the house and the foundation is strong.

Lauren Fernandez: [00:16:01] And so, in my experience, we see three things almost every single time when we go into a business that need correction or need tightening, if you will. One is, you’ve got to clean up the books. You have to have really daily available, accurate accounting. You’ve got to be able to show very key metrics. And I’ll use restaurants as an example, since that’s my wheelhouse. You’ve got to be able to, obviously, show the daily sales. You’ve got to be able to show your daily food costs, your daily labor costs. And you need to be running on what you think a target profit margin should be and show those numbers over time. Because if we don’t know those numbers, we can’t diagnose and show room for improvement. And we need to be able to show profit margin over time or else who’s going to want to buy your business as a franchisee if it’s not making significant amounts of money.

Lauren Fernandez: [00:16:55] The second thing is we tighten up operations. And sometimes that’s the people piece and making sure that the H.R. is all buttoned up and the risk is managed. That, from an operator’s point of view, if you can’t easily teach somebody else how to do it with a manual, with SOPs, with charts, and basic instructions, you’re not ready to franchise yet. And that’s usually not a huge hurdle. We just need to document, document, document. The third thing is you’ve got to define the brand. Sometimes there’s a little work to be done on making sure the brand messaging is clear, the design is clear. It’s really consistent and it’s differentiated so that when you move to market, that value proposition to a prospective franchisee is there. So, there is some work to be done, yes. When people come and do actually decide the franchise, we still spend a significant amount of time on, what I would call, that sort of tidying up period before we even really get to the growth plan and whether or not that involves franchising.

Mike Blake: [00:18:03] All right. So, let’s fast forward a little bit and say that somebody has made it through those three gates, if you will. And so, “Okay. I agree. Let’s go ahead and launch this franchising model.” At a high level, what do the steps look like to get from I’m not a franchise yet into now we’re a franchise?

Lauren Fernandez: [00:18:29] Right. So, there’s a significant amount of the cleanup, as we just discussed. But then, you really need to make sure we’ve got the legal foundation there. And I think there’s a misconception that this costs hundreds of thousands of dollars or that it costs, you know, even $50,000. It’s just not the case. So, you need to check some legal boxes. So, typically, that involves a federal trademark filing to make sure that the trademark is secure and available for use. And that you can protect those rights and the rights of others to use the system. Because, inherently, a franchise is a trademark license, first and foremost. So, buttoning up that kind of brand itself with the legal function of the trademark is very important.

Lauren Fernandez: [00:19:12] You know, there are franchise agreements that are required and also franchise disclosure documents, which, as I mentioned earlier, are regulated by the FTC and also 15 or so states. So, those legal documents provide the foundation of the relationship between the franchisor and the franchisee. And it starts from the minute that you engage them in a sales discussion. So, really, I think the foundation there is necessary.

Lauren Fernandez: [00:19:40] And then, as a secondary step, we like to educate our clients on what it means to be a franchisor. What it’s going to look like in a year, in two years, in five years as the company grows. And that includes, in the very early stages, making sure that they get their mission as a franchisor to become a good partner for franchisees. And they understand what transparency looks like and what it really means in a legal and practical context to be a franchisor and try to sell to a prospect. I think that those are really key initial first steps for anyone who’s building a franchise system.

Mike Blake: [00:20:22] And that disclosure document sounds to me like it looks fairly similar to a placement memorandum or an information memorandum for companies that are going to go out and raise capital. I don’t know if you’re familiar with those.

Lauren Fernandez: [00:20:36] Yes.

Mike Blake: [00:20:36] So, is that fair they’re fairly similar? They have some similarities.

Lauren Fernandez: [00:20:40] Yes. There’s a defined structure that’s outlined by the FTC that governs the shape and form of what’s called an FDD, a Franchise Disclosure Document. And, again, there are states out there that have additional disclosure requirements. So, you will often see one universal or nationwide FDD with several writers for each individual state. So, it is a checkmark, if you will. But it is essentially the four walls of your ability to sell the franchise. Because, ostensibly, you should not be discussing anything about the system or making any claims or forward looking statements about the franchise system other than what’s fully disclosed in that FDD.

Lauren Fernandez: [00:21:26] So, for sales people, including the original owners and the franchisor and their team, it’s very important that they understand the legal requirements behind that. And that, also, that they work with you and the legal team in producing an FDD that’s meaningful and substantial so they can talk about the brand and that there is decent substance in the disclosure. Because we like to operate in the light, I think that’s just the best way to roll. So, we try and make the FDD, not just to legal check the box, but more so a legitimate living sales document that helps the team not only sell into prospects, but helps prospects really genuinely understand the opportunity.

Mike Blake: [00:22:09] So, can you give an estimated timeline, and it can be from maybe the idea of having a franchise or maybe after they go through your cleanup process – maybe that’s better but I’ll let you decide – what does the time timeframe look like between, you know, deciding that you’re going to launch a franchise to actually having it out there and be available for potential franchisees to buy into?

Lauren Fernandez: [00:22:37] That’s a great question. So, our process involves that initial tidying up or cleanup period, which is somewhere between three and six months. A lot of that time is usually spent either in operations or buttoning up the accounting, cleaning up the finances, et cetera. And then, as a secondary stage, we go through what’s called a growth planning process. So, it’s a little bit more strategic. We sit down and we talk about goals, visions, planning, et cetera, and talk about the end game. And assuming that franchising is a part of that growth plan, then we go ahead and start the legal process of forming those documents. That’s about a two month process. The documents that need to be registered with various states in which you plan to sell the franchise. So, I would say all said and done that that whole process usually is somewhere between ten months to a year before it can be offered to the general consuming public.

Mike Blake: [00:23:33] And do you typically kind of have a suggested budget in mind? How much should a company plan to set aside to kind of go through that process?

Lauren Fernandez: [00:23:46] That is a wonderful question. So, a really good benchmark that we give to people is we assume that they’re making a certain number, a certain amount of profit margin. Because as I discussed earlier, in my opinion, if you’re not making a decent amount or profit out of your business, you probably have no business franchising it in the first place. But assuming they got –

Mike Blake: [00:24:06] Yeah. It’s like trying to solve a bad marriage with having a baby, right? I mean, it sounds like a really bad idea.

Lauren Fernandez: [00:24:14] Right. So, anywhere in the first year alone, we like to reserve about 20 to 25 percent of their annual profit margin in reserve for funding not only the legal documents that come of that, which is an initial upfront expense, but other expenses like state registration, sales, people, commissions, et cetera. So, there’s a decent amount of that, I would say, usually, north of $10,000 that’s legal in nature, whether that’s the sales disclosure documents, the FDD, the registration, the trademark registration, as we discussed earlier. Those costs are up front. But then, there’s some ongoing concern. There’s the people that it takes, the time that it takes to actually coach and manage and lead these franchisees to success. So, we also have to be thoughtful and considerate about who on the team and how much time it’s going to take to, for example, help a franchisee open a location, to train a franchisee at your headquarters, et cetera. So, there’s a decent amount of expense and I would say even more so than probably the legal expense and just the human capital and the time investment it takes to help franchisees.

Mike Blake: [00:25:27] So, I want to switch gears a little bit here. You know, you do everything you can to help. But then, a franchise, you know, at some point, it has to either execute or not or it has to thrive or not. And, of course, not all franchises, you know, succeed. I’m sure the ones you launch all do. But not every franchise succeeds. So, in your mind kind of post-launch, what are some of the differentiating factors that make a franchise launch successful versus not successful?

Lauren Fernandez: [00:26:06] This is a great question. So, I always say it’s not just about the horse that you pick, but it’s about putting it in the right race. So, there might be phenomenal prospective franchisees out there but they’re just not a good fit for your brand because, for example, your brand requires a very hands-on owner-operator. And the person that you’re talking to has a day job that they don’t want to leave and wants to treat the business more like it’s a check in the mailbox. And there’s nothing wrong with that. There are brands and systems for which that is the norm and it works. An example would be like a coin operated car wash. That’s a very different type of franchise system than, for example, owning a restaurant, which might be a lot more hands-on where you need to be the face of the restaurant. You need to be involved and engaged and be the mayor of your local community, et cetera.

Lauren Fernandez: [00:27:06] So, I would say when we see individual franchisee failures, largely, it is because it’s a mismatch between the system and the abilities or willingness of the franchisee to kind of buy into that, literally and figuratively. So, I do often think sometimes that you have to put the responsibility on both parties. So, while a franchisee may fail because it’s a mismatch or not a good alignment with the franchisee, there are instances of franchisors also not providing appropriate support in all of the areas where a franchisee would need it. It happens.

Lauren Fernandez: [00:27:48] I do think that there are some brands out there that franchise a little bit too early and it puts a lot of stress on a company to support rapidly growing franchise units who need that field business consultant. They need the marketing support. They need the customer service. They need the supply chain support. So, suddenly, the overhead for a franchise system to a franchisor can shoot up exponentially. I’ve seen numbers north of a million to $2 million a year in operating costs for 30 to 40, 50 units. And I think for a lot of franchisors, that kind of can take you by surprise if you do not have a properly laid out growth plan. So, unfortunately, it happens. I do not think that it’s the norm. I do think franchising as a system is a wonderful entrepreneurial spirit. Again, it gives people a chance to own their own business with the guide rails of someone else’s experience and expertise helping you along the way.

Mike Blake: [00:28:56] Good. So, this segues nice in a question I want to address with you, because it’s, in my experience, a very controversial topic. I think you have a lot to contribute to that. And that is, that I suspect that you’re aware that the the Small Business Administration website has a list of failure rates for SBA loans by franchise. And I didn’t look. I should have. But I think they kind of list their lowest 50 failure rates and their highest 50 failure rates. And, you know, some of the failure rates are quite striking. I remember the last time I looked at it, the highest failure rate was something in the 70 percent. And I think it was one of those ice cream places where they dump a bunch of ice cream on a cold table and mix some M&Ms or something inside a $10 ice cream cone. But my question is this, are you familiar with that list? And do you think there’s any validity to it at all in terms of the metric of the relative strength or business viability of one franchise system versus another?

Lauren Fernandez: [00:30:10] This is a phenomenal question. And it is controversial, right? I will just start with a general comment. So, in franchising. I think that there is a tendency to have what we will call fad franchises. So, there was a hot moment where, like, you could not open a pizza joint fast enough, then it was froyo, then it was mix-ins, like you just used the mix-in yoghurt example. Then, it was burgers. You remember there was, like, designer burgers on every corner. So, it’s driven by people. And so, when there are food demands or trends in the marketplace, you often see quick to act and sometimes well-positioned brands out there to benefit from those food trends in the marketplace. So, one of the current trends is poke bowl everywhere. Everywhere is a poke bowl, fresh tuna, rice, avocado, and a bowl. And it’s moved from the West Coast to the East Coast. Another trend right now, huge one, is ramen. There’s ramen everywhere.

Lauren Fernandez: [00:31:16] And so, occasionally, what you will see is there’s a glut in the marketplace where there are some initial first movers that are usually established brands who know what they’re doing. And they’re out there to kind of ride the first wave of that trend in the marketplace with consumer taste and diet. And then, you see the second movers, right? You see, like, these brands that just want to jump on that wagon very quickly and sell as many as possible as quickly as possible. So, when we’re looking at failure rates, I think sometimes what I quickly spot are those fads or those trends falling out of favor with the American public. You just see things not being as popular anymore as they once were or the fad is over. It’s just done. And so, there’s so much saturation in the marketplace with competing brands to serve that hunger in the marketplace, for lack of a better word, that eventually not everyone’s going to survive. And the brands that do survive are usually the ones that are more nimble, but also more mature and can respond to the changing diet in the marketplace or the changing tastes.

Lauren Fernandez: [00:32:23] The other thing that we see sometimes is, again, not a proper filtering or selection for prospective franchisees. So, that mismatch is happening and that’s why you have to have very specific guidelines for your sales team and a clear understanding of what a good franchisee looks like for your brand. And I think sometimes that means that the growth rate isn’t quite as exponential as what you might see in some of these other brands. But for the long term relationship, it’s the right thing to do. And I firmly believe in that. I think most people don’t catch this. But just like commercial real estate leases that are north of 10, 15, or 20 years, franchise agreements often run in similar length terms. So, you are signing up for a long term relationship with these prospective franchisees. And so, getting that match right is extremely important.

Lauren Fernandez: [00:33:24] You know, I think the third thing I will leave with is, part of that screening process is proper capitalization. Making sure that your franchisees have the amount of liquidity and proper balance of liquidity to leverage the debt to open these units. Because it’s not just about getting the doors open. You have to have available cash in reserve to maintain good inventory levels, to fix things that break, to hire the right managers, et cetera. So, there are estimates and FDDs that will give a prospective franchisee an idea of the low and the high. But I think screening to make sure that that available capital is really there and it’s a mix of capital and debt, if necessary, is really important. Because you’re going to cut off a lot of these issues before they even start when you do that.

Mike Blake: [00:34:21] You know, you said something in that answer that I just I think is so smart that I want to extract that because it has application, not just to this particular topic, but I think business decision making in general. And that is, that sometimes the best deal is the one you don’t make. And defining your business, not in terms of what you do, but what you won’t do or whom you’re going to exclude because they’re not a good fit or they’re not ready. As opposed to, you know, “Hey, can I come.” Sort of being the online ministry of franchisors or anybody who signs up is now ordained. So, I think that’s so smart and that the selectivity of the franchise – and any business, I think – means so much.

Mike Blake: [00:35:17] In my own business, one of most liberating and best decisions I made was I decided there’s certain kinds of assignments I don’t take on. I’m not good at them. I don’t enjoy them. They operate in a way that is immensely disruptive to my natural workflow. And there are people that do them way better than I do and will refer me work back, so I just refer them out. And I think encouraging anybody to decline customers that just aren’t a good fit. You know, listen to that inner voice saying, “Yeah. I’m not sure they’re the right one.” In my own experience, I’ve never turned down a client and then regretted that and wanted them back. And I’m not turning this into Mike Blake interview, but I wanted to raise point because I think that’s so important that it comes out of the franchise model because as general application. What do you think about that?

Lauren Fernandez: [00:36:14] You know, I have seen it across multiple brands. And some of the most successful growth stories that I’ve seen with brands that I’ve worked with come from exceptional leadership at the top. A vision to treat franchisees as partners and long term partners. And franchisors who are constantly asking the question, is what we’re doing today good for the franchisee? Is it good for the System – capital S? And, also, who invest in really high quality sales people who understand this about their brand.

Lauren Fernandez: [00:36:51] And I’ve worked with some phenomenal sales professionals at my time at Focus and since then. And I think that that sometimes makes all the difference because when they’re interviewing prospects, they know what to look for and they have a long term vested interest in not just selling a quick deal. They’ll sell the right deal to the right person. And those are the people that I keep going back to for continued sales growth. I trust them. I trust them to bring me the right qualified prospects. Because I don’t want to put the wrong people in front of my clients either.

Lauren Fernandez: [00:37:28] It’s the same with investors, even as a franchise or if you take investors, we do the same level of screening. Is it the right person to be a partner with us long term in the growth of this brand? I think that the same applies there too. You want to bring quality investors who understand the mission, who understand the trajectory of the growth plan, who are going to push a different agenda, and who are in the boat rowing in the same direction. And I can’t highlight that enough. I think when you’re in a system, franchising by definition, again, it’s a long term, mutually beneficial relationship. So, you got to know who you’re getting into bed with, right? You got to know and you got to choose wisely.

Mike Blake: [00:38:18] Yeah. A question I want to make sure that we get to is, you know, it strikes me with a franchise is that once you move from, presumably, a single location – or maybe not a single location – but a self-contained business model to franchise, you probably have to develop new skill sets. The things that made you successful as a self-contained business may need to expand or may need to change for the ones that are going to make you a successful franchisor. Do you agree with that? And if so, what do some of those new skills look like?

Lauren Fernandez: [00:38:59] So, wonderful segue. I think, here, one of the things I would highlight is the best franchise brands that I’ve seen, you see an owner-operator really become a leader of a community. So, they go from being the mayor of their one or two restaurants, for example, to being the leader of their entire brand. And there’s a level of camaraderie, inclusiveness, and transparency in that leadership that inspires everyone to do better.

Lauren Fernandez: [00:39:36] And I think that there is an element to this of – again, I’m using the restaurant terminology here of the owner-operator, where you’ve walked the walk and you talked the talk. So, you know what it is when the fryer goes down and what that means at lunch rush. And so, when the franchisee complains that the equipment keeps breaking, you don’t say, “Well, tough, it’s the equipment package.” You know that you’ve got to find a solution and your solution is based in your own practical experience. And I think those kinds of simple, and elegant, and down to earth solutions are really what define the best franchises because the leadership is in the trenches with the franchisees. So, I think if I could identify one type of skill set that is a must have, it’s that type of leadership. It’s the servant base with you all the way kind of leadership.

Mike Blake: [00:40:35] You know, that’s interesting. I’m not a franchise expert, as I’ve said, but I’ve observed that some franchises, in a way, have a multilevel market. I’m sure you’re going to cringe as soon as I bring that in, but let me finish. Is that some franchises do develop almost a cult of personality around the founder and a cult around the brand. And that they have huge – did, anyway, before the virus wrecked everything. But they had huge annual conferences, and trips, and contests, and internal recognition, and who’s the best franchisee in this region for whatever characteristic. And, you know, I hadn’t really thought about that but you’re right that, you know, there are a lot of franchises that really do place a high premium on strong leadership.

Lauren Fernandez: [00:41:36] Yeah. So, Mike, to that, I will say, I think that’s a little bit of a double edged sword, too. Because if you build the cult of personality around any leader, whether it’s the founder or the hired and gone CEO, what have you, you run the risk of that not being fully scalable. And, you know, you’re putting all your eggs in one basket. But the best leaders I’ve seen create this community with an entire executive team. They are experts that recruiting in talent and making sure everyone’s compass is pointed north and is going in the same direction.

Lauren Fernandez: [00:42:18] And so, there’s a level of redundancy to the messaging, the community, and the reinforcement of it is in the daily actions. And I cannot stress this enough. You want to make sure that the leadership for the brand is divested across an entire group of people who all have the integrity to do the right thing even when nobody is looking. And I think that it’s more than just one person. And it needs to be more than just one person.

Mike Blake: [00:42:53] Who, in your mind, does franchising really well? If you’re going to highlight somebody out there, they’re just a great franchisor, they really know what they’re doing, and their best practices a lot of franchisors can learn from. Is there a name or two you can throw out there that you think are just great kind of examples or exemplars of franchising?

Lauren Fernandez: [00:43:17] You know, I am extremely biased because I actually came out of a career in food and product development. And, as an attorney, I was working at Novartis and doing pharmaceutical development. And was recruited over to Focus Brands by Russ Umphenour, who, to me, is still one of the industry’s legends. And much of what I learned, I learned from him and from the team that he put around him, who brought me in with open arms into the industry, taught me about restaurants, taught me about franchising. And I think that my time at Focus there when I was working with Ross and the team was just one of the best examples of what a class act franchiser looks like.

Lauren Fernandez: [00:44:07] That said, there are plenty of others in the industry, you know, under David Novak’s leadership, Yum! Brands was a phenomenal example of this. And working hand in hand with them on a number of deals with some of their brands, I was just so impressed with the consistency within their organization, even though they were massively so much bigger than us as Focus Brands at the time. Just really impressed with the way that they handled themselves across multiple different departments. And I think that’s, again, the test of really good leadership is, everybody on the team doing the same things even when you’re not looking. It’s that integrity diversified across the entire talent pool, which is really hard to do as a leader to inspire people to really be at their best and have the right kinds of folks on your team, not only in recruitment, but in retention and the training of those folks.

Lauren Fernandez: [00:45:02] And I think the common denominator, if I can just say this, is all of these brands or franchisors, if you will, have a heavy investment in people, in talent, and in continued training. I’ve never seen anything like it in my life. I mean, I must have been at a conference at least once a month as an executive. I spent months in brand training individually in all of our brands before I ever touched a contract when they hired me at Focus, which I thought was insane. But I understand it now as an operator. I totally get it. How can you assist any of these brands unless you really know what it is to operate one? And I have insane amounts of respect for the people who operate these businesses as franchisees and owners. So, I think, to me, that’s a major common denominator behind the best franchisors.

Mike Blake: [00:46:01] You know, thinking of Yum! Brands because I have a personal observation that before the Pizza Huts, Taco Bells, and KFC, I think, were consolidated under Yum! Brands, my perception is I don’t think those franchisors were particularly successful. I think they’re floundering. I think they had that operational consistency and branding problems. And, you know, you’re right. I think ever since they were consolidated – and you know the inside out, I don’t. But ever since they were consolidated and, I think, probably recapitalized with that consolidation, they have turned those all into very powerful competitive brands. And, you know, the same core food. You know, Pizza Hut food has not changed. KFC has not changed. Taco Bell a little bit. But they’ve elevated their game. I think they’re a good example of how great management and leadership makes an impact.

Lauren Fernandez: [00:47:02] Well, right. And if you’re making the system innovative, forward thinking, exciting, and profitable for your franchisees, you’re going to energize the heck out of them and they’re going to want to carry that flag up the hill. And I think the other thing that these brands tend to do really well is they’re nimble. And so, when they take the brand to other countries or into markets that are, maybe, a little bit different, they are not so rigid that they can’t figure out a way to make it happen. And I think that that’s also something they treat the brand with a level of respect. The brand is invested, not only by the people who are operating the brand on a daily basis by it, but by its customer base. So, they’re respectful and reverent with how they develop, evolve, and mature these brands. And I think that that’s really key.

Mike Blake: [00:48:01] We’re speaking with Lauren Fernandez of the Fernandez Company about the decision to franchise your business. We’re running up against the clock so we only have time for a couple more questions before we let you get out of here and help some more people. But one question I’d like to ask is, I think most people associate franchising with restaurants, first and foremost. Is there something about restaurants that makes them more franchiseable or more tempting to franchise than other lines of business?

Lauren Fernandez: [00:48:38] I don’t necessarily think so. I think that’s just what’s front of mind. There are so many service industries out there. There are a million brands, batteries plus, pet supplies plus. There’s a number of different brands out there that you may not even realize are franchised. I think because we, in this country, grew up with franchising, we sort of developed it or evolved it, if you will. And we have McDonald’s to sort of think as sort of our industry titan and leader in the channel of franchising to thank for that. So, I think it’s what’s front of mind, but I don’t think that it’s a universal truth that obviously all franchises are not restaurants.

Lauren Fernandez: [00:49:22] Restaurants, themselves, are actually fairly complicated. Whereas, there are other models that are fairly straightforward. You purchase the inventory, you open the doors, and it’s a lot simpler. There are service industry models, I believe Glass Doctor would be a good example of that, where you’re an owner-operator, but you’re servicing an actual need in the community. So, it’s a more service driven franchise. And those are very successful, too. They’re just a different model. Again, I think it’s just that restaurants are front of mind. Obviously, I have a huge bias towards them because that’s what I specialize in. So, it’s an interesting question, though. But no, I don’t know that I’ve seen any statistics on proportionately, like, what percent of franchises are restaurants. But it seems to me like it can’t be more than 50 percent of the total number of franchises in the US.

Mike Blake: [00:50:16] Lauren, we’ve learned a lot and we can learn a lot more, but we are running out of time and I want to be respectful of yours. If people want to contact you to learn more about this topic, can they do so? And what is the best way to do so?

Lauren Fernandez: [00:50:32] Yeah. Hit us up on our website, so we’re at the fernandezcompany.com. There’s a way to reach me with a form on there. Also, we have our contact information with our phone number and our email address. And we do provide consultations. And we are here to consult and help you figure out what the right growth strategy is for you and your brand. It may be franchising, but it may be some of the other tricks we have up our sleeve. And so, we’re here to help if you are interested in growing.

Mike Blake: [00:51:02] Well, thank you. And that’s going to wrap it up for today’s program. I’d like to thank Lauren Fernandez so much for joining us and sharing her expertise with us. We’ll be exploring a new topic each week, so please tune in so that when you’re faced with your next executive decision, you have clear vision when making it. If you enjoy these podcasts, please consider leaving a review with your favorite podcast aggregator. It helps people find us that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision podcast.

Decision Vision Episode 88: Should I Mix My Faith With Business? (Part Two) – An Interview with Soumaya Khalifa, Khalifa Consulting, Inc.

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Decision Vision Episode 88: Should I Mix My Faith With Business? (Part Two) – An Interview with Soumaya Khalifa, Khalifa Consulting, Inc.

Khalifa Consulting CEO Soumaya Khalifa joins host Mike Blake to discuss how she integrates her Islamic faith with her work and business, as well as her community-building work with the Islamic Speakers Bureau. “Decision Vision” is  presented by Brady Ware & Company.

Soumaya Khalifa, Khalifa Consulting, Inc.

Soumaya Khalifa founded Khalifa Consulting, a strategic intercultural and leadership consulting firm, in 2007. Her career spans more than 25 years in human resources, management, business management and ownership, non-profit and entrepreneurship. Khalifa Consulting specializes in helping executives and organizations succeed when doing business across cultures by providing them the most relevant, practical and up to date cross cultural coaching and training. In addition, Khalifa Consulting offers training and coaching on global virtual teams. Soumaya and team apply this work to a broad range of clients, from large established national and global organizations to startups.

Prior to founding Khalifa Consulting, Soumaya served in several leadership roles in U.S.-based Fortune 100 companies in human resources, leadership development and diversity and inclusion. An alumnus of the University of Houston and Georgia State University, Soumaya is a board member of the Society of Intercultural Education, Training and Research (SIETAR) and the Atlanta Interfaith Broadcasters (AIB). She is also an adjunct professor at Emory University Center for Continuing Education and at the Federal Executive Institute. Soumaya is the author of Diversophy Egypt and has contributed to several publications.

Along with a group of Atlantans, Soumaya launched the Islamic Speakers Bureau (ISB) of Atlanta in August 2001. As the current Executive Director of ISB, she serves the Muslim and wider community by building bridges of understanding, creating interfaith partnerships, developing community leaders, and creating spaces for mutual understating and respect. Under Soumaya’s leadership, the ISB has developed its core programming and launched other key initiatives, including ISB Leadership Institute (ISBLI), 100 Influential Georgia Muslims, and 40 Under 40 Georgia Muslims.  In 2017, Soumaya created a partnership with the Atlanta Mayor’s Office to host the ISB’s first ever Ramadan Iftar hosted at Atlanta’s City Hall and in 2018, the second Atlanta Mayor’s Iftar was attended by over 250 people.

Soumaya has received many awards and recognitions for her work with the ISB, including:

  • 2019 Academy of Women Achievers, YWCA
  • 2018 Arab American High Achiever Award, Alif Institute
  • 2017 City of Atlanta Phoenix Award, presented by Mayor Kasim Reed
  • 2012 FBI’s Community Leadership Award
  • Citizen Diplomat for the U.S. State Department
  • 2012 Invited to the annual White House Iftar hosted by President Barak Obama
  • 2015 Inducted into the College of Ministers and Laity

To learn more on Khalifa Consulting, follow this link.

Michael Blake, Brady Ware & Company

Mike Blake, Host of the “Decision Vision” podcast series

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast.

Past episodes of “Decision Vision” can be found at decisionvisionpodcast.com. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

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Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Mike Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owners’ or executives’ perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.

Mike Blake: [00:00:39] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia. Brady Ware are sponsoring this podcast, which is being recorded in Atlanta per social distancing protocols. If you like this podcast, please subscribe on your favorite podcast aggregator and please consider leaving our view of the podcast as well.

Mike Blake: [00:01:04] So, today’s topic is actually a continuation of a prior topic or a previously recorded topic, which is, should I mix my faith with my business? And this will be part two. In part one, we had, I thought, a tremendous discussion with Bill Leonard and Jonathan Minnen, who are from the Christian and Jewish faiths, respectively. And really, I really appreciate it, and I hope you, as listeners, appreciated the fact that they were very open about how they came to approach mixing their faith with their business, how it impacts their business, what that decision process looks like. And I think that we learned a lot.

Mike Blake: [00:01:53] But to be candid, in an ideal world, I wanted to have this be a little bit broader than that because there’s another faith. I mean, you could say there are many faiths that are missing, but I think a faith that was obviously missing – and that was due simply to scheduling constraints – is Islam. And Islam, I think … I’m not going to claim to be particularly knowledgeable about it. I know what I’ve read, I know what I studied in college five million years ago, but that’s about it. But Islam has a different or, certainly, a very identifiable place in American society.

Mike Blake: [00:02:39] And it’s different. I think it’s much more prominent now in the United States than it was, say, 50 years ago or even 30 years ago. And I think that people who practice Islam face different challenges and maybe even different rewards. We’ll find out from our guests. But I think there’s a different relationship with business, in general. I think there’s a different relationship with Islam and mainstream American society than the Jewish and Christian faith have.

Mike Blake: [00:03:08] So, to be perfectly candid, I just felt like this conversation was not complete without getting a view from the Muslim perspective. And I hope you’ll agree that it’s worthwhile. So, we’ve never done a two-parter before. We didn’t necessarily have a cliffhanger or anything, but I do think that this is necessary to have a more comprehensive and complete discussion.

Mike Blake: [00:03:33] So, joining us today is Soumaya Khalifa, who founded Khalifa Consulting, a strategic intercultural and leadership consulting firm back in 2007. Her career spans more than 25 years in human resources management, business management and ownership, nonprofit and entrepreneurship. Khalifa Consulting specializes in helping executives and organizations succeed when doing business across cultures by providing them with the most relevant, practical and up-to-date cross-cultural coaching and training.

Mike Blake: [00:04:07] Along with a group of Atlantans, Soumaya launched the Islamic Speakers Bureau of Atlanta back in August 2001. We’ll talk about that. That’s an interesting date. As the current executive director of ISB, she serves the Muslim and wider community by building bridges of understanding, creating interfaith partnerships, developing community leaders, and creating spaces for mutual understanding and respect. Under Soumaya’s leadership, the ISB has developed its core programming and launched other key initiatives, including ISB Leadership Institute, 100 Influential Georgia Muslims, and 40 under 40 Georgia Muslims.

Mike Blake: [00:04:44] In 2017, Soumaya created a partnership with the Atlanta Mayor’s Office to host ISB’s first ever Ramadan Iftar hosted at Atlanta City Hall. And in 2018, the second Atlanta mayor Iftar was attended by over 250 people. Soumaya has received many awards and recognitions for her work with the ISP, including Academy of Women Achievers of the YWCA, the Arab-American High Achiever Award of the Alif Institute, City of Atlanta Phoenix Award, the FBI’s Community Leadership Award. That’s interesting. We’ll have to get back to that. She’s a citizen diplomat for the US State Department and numerous other recognitions, but you get the idea. She’s highly accomplished and highly recognized for those accomplishments. And we are fortunate. And I am so glad she agreed to come on the podcast. Soumaya, thank you for coming on the program.

Soumaya Khalifa: [00:05:36] Mike, it’s my pleasure and honor. Thank you so much for having me.

Mike Blake: [00:05:40] So, before we get into this, I want to ask because I think this is really important, the FBI’s Community Leadership Award. Tell us about what led to being recognized. I assume it’s the FBI, like what I recognized, Federal Bureau of Investigation, or some other acronym. What led to that?

Soumaya Khalifa: [00:06:03] Yeah. So, that was quite an experience. I got to actually travel to their headquarters and receive the award by then FBI Director Mueller. And it was quite an experience being there, and touring their facility and just seeing what’s there. I was part of their outreach, diversity and inclusion outreach team that we had for several years many years ago. And they recognized the work that the ISB does here in Atlanta in terms of building bridges, and they felt like that was something that is much needed, and they recognized me for the work. So, I was, again, very fortunate and gotten a lot of awards and recognitions that I wouldn’t have dreamt of many years ago. So, again, very lucky and very fortunate.

Mike Blake: [00:06:57] Well, congratulations and thank you for your service to our society. So, I’ve studied Islam about as much as I needed to to graduate from college with a Liberal Arts degree. I know it’s a highly complex religion, but how would you describe your faith? I think you can do a much better job than I ever could.

Soumaya Khalifa: [00:07:22] Yeah. So, it’s not any more complicated than Christianity or Judaism. The three faith traditions are monotheistic religions and they’re Abrahamic traditions. So, there are a lot of similarities between the three. In terms of the essence of Islam in the word itself, it means peace, submission to the will of God, and creating peace in the world. And the person, even Muslims, when they greet each other, they have a covenant that they say to each other, and that is, “May peace be upon you,” which means that you will not get anything from me but peace, whether it’s in interactions, or talking about you, or anything at all, it’s peace.

Soumaya Khalifa: [00:08:09] So, it is a misunderstood religion. It is a religion, unfortunately, that a lot of people associate terrorism with. And I love talking to groups and asking them, “You know what comes to mind when you hear the word “Islam” and “Muslims?” And sometimes, people don’t want to say, and I say, “Hey, how about the T word, does that come to mind? Do you hear it?” And yeah, they do.

Soumaya Khalifa: [00:08:33] So, the two misconceptions about Islam that I hear all the time is that Islam is associated with terrorism, all Muslims are terrorists, and the other one is that all women are oppressed. And I have a lot of fun with the second one because I ask audiences and people, do you think I’m oppressed? And they look at me and they say, “Well.” “So, you should ask my husband.” And we have a little fun with that.

Soumaya Khalifa: [00:08:58] But absolutely, it is. It’s a religion that people don’t know about. And a lot of times, when they hear about it, it is in a very negative sense. There isn’t a face of Islam that is carried throughout our country and our communities that portrays the good that Muslims do. And Muslims, like any other group of people, Christians included, Jews and Hindus and others, there is the good, the bad and the ugly.

Mike Blake: [00:09:28] So, you made an interesting decision and a conscious one, not just to really connect your faith with your business but to build a business, if you will, around your faith. A lot of it is around educating individuals, companies, organizations about Islam, about inclusiveness with people who practice that faith and others. I know it’s not just limited to that, but certainly it is sort of the headline. So, what drew you to that? I mean, you’re a very capable person. You could have done, I’m sure, anything that you wanted. What drew you to make that your mission?

Soumaya Khalifa: [00:10:11] Sure. I just want to make a distinction here. I wear a couple of scarves, if you will. So, I have a nonprofit (versus hats). There’s the nonprofit that I started in 2000 right along with a group of people who wanted to do something about building bridges of understanding because what we saw then, and it’s still happening right now, is that people speak about Islam and Muslims, and they have not a good idea and not a correct idea about Islam and Muslims. They don’t know about our community. So, we wanted to train people within the First Amendment guidelines of teaching and not preaching to be able to speak about Islam and Muslims to have embody they’re my neighbor, they’re my coworker, et cetera, and really building that connection between people.

Soumaya Khalifa: [00:10:57] And so, that is one thing that was started in 2001. And at the time, I was in corporate America doing human resources. So, thinking back about that journey and what I did then, I just can’t even comprehend how I did that while having a full-time job in corporate America. So, that’s one thing that I felt like was necessary to build bridges of understanding. And it wasn’t about promoting the religion. It was just to understand each other and build a stronger community where people don’t fear others. So, that’s one of the things that I do.

Soumaya Khalifa: [00:11:29] The other one is a business, and that is Khalifa consulting. And as you mentioned in the introduction, it’s to help people understand the business they’re getting into, to understand the culture for them to be successful. Khalifa Consulting has many consultants that cover the whole wide world. So, if we have a client that’s going to Germany, we have somebody who can do Germany. China, Russia, what have you, there’s that network of consultants who cover the whole wide world.

Soumaya Khalifa: [00:12:00] Because of my own background, my own cultural background, my own upbringing, I offer the training, and the consulting and the coaching on the Arab world. And as you know, the majority of the Arab world is Muslim. And so, we talk about Islam, and how it impacts their business, and what do they need to be aware. Of anything from gift giving, don’t do pork or alcohol, to the holidays, to how people communicate. And that’s not religion; it’s more culture.

Soumaya Khalifa: [00:12:31] So, those are the two distinctions in terms of the business piece and the nonprofit work. But it’s like you said, both of them are about helping people understand in different circumstances. With the ISB, it’s more about community and community building. And Khalifa Consulting is about the business world and helping individuals, leaders and organizations be successful as they interact with different cultures.

Mike Blake: [00:13:00] So, yeah and understood. There’s a cultural component, religious component. And while they are certainly separate, they frequently are quite closely linked. And so, what I’d be curious to understand from you is this, is that, are there ways in which the way you conduct business is maybe different from what kind of a garden variety, if this can even be said, but a garden variety American business is conducted because of your desire and the importance to you of being true to your faith? Does it manifest itself in the business? Does Islam manifest itself in the business itself? I hope I have asked that question in a way that you understand

Soumaya Khalifa: [00:13:49] Yeah. I think each and every one of us has a moral compass. And the moral compass is the faith tradition that we adhere to. And whether we realize it or not, it kind of helps us navigate through things. For instance, holding true to your word, keeping the individual, valuing the customer, valuing yourself, telling the truth. And I don’t think this is just to Islam, but I think it’s due to many faith tradition, treating people with dignity and respect, not cheating people, et cetera, et cetera.

Soumaya Khalifa: [00:14:30] And again, this is in Islam ,as well, I’m sure, as Christianity, and Judaism, and other faith traditions as well. So, it is my moral compass. It’s probably unconscious, but it’s there. It’s how I’m kind of wired. And again, I believe that that’s not just particular to me, but it’s to everyone else.

Mike Blake: [00:14:54] So, you chose to name your firm Khalifa Consulting. And I think to most people that they may understand that that’s your last name or your family name or not. But it clearly sounds like a name that comes from a region that practices a lot of Islam, at least fairly widely. Was that a conscious decision in the branding? And whether it was or not, have you found that it evokes any kind of maybe preconceptions or stereotypes? Does it help you within the Islamic community? Does it create barriers elsewhere? Talk about kind of how that’s impacted the business. If it has at all?

Soumaya Khalifa: [00:15:43] I love the question. So, I’m going to tell you a story. There was an event in Atlanta and a high-up person in the Gulf State was here to speak about their country and how opportunities are there, et cetera. And I attended, and I walked in, and people saw my name who are not part of that country’s entourage, if you will. And they saw my name, and I was like given the royal treatment. And I was just saying, “What in the world is that?” I was just like not really comprehending what was going on. But they saw my name and they thought I was part of the royal clan for that country. And they just took care of me. And after a while, I realized what happened.

Soumaya Khalifa: [00:16:30] But, yeah, I think the reason that I chose Khalifa Consulting is because when I started out, I was not sure how it was going to go in terms of what my business is going to focus on because I have a wide variety of things that I provide and do, all the way from consulting, coaching, executive coaching, and human resources, and the intercultural world diversity and inclusion. So, I wanted something that kind of was an umbrella name that brought all those things under it. So, that’s the reason. I don’t know whether it was a smart way of doing it or not, but that’s how I started. And because I started that way and I’ve been known in the marketplace as that, I’m just continuing with it. Is there a better name? Maybe, but moving forward with Khalifa Consulting.

Mike Blake: [00:17:23] So, I’m going to ask you a completely off-the-wall question because I’m a language junkie and probably a lot of our listeners will roll their eyes, but that’s okay, it’s my show. And that is, I’m curious-

Soumaya Khalifa: [00:17:35] Go for it.

Mike Blake: [00:17:35] I’m curious if the name Khalifa, is at all related to the term chalice, which implies some sort of of Ducci, or county, or something of that nature.

Soumaya Khalifa: [00:17:47] Yeah. Khalifa means Vice Gerente or the ruler. And so, within the Islamic tradition, the Khalifa is the leader of the group, or the family, or  I’m just really lucky to have that name. I feel like, “Hey, all right, I need to live up to it,” but yeah. Khalifa means a responsible person, right? So, it’s a godsend human beings to be His vice gerente on earth, so human beings could take care of the earth, et cetera. So, it has like a title of of leadership, but it also has a title of true responsibility.

Mike Blake: [00:18:31] Well, good. Thank you for that. So, that’ll be our duo-lingo diversion for the day. So, do you ever run into any kind of conflict? Do you ever have to make any conscious decisions of where your faith starts and ends, where your business starts and ends? Do you find yourself having to make decisions that maybe today, I want to be less obvious or open about my faith, or another day in another situation, I want to be more open about my faith? So, do you ever have to make those kinds of decisions? And if so, what goes into that?

Soumaya Khalifa: [00:19:06] Yeah. I really don’t think about it that way at all. I am who I am. And I struggle with that for a long time, and it was a journey. I was born in Egypt, came to Texas as a teenager. I went to middle school and high school. And throughout my early years, I really struggled with my identity, and I struggled with my Egyptianness, if you will, my Muslimness and my Americanness. And it was like three people in one. And those three people in one did not come out as three people in one told people. I would reveal parts of me that I thought people were comfortable with.

Soumaya Khalifa: [00:19:47] So, until I took that journey of being comfortable with who I was that I said, “Hey, world, here I am,” and this is when I started covering my hair. It was shortly thereafter that I started the Islamic Speakers Bureau. This is when I really embraced who I was. It was not an easy journey. It was much, much easier not to wear a headscarf and to just kind of try to build in and assimilate, but I felt like part of me was being lost. That, besides the nagging of my mom. When are you going to cover your hair, right? When are you going to cover your hair?

Mike Blake: [00:20:24] Parents. Well, parents will always have a big influence on that.

Soumaya Khalifa: [00:20:27] They sure do.

Mike Blake: [00:20:28] So, I’m curious, and if this question is out of bounds, weigh it out, but was there one particular incident that pushed you over and said, “You know what? Yeah, I want to embrace this identity. I’m going to wear the headscarf and let strangers know that I’m a practitioner of Islam”?

Soumaya Khalifa: [00:20:51] Yeah. I think it was more than a journey versus a one incident that happened that kind of got me to do that. I was listening to religious tapes about how women are supposed to do that. And by the way, women who do not cover their hair, who are Muslim, it does not mean they are less religious. It’s just they choose not to. So, it was just that, plus my mom, plus I just felt like, “Hey, I’m not getting any younger, I need to do something about it.” And I did.

Soumaya Khalifa: [00:21:18] And I have to tell you, that was just like the most uncomfortable decision I ever made in my life. I did not know how to put the headscarf on. I remember, at the time I was working, I just finished my MBA, and I was working as an intern for a major company, and one day, I went with my hair. And then, the following Monday, I went in with the head covered, and people did not know what to make of me, and I had to do a lot of explanation. And as that was going on, my scarf fell off because I did not know how to put it on. And it was just like a real ordeal.

Soumaya Khalifa: [00:21:55] And even though it’s a piece of cloth, it’s a lot of psychological getting used to and being able to be comfortable with it. And I wasn’t comfortable with it for a long time. And I felt like people were staring at me and the whole nine yards until I embraced it myself and started shopping for different headscarves. And there was something more to shop for. I got very excited about that. And that’s when I became okay with it.

Mike Blake: [00:22:23] Now, we had a previous conversation. You said something that I think is fascinating and I just did not know is that not all scarves are alike. And the way that one wears it, you can identify somebody’s origin from the Muslim world or how they practice Islam by virtue of how their scarf is is worn, correct?

Soumaya Khalifa: [00:22:46] Yes, yes, yes, absolutely. And even what age category they might be from. It’s fascinating. It’s a fascinating observation just to sit there and kind of look at women’s scarfs, and how they tie them, and what color, what’s the material, et cetera. Now, I’ve discovered something since we talked. I discovered there’s a COVID scarf. And the COVID scarf is a scarf where people could put their masks on while having a scarf on. So, the regular scarf that I used to wear would not allow me to put this really easily. And so, this is now my COVID scarf because it allows us to put on the mask and take it off easily.

Mike Blake: [00:23:26] Well, one adapts, right? So, Islam has been around a long time. So, it’s gone through many adaptations. This is another one of those adaptations, I guess. So, you led off by kind of pointing out the elephant in the room.

Mike Blake: [00:23:44] So, I want to put a bright light on it. And that is it strikes me that having a business that is associated with Islam is different from one that’s associated with Christianity or Judaism, not only because it’s less common and also more concentrated, I think, in certain regions of the country but, of course, America itself has had a troubled, and frankly – and I’m not going to get into the reasons why, but you cannot deny there’s a violent relationship with, say, certain elements of Islam, I guess, for lack of a better term or, at least, conflict with individuals who have decided to brand themselves under the name of Islam in order to accomplish whatever social and political goals that they’re accomplishing. And that’s a little bit different, right? You’re operating in a country that in some cases, recently, has been in a state of war with Islamic countries.

Mike Blake: [00:24:54] And I will say this. I thought George Bush the first did a really good job of trying to make clear that we were at war with states that happen to have governments that claim to espouse Islam, and we are not pursuing war against the Muslim people. It’s a very sort of dancing on the head of a pin there. But I do think he made a good faith effort to try to communicate that. But I mean, it’s got to be different, right?

Mike Blake: [00:25:21] I mean, America right now does not have a military conflict with a Christian-dominated or a Jewish-dominated nation, but America has had that. I think it necessarily creates, I think, certain tensions, certain preconceptions. I think even, unfortunately, among certain people, a starting point of suspicion and hostility. One, I guess, do you agree with that observation? And two, if so, how do you work within that? How do you survive mentally in that kind of environment, because I can only imagine how difficult that must be?

Soumaya Khalifa: [00:26:16] Yeah. In terms of the conflict between the US and Muslim majority countries, that is a debate that people can have. Is it really a conflict, or we talked about weapons of mass destruction in Iraq, and after so many years, we found that there were no weapons of mass destruction? And so, there are a lot of debate going on about about the validity of the conflicts that we are part of and claimed for it to be because of whatever. So, let’s put that aside.

Soumaya Khalifa: [00:26:50] But what I want to say, what’s really here and now that is a very troublesome is the Muslim ban. When we have a Muslim ban, and I walked down the street with the headscarf on, that puts me and my fellow 12 million Muslims, American Muslims, in jeopardy because people are getting a message from the highest office in this land saying Muslims are a danger to our country and our society. So, that is truly something that hits very close to home, and I can talk for a long time about that.

Soumaya Khalifa: [00:27:25] But in terms of the business itself, it’s not about just Islam and Muslims. Khalifa Consulting, it’s about cultural understanding for the whole wide world. And it’s not just me. I have about 10 or 12 colleagues who cover, again, the entire world. But when it comes to the part of the world that I handle, which is the Arab world and the US, people want to come to us because we know how to help them to navigate in that part of the world, in the business world, so they could be successful.

Soumaya Khalifa: [00:27:58] I have worked with so many different organizations, US organizations, that their market in the US is basically shrinking, and the only way for them to expand is to go to emerging markets, what they call emerging markets. And the Arab world with over 300-400 million people, it’s a very opportune place for many of the businesses, whether it is in the car business, or the automotive business, or defense, or food. So, it’s a business decision. It’s not about the faith. It’s not about anything.

Soumaya Khalifa: [00:28:39] We talk about the faith that’s part of them understanding what they’re getting into because you don’t want them to schedule meetings for Friday. Why weren’t the Saudis, or the Egyptians, or, or, or coming to our meetings on Fridays? Because it’s their holidays. It’s their weekly weekend. And so, you don’t do that. And this is just a very simplistic example of seeing people who don’t understand the different ways of communication.

Soumaya Khalifa: [00:29:07] Americans tend to be more direct communicators. When you go to the Arab world, it’s about saving face. It’s to not put anybody in an embarrassment position. So, how do we understand indirect communicators, and how do we bridge that gap between the two cultures to run the business, to get to the bottom line, to add to the bottom line and be successful? So, it’s not all about religion. It’s about being successful in a different culture that is very different for many people to navigate through.

Mike Blake: [00:29:43] Before we recorded our show, I got dressed because we’re doing video. I had originally put on a T-shirt that said “Got bacon,” and my wife said, “Aren’t you doing that interview about Islam today?” I go, “Yeah.” She says, “Are you really sure you want to wear that for this video?” “No. Maybe you’re right. Maybe I’ll do a quick change here.” So-

Soumaya Khalifa: [00:30:10] But there is turkey bacon too. So, there are always options. It’s not all pork. There’s turkey bacon.

Mike Blake: [00:30:16] Oh! I haven’t thought of that. I had a chance to win an argument with my wife and I blew it. Ugh! Okay. Well, at any rate, but-

Soumaya Khalifa: [00:30:16] You should have called me, Mike.

Mike Blake: [00:30:28] Sure, I should have. I should have. So, let me ask this. The thing about … actually, this actually segues to one of the questions I really wanted to make sure I got to. So, bearing what you just described in mind, and to me, it reminds me of maybe a little bit of what it might have been like to be a Russian immigrate here during the height of the Cold War, right? You’re here, but you’re obviously from “the other side.” And I have to imagine that that also had its own challenges. Now, the timeline for Khalifa Consulting was you started it in August of 2001, correct?

Soumaya Khalifa: [00:31:15] That’s the ISB.

Mike Blake: [00:31:16] ISB, sorry. The ISB in 2001.

Soumaya Khalifa: [00:31:18] Yeah, yeah.

Mike Blake: [00:31:18] That’s right. Khalifa was 2007. So, you started that. And then, a month later, the attacks of September 11th, 2001.

Soumaya Khalifa: [00:31:30] Three weeks.

Mike Blake: [00:31:30] And so, I mean, walk through as as somebody who just launched an Islamic commercial venture, and feel free if you want to just comment on being a practitioner of Islam at that time, what’s going through your head? How does your life experience change? What are you thinking about your business?

Soumaya Khalifa: [00:31:57] When you were talking about that, my whole body felt like I was there in September 11th, 2001. It was a nonprofit that I launched. It was into businesses, and non-profit, educational outreach. We had our training on August the 18th, which was approximately three weeks before 9/11 happened. We had just trained people to speak about Islam and Muslims within the First Amendment guidelines. They took their test, and we were getting ready to launch.

Soumaya Khalifa: [00:32:30] When the morning of 9/11, I went to my job, and I was in downtown Atlanta in the high-rise up on a very high floor. I heard the news about what happened in New York and in Washington. And I was scared. I was very scared. I was sad. I was angry. I had no idea what was going on. I was just thinking the people who were killed. Are people like me who went to their work in the morning, and they were waiting to get home to their kids and their family? And guess what? They did not make. And what was the reason for that? And it was a very, very tough day, I had three children at the time. I still have them, Thank God. They were in daycare and what have you. I was very worried about them. I was very worried about my husband.

Soumaya Khalifa: [00:33:28] They were talking about the terrorists were going to hit Atlanta because of CNN. We were very close to CNN. They pulled us all into a conference room to watch what’s going on. And I mean, I’m talking about right now, and just my whole body feels the same way. It was just very, very, very angry, very scared, very just in despair. Why did that happen? How can anybody do this?

Soumaya Khalifa: [00:34:02] And then a few days later, we find out who did it. And I got even angrier because the people not only killed 3000 people for no reason at all, innocent people, but they also hijacked a whole religion at 1.5 billion people. And so, anger. It got even worse because what they did to a religion in people. And we’re still paying the price of the horrendous, stupid act that they did. I can’t tell you how angry I am still. And I hope they get what they deserve in the hereafter because human life is very sacred in Islam, and taking innocent life is just one of the worst ever transgressions in the religion. Nobody could call themselves a Muslim and do that.

Mike Blake: [00:35:10] Yeah. As an observer, you try to put yourself, and as an interviewer, you try to put yourself in the shoes of the person that you’re interviewing. And I can hear in your voice how tremendously upsetting that must have been and continues to be. And like the rest of us as a country, we’ve had to move on, and the Islamic community has had to move on and attempt to build bridges. And in our society, some people have moved on, I would characterize, more successfully than others.

Mike Blake: [00:35:55] And let’s move on beyond that. In spite of that, I’m curious kind of in the wake of that attack, there must have been – I would hope that there was – maybe even a rise of interest in the Islamic Speakers Bureau because I think a lot of us … I grew up in the ’80s and the ’70s. So, when I was a child, I remember the conflict with Iran, the Iranian hostage crisis. I remember that there was a spate of hijacks of American aircraft, but the September 11th attack was, of course, an entirely different animal.

Soumaya Khalifa: [00:36:43] It was in our land.

Mike Blake: [00:36:44] Yeah. And in our land against one of the most important symbols, I think, of American economic strength in many ways, you could say, and at the heart of the country, short of an attack on the White House or Congress or something. I don’t want to belabor, but the point is that I think a lot of us were kind of left why. And some of us seek answers in the why. We want to know who’s responsible, right? Who overlooked opportunities to stop this? And there are many reports, and conspiracy theories and whatnot. I’m not going to discuss those today.

Mike Blake: [00:37:22] But I wonder and I hope that maybe you saw a surge of interest in speakers after the attack as people kind of want to understand, okay, this is horrible, and it’s probably going to lead to worse things down the road because you know the United States is not going to just not respond. You know there’s going to be a significant response. Did you see an increase in interest in people wanting to get your take in some expert opinion as to kind of what’s going on here?

Mike Blake: [00:37:55] Yeah. So, absolutely. When we realized who did it, et cetera, the board of the newly found Islamic Speakers Bureau or ISB, we kind of talked about what do we do? Do we kind of backtrack like we didn’t exist or do we move forward? And the decision was made, fortunately, that we needed to move forward. And we started receiving calls, and emails, and a lot of interest in people wanting to meet a Muslim, wanting to understand better, and wanting to understand their neighbors, et cetera.

Soumaya Khalifa: [00:38:34] And one of the stories that happened right after 9/11 is when an Episcopal pastor in Fayetteville – we used to live in Fayetteville – who reached out. He called. He called the number for the ISB and said, “This is so and so. And I’m driving up to the mountains, but I want to invite a speaker to come on.” And he gave his numbers, but it was so mumbly towards the end, it was a bad connection that the last three numbers didn’t come through. And I remember trying all possible three number combinations until I was finally able to get through to him.

Soumaya Khalifa: [00:39:17] And that friendship has lasted all through the years. He has moved on to different parts of the country, but we still stay in touch and communicate very often. So, there are a lot of silver linings from 9/11, as well as the tragedy, and the heartache, and the sadness that also came out of it. So, absolutely, there was and still is a silver lining from that.

Mike Blake: [00:39:47] So, I’m going to switch gears here. Sometimes, you can see in some face that people can use faith opportunistically in business. And I’ve certainly seen it. I speculate that you’ve seen it, but I don’t know. But I’m curious, so I’m going to ask you that question. Have you seen – and it doesn’t even have to be related to Islam, I guess, but since that was where your expertise lies, I imagine that’s going to be your perspective. Is there a temptation or have you encountered where people have tried to somehow capitalize kind of overtly on presenting a faith because they think it’s going to ingratiate themselves to a particular community, and therefore allow them to address what they think is an attractive market?

Soumaya Khalifa: [00:40:48] Yeah. I don’t believe in that. I don’t.

Mike Blake: [00:40:55] Right, I’m sure you don’t, but I’m sure, but have you seen it.

Soumaya Khalifa: [00:40:59] I’m sure I’ve seen it. I just can’t think of an example right now. But I am of the opinion and of the practice that everybody’s free to believe in whatever they want to believe. All that matters to me is how you treat me and you treat others around you. And pushing anybody’s faith on anybody else, I think that is so disrespectful. I really do. I believe that people are smart enough to think through what’s important to them and how they want to believe or not believe.

Soumaya Khalifa: [00:41:31] In the business that I’m in, whether it’s the non-profit or the consulting, it’s whoever feels that I’m a good fit for them and could provide the services that they need, then let’s let’s talk about it. But I don’t feel like it’s the right thing to use the business or the faith to be opportunistic.

Mike Blake: [00:41:56] Are there-

Soumaya Khalifa: [00:41:56] Did I answer your question?

Mike Blake: [00:41:58] Yeah. No, you did. You did.

Soumaya Khalifa: [00:42:00] Okay.

Mike Blake: [00:42:00] You did because I have seen it. I guess I bring it up because I have overtly seen people, for example, that they’ll go to a Bible study circle. And I know for a fact they do that because they think that that’s a way to generate prospects. And that strikes me as, frankly, repugnant, and repulsive, and immensely disrespectful to the religion.

Mike Blake: [00:42:36] And really, what I’m trying to get at is my hope is that that would be a unique case, but I’m not quite certain that it is. And in some religions and some religious communities, I think that there is a temptation to present a certain faith because they think that’s going to drive the business, but they aren’t necessarily themselves people of faith. And it bothers me. I’ve only seen that really in certain communities. I’m just curious because I have somebody here who’s embedded very much in the Muslim community, if that’s a phenomenon that you’ve ever witnessed.

Soumaya Khalifa, Khalifa Consulting: [00:43:23] Yeah.

Mike Blake: [00:43:24] Basically, it’s a universal temptation.

Soumaya Khalifa, Khalifa Consulting: [00:43:27] Got it. So, for instance, do real estate agents who happened to be Muslim go to a mosque, so they could pass out their card, et cetera? I’m sure that happens all the time. But for my own business, actually, my clients are not within the Muslim community itself, whether it’s the nonprofit or for my consulting. It’s people who are doing business outside the United States or talking about diversity and inclusion, and having Muslims in the workplace, and what are the reasonable accommodations, and how do we do that, and how do we understand them? How do we make sure everyone under our roof as an organization feels comfortable, valued and they belong? So, those are the clients that I’m looking for, people who need my help and find me to be the most competent person to help them get to where they want to go.

Mike Blake: [00:44:20] So, we’re talking to Soumaya Khalifa today of Khalifa Consulting and the Islamic Speakers Bureau. And we’re doing a part two of our podcast on Should I Mix My Faith With My Business? And we’re running out of time, but I do have a couple more questions that I’d like to to squeeze in here. And one is, is there a company that you admire that is Islamic facing – it doesn’t even have to be an American company. But is there a company that you admire that you think really gets it right, that maintains its commitment to its faith, but at the same time, doesn’t shy away from its faith, and at the same time, it’s commercially successful?

Soumaya Khalifa, Khalifa Consulting: [00:45:08] That is a really good question. Locally, here we have Chick-fil-A. And I haven’t been really associated with them on a professional level but their food is great, right? And people love their food. And for me, lemonade, their lemonade is really awesome. But I think diversity and inclusion – and I believe that faith comes under that – is a journey. It’s not that, “Hey, I’ve done this, and this, and this. Now, we are there.” There was never there, right? It’s always trying to get to being better, and better, and better.

Soumaya Khalifa, Khalifa Consulting: [00:45:46] And so, I know there are many, many, many organizations throughout the country that are striving to be the best that they can be, but they will never get there because it’s always changing. The environment is always changing. With the recent Black Lives Matter and many other things that are going on, companies had to pivot. They had to understand where they’re at, where they’re going, and what does the market need, and what do the employees need. And so, it’s a constant, constant journey. I don’t think anybody would say, “I made it and I’m there.”

Mike Blake: [00:46:22] So, this has been a great discussion. I want to thank you so much for being willing to come on and discuss some tough topics and answer, I think, some challenging questions. I’m sure people would like to learn more about you, your business, and maybe even want to ask more about this. I have a feeling we have listeners that practice Islam and are wrestling with this question. Can people contact you for more information? And if so, what’s the best way to do that?

Soumaya Khalifa, Khalifa Consulting: [00:46:52] Absolutely. Would love to hear from the listeners. My email address, soumaya@khalifa.consulting. There is no dot com. So, soumaya@khalifa.consulting. And the phone number is 678-523-5080. And our website is khalifa.consulting. For the Islamic Speakers Bureau, its isbatlanta.org. Again, isbatlanta.org. And again, looking forward to staying connected. Mostly in LinkedIn and Facebook. So, find me whichever way that makes sense to you.

Mike Blake: [00:47:38] Thank you so much. That’s going to wrap it up for today’s program. And I’d like to thank Soumaya Khalifa so much for joining us and sharing her expertise with us. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next executive decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review of your favorite podcast aggregator. It helps people find us that we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.