Where are All Those Jobseekers?

Workers: There are currently 5.1 million job openings in the US; an all time high. While the official unemployment stands at 5.5%, the U-6 unemployment rate, which includes people working as little as one hour a week for “economic reasons” (e.g. money) who state that they would rather find a full time job, stubbornly remains over 11%.

Employers: Employers increasing talk about the “talent wars;” the fierce competition for good employees, or even people who might become good employees. Corporate salaries are escalating at a rate that shocks many small business owners. It isn’t unusual to interview a young middle manager with a few years’ experience who makes a six figure income.

Workers: According to the Economic Policy Institute, the unemployment rate for college graduates hovers around 8.5%, again almost doubling to 16.8% when underemployment in included. For high school graduates it is 22.9% and 41.5% respectively. A recent (2012) study showed more than a third of those under 30 still living with their parents.

Employers: Those who are seeking staff laugh at the arguments over “minimum wage.” McDonalds and Wal-Mart are just the largest and most visible employers to admit that $10 an hour is the going rate for employees who will show up and work. (Although, realistically, $1,700 a month is still unlikely to get you out of your parents’ house.)

blindfoldedWhat is the problem? Employers are saying that they have jobs, but can’t find the people to fill them. Prospective employees are saying that they want to work, but can’t find a job.Is everyone blindfolded in a dark room, wandering around unaware of others in the same room unless they bump into them?

Not exactly. The problem is systemic, and has been building for the last 30 years. Its roots lie in an educational system that was developed during the longest sustained economic expansion in our history.

The Consumer Boomers drove long-term economic growth from the mid 1970’s to the late 2000’s. During that time, the expectation of constantly increasing opportunity skewed the educational system.

Boomers led a six fold increase in the number of college educated workers. Although  college graduates still only represented 25% of the Boomer population (a percentage that remains steady today) they helped create an expectation that the”normal” course of education led through a university. The 80’s and 90’s saw a major shift in our educational system.

  • High school counselors began to be rated, at least in part, by the number of kids who went on to college, so they naturally directed everyone towards college.
  • Ridiculed as the refuge for dumb kids and criminals, manual arts, auto shop, home economics and other non-college preparatory classes were virtually extinguished from high school curricula.
  • The Federal Government began guaranteeing low interest money for higher education (Sallie Mae — 1973). With privatization (1997) and Congressional urging, loan eligibility expanded to cover virtually any expense that could be related to education.
  • Fueled by student debt, colleges increased their pricing at almost triple the rate of inflation. The parents of a Boomer child paid about 18% of median annual wage for tuition. Today it costs almost 80%.

Every business needs a value proposition. In the case of higher education, it is an implied promise that they are giving their customers the skills needed to earn a return on their investment.

Colleges understand economies of scale. What creates more incremental margin, auditoriums with hundreds of liberal arts majors, or high-tech labs with a half-dozen budding scientists? Shifting their national standard to a 6-year graduation rate (fewer than 50 of the 580 four-year colleges have 4 year graduation rates over 50%) merely acknowledges that they are in no hurry to move those lucrative young borrowers along.

Despite the more relaxed time frame, over the last 20 years 31,000,000 Americans (10% of the entire nation) started college but received no degree. Freshman lecture halls filled with people who will never graduate have become a massive cash cow.

We spent twenty years building an educational system that has no accountability for delivering employable skills that justify the cost of training. Too many people with the wrong education and a load of debt are sitting in their parents’ living room saying they can’t find a “suitable” job. Too many employers can’t find suitable employees.

Hopefully, it won’t take us another twenty years to fix this.

A personal note: After 55 days, 6 CT scans, 4 MRIs and (literally) over 5 gallons of antibiotics, I was released from care on Friday. Thank you to everyone who called, wrote emailed, or even thought their best wishes.

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10 Responses to Where are All Those Jobseekers?

  1. Al Bellenchis says:

    Glad to see you’ve made the last turn, John. Best wishes!

  2. Chuck Smith says:

    John,

    So so glad to hear that you are feeling better!

    While agree with everything you said in the your this post, I’d like to extend your metaphor of the blindfolded people bumping the room. You and they found the elephant in the room and describe it from one limited perspective.

    Yes, education systems are a mess, but that is but one cause. There are many. Here’s another which helps to, but does not wholly explain, our current employment situation. Business has a tremendous responsibility for the state of affairs – the lack of skilled employees. How did the boomers get trained for manufacturing jobs, construction jobs, and other “manual” labor jobs?

    Businesses (and often unions) took responsibility for training workers. Starting in the 80s and continuing to today, the emphasis on corporate profit, just-in-time and lean labor forces, caused otherwise repsonsible businesses (and unions) to stop investing in training and cross training.

    Today we hear from 10s of business owners hoping to find skilled labor to replace their retiring workforces. Guess what… no one trained them. And to me the chief responsibility for that falls on the people who profit from having trained labor. Stockholders.

    Just another reason, I believe, we find ourselves in a pickle. There is a good solution though. Hire for aptitude and invest in your employees.

    Keep getting well. Chuck

    • John F. Dini says:

      I agree, but I think it goes farther, Chuck. As the cost of an individual employee has risen, not least because of government attempts to make all employment generate a “living wage,” small employers have largely ceased to be the training ground for basic job skills. Part time and summer jobs for kids who acted as go-fers and floor sweepers taught things like showing up and following a procedure.

  3. David Cunningham says:

    Hello John,
    I did not know that you had a health problem. Congratulations on your recovery.

    The college mess is getting worse. Cheap money has enabled colleges to embark on an expansion war, turning campuses into resorts. In Colorado, CU and CSU both have debt approaching $1 Billion. CSU is committed to a $250 million football stadium that the President thinks will elevate the mediocre RAMs from the Mountain West to Big 10/Big 12 status – and consequently boost foreign student enrollment to pay off the bond! (I have to check to see if CSU has an Economics department.) We have let on-line “colleges” entice veterans to spend their GI loans on courses that do not equip them to get employment.

    The colleges will not change a lucrative business model. Change will only come when parents stop believing that their sons and daughters deserve the college “experience” they enjoyed or dreamed of. That experience degraded from education to the high life in the 90s when colleges began to be rated for their partying credentials. Parents need to take a hard nosed approach to college selection, and counsel their children against taking on debt without a high probability of quick repayment.

    Another solution would be for student loans to be limited to only fund attendance at colleges that have a 50% or greater 4 year graduation rate, and an adequate record of graduate employment three years after graduation. Similarly, GI loans could only be spent on productive on-line courses. Money rules, and we would quickly see colleges actually focus on graduation and employment success.

    Regards,
    David Cunningham.

    • John F. Dini says:

      I would be afraid that setting a minimum 4 year grad level would just lead to further manipulation, but it is a good idea. Perhaps index the amount of a government-backed loan to the employability of the major?

  4. John Hyman says:

    Pleased to read that you are on the mend.

    “Ridiculed as the refuge for dumb kids and criminals, manual arts, auto shop, home economics and other non-college preparatory classes were virtually extinguished from high school curriculums”[sic] is not universally factual. While the emphasis on college attendance is enormous, the emphasis on STEM oriented programs and the undervaluation of liberal arts is also to blame. Combined with the nonsensical new testing, the result leaves a diminished effectiveness in the new workforce.

    Now layer on HR & owner bias against anyone out of work over one year and you have the genesis for the statistics you report in your article.

    This emphasis toward STEM and standardized testing has another painful consequence: critical thinking capability is nonexistent in high school graduates. Do you agree this may be a contributing factor in the reduction in 4-year college graduations?

    Our regional high school has a thriving poly-tech program. This is a school with an excess of three thousand students. And yes, counselors get bonuses for the number of students who take AP and honors courses, and likely something similar for the number of grads who attend college. But the vocational training program is excellent and very much in demand.

    Lastly I believe this bullet was an oversight: “Fueled by student debt, colleges increased their costs at almost triple the rate of inflation.”… isn’t the equation the other way around? The debt is a by-product of the rising costs to attend college.

    And what will happen when the college bubble bursts… the current rate of tuition increases and incurred debt levels in many colleges and universities cannot be sustained. When will be start seeing colleges folding? It may not be very far into the future.

    • John F. Dini says:

      I’m surprised to hear you say that there is too much emphasis on STEM, John. I still think it is weak. When my youngest was reviewing colleges, he was offered a alternating tracks for his major. A BS required one science course, the BA required none. Thanks for the corrections as well.

  5. Walter Belt says:

    John — good to hear that you are doing better.

    Walter

  6. Jim W says:

    As many states, such as my state of FL, are seeking to do away with traditional student testing, more and more students will qualify for college entrance without a clue. High School
    counselors need to do more to assess students and work with them and their parents to develop a plan for their continued education. Goal setting and planning need to be a major part of their education.

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Money is Only Money

Last week I discussed the general parameters of the private equity market for small and midsized businesses. A rational look at the number of “funds” active in the market, measured against the number of legitimate candidates for investment or acquisition, paints a clear view of why so many small companies are receiving calls from interested investors. There simply aren’t enough profitable, growing companies to buy.

I put “funds” in quotes because not all Private Equity Groups are funds. There is a big difference between “We have money” and “We can get money.” Your first questions to any purported acquirer should be about the source and condition of their funds.

Some will say they have investors ready to fund. Walk away. You don’t have the time or energy to let your company be used as a beauty contestant for someone who is little more than a broker.

Others will say they have “dry powder.” That’s the PEG term for an actual bank account in which their investors have deposited real money. “Dry powder” is the amount they have available to invest. Ideally it should be sufficient to purchase your business for cash. although that might not be how things eventually wind up.

Rolls of 100 billsFor many of my clients who are approached, the next questions disqualify most of the remaining prospects. The conversation goes something like this:

Q:  What related acquisitions in our industry are currently in your portfolio?

A: We have over $400 million dollars to invest

Q: What is your strategy for our industry, and why do you find it attractive?

A: We have over $400 million dollars to invest

That’s an oversimplification, but not by much. Money is only money, and merely having it is no guarantee of success. You should remember that the average PEG has promised a target level of return to its investors, and most have a deadline for investing the money. If they fail to do so, the money reverts to its original owners, usually less the PEG’s costs of operations. That (not surprisingly) greatly diminishes the PEGs chance of raising more from those folks next time around. If that deadline is approaching, some funds get much looser about how and where they find deals.

Let’s say you find a fund that is already focused in your industry and has a strong plan for growing their investment. That is usually either by adding more companies like yours, or by using their relationships to generate a lot of new revenue. Whether you should give up control (and you are always giving up control) of the business depends largely on your personal objectives.

  • Family Financial Security: You want to take enough money off the table to eliminate the risks your family has lived with since you started the business. You still enjoy working, but would like to have more of a safety net.
  • Executive Expertise: As hard as it may be to admit, you’ve taken the company as far as you can. It has a lot of upside potential, but you know that you aren’t the one to take it there.
  • Capital Investment: You’ve identified substantial opportunity if you had the equipment or network to pursue it, and the investors agree with you.
  • Two bites: As I described last week, you see the investment partner as bringing the ability to make the minority share you retain worth more than the majority you are selling now.
  • Exit Strategy: Your new partners understand and agree on a time frame and method to let you move on to the next stage of your life.

I recently had a client who was offered a substantial 8-figure sum for his company. He is well under 40 years old. He decided that the company was (and the investors agreed) positioned for a period of very rapid growth, and he would rather make that run as a sole owner. Those members of his peer board who were over 50 years old strongly advised that he take the money and start another business if he had that much appetite for risk.

Age and attitude govern what is or isn’t a good deal. First you have to know what you want, but even then professional investors can’t read your mind. Unless you tell them what your objectives are (and you will have to eventually), they can only talk about their investment, and money is only money.

I have just published a new eBook, “24 Tips for More Effective Meetings.” It is available for FREE when you sign up to receive “Awake” weekly. If you are already a subscriber, just reenter your email address in the small sign-up form above right (you won’t receive duplicate posts). You will be automatically redirected to a download page. Thanks for subscribing!

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Does Investment Capital Make Sense for Your Business?

In the business acquisition world, deals where a seller keeps some equity for a future round of merger or acquisition activity is generally known as getting a “second bite of the apple.” Private Equity Groups (PEG), of which some 5,000 currently operate in the US, specialize in these two-stage deals. Generally, the motivation for a business owner is to secure part of his or her equity value now, and keep some skin in the game for a bigger payoff later.

apple with bitesOn the face of it, these deals can offer the best of both worlds. An owner can monetize a substantial portion of ownership, alleviating the risk to family security that often accompanies an entrepreneur’s concentration of wealth in the company. With the capital and connections of professional investors bringing new opportunities, the company grows bigger and faster, making the ownership percentage kept by the founder worth more in a few years than the whole business was at the time of the original deal.

What is there not to like? You reduce the risk of a major downturn in your business by securing part of your investment now, and keep an ownership interest in a big upside. An infusion of new capital allows the company to expand, and you enjoy additional connections to markets and strategic partners.

In an ideal transaction, that’s exactly what happens. In the real world, however, there are some issues surrounding supply and demand.

First, a Private Equity investor needs some scale to leverage, That is commonly pegged at a minimum of $1 million in pretax cash flow (or profits, for some analysts). Statistics on the number of privately held companies that generate that level of profitability vary widely, but most estimates put it between 15,000 and 20,000 companies in the $10 million to $100 million revenue bracket. Among the 28 million privately held businesses in the US, that is about one half of a percent.

Chasing these, even assuming they were all for sale (which is far from the case), are the aforementioned 5,000 funds. Even if each did one transaction a year, we would run out of candidate companies in pretty short order.

The reality of the private equity marketplace is a little more muddled. According to Doug Tatum of Newport Board Group, the last few years of private equity activity has been about two-thirds add-on transactions. That is, smaller companies being acquired to grow a core acquisition in the original target range.

On the other end of the pipeline are the issues of acquisition strategy and “dry powder” in the PEG. Some have funds available from investors, the uncommitted portion of which (dry powder) are available for investment. Others merely claim to know where to find money if a good deal comes along.

Similarly, acquisition strategies range those targeted on a single industry, to those with seemingly no strategy at all. In between are funds that claim a suspiciously broad range of expertise (One claims “specializing in health care, manufacturing and high technology.”) and those who claim no expertise. (“We will consider any company with $XX in annual cash flow.”) It’s usually not clear how those investors will provide the contacts and expertise to help a business grow to a whole new level.

Let’s assume you’ve been approached by an equity group that knows your industry, has  a track record of success, and can show real investment money in the bank. Aside from price, what other considerations should impact your decision whether or not to talk seriously? I’ll go into that next week. Readers are welcome to post their ideas and opinions.

I have just published a new eBook, “24 Tips for More Effective Meetings.” It is available for FREE with your subscription. If you are already a subscriber, just reenter your email address in the small sign up form above and to the right. You will be automatically redirected to a page where you can download it. Thanks for subscribing!

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Regulation: Between a Rock and a Hard Place

True story: A fortune 500 company implements a new wellness plan for employees. It’s designed by consultants who use the Affordable Care Act (Obamacare) as a template. Workers are incentivized to get regular exercise, quit smoking and lose weight; with contest prizes and discounts from their health insurance premiums rewarding successful efforts.

crushing rockThe U.S. Equal Employment Opportunity Commission promptly files suit against the company for discriminating against obese employees and others with unhealthy lifestyles. The EEOC says that their mandate to punish discrimination isn’t subject to a law that promotes something different.

True story: An employee for a small business that provides contract workers to backfill positions in the Federal Government sues her employer for fostering an atmosphere of sexual harassment. A Federal worker in her department took her mobile phone from her desk and used it to make explicit photographs. According to the law, the employer must either a) move the woman to another position, or b) discipline the offending photographer. Unfortunately, there is no other position besides the one she is contracted for, and the selfie-star works for the Feds, and so can’t be touched without the due process of the civil service system.

The employer is left with a choice between paying the employee not to work, or leaving her in place and defending against a claim he had nothing to do with and can’t fix.

True story: An employee who is on a “final” performance improvement plan (PIP) with termination the stated result of non-performance, informs the Human Resources Manager that she has been diagnosed with depression. She does not request any accommodation under the Americans With Disabilities Act, but says she “Just wanted her to know.” In compliance with HIPAA (which mandates up to a $50,000 fine for a first offense of  sharing employee medical information), the HR manager maintains complete confidentiality.

Ten days later the PIP is reviewed, the employee is found to have not made the necessary changes, and she is terminated. She sues the employer, claiming that the real reason for termination was her medical condition.

Despite the testimony under oath by both the HR Manager (that she didn’t share the information, since it is prohibited by law), and the company executives (that they were not informed), the EEOC judged the company guilty due to “temporal proximity.” That is, the incidents of the reporting and the termination occurred closely enough together that, regardless of prior documentation, everyone else is assumed to be lying.

The Washington Post calls it “The Fourth Branch of Government”; agencies that have been given lawmaking power by Congress, and which now account for over 80% of the rules businesses have to abide by. These laws (or regulations) are implemented without vote or accountability. In 2007, for example, Congress passed 138 laws (and that’s before they were gridlocked) and Federal Agencies finalized 2,926 new regulations.

In 1960 there were about a dozen agencies , like the Securities and Exchange Commission, that had rule-making power. Today, there are over 140 Federal agencies empowered by Congress to make new regulations and enforce them. We’ve come to accept that the EPA, OSHA, HHS, EEOC, DOL and scores of others can create new laws and penalize employers who violate them, even when the “violation” is to comply with a different agency’s rules.

Some regulation to protect public safety and promote ethical dealings in the workplace is clearly necessary. Empowering a million bureaucrats to determine this country’s legal system without accountability isn’t.

I have just published a new eBook, “24 Tips for More Effective Meetings.” It is available for FREE with your subscription. If you are already a subscriber, just reenter your email address in the small sign up form above and to the right. You will be automatically redirected to a page where you can download it. Thanks for subscribing!

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One Response to Regulation: Between a Rock and a Hard Place

  1. Frank Benzoni P.E. Retired says:

    John

    Welcome back – and as usual another great article – batting 1000

    Frank

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“Everyone has Gotten So Rude!”

Not too long ago, I was leading a group of business owners in a discussion. These were not my peer board members, but rather owners at a breakfast, none of whom I’d met before. To start the conversation, I asked each to describe the biggest business challenge he or she faced today.

One older fellow came back sharply. “Rudeness!” He said. “Business people no longer have any manners.”

I immediately thought of several versions of this problem. Folks who communicate abruptly via email or text. The near extinction of friendly conversation just to “get to know” customers and vendors. A growing tendency to negotiate via revised Word documents or purchase orders emailed back and forth instead of discussing differences. I didn’t know if these were the man’s issue though, and so asked him to clarify.

“For my entire career,” he said “I’ve prospected successfully for new customers by dropping in on companies unannounced. I’d just walk into a business, give my card to the receptionist, and ask for 15 minutes of the CEOs time. Once he saw what I had to offer (insurance), he’d often ask me to follow up with a proposal.”

“Now, when I ask for the CEO the receptionist usually asks if I have an appointment. When I say ‘no,’ she refuses to contact the CEO. Even if I get her to call him and ask, he won’t come out and see me. I’ve gone to the trouble of coming to his place of business to meet him, and he won’t even do me the courtesy of listening to what I have to say.”

business greetingI was aghast. Surely he couldn’t be serious? “No soliciting” has become so ubiquitous that most of us don’t even bother putting signs on the door anymore…it’s just assumed. I certainly don’t meet with walk-in salespeople, especially now as they seem mostly to be guys selling something off a truck. Who has an expectation of a CEO welcoming an unscheduled sales visit?

As I considered his issue, however, I realized that most forms of cold calling get the same response. Do you answer emails that offer a free analysis of your web traffic? Do you return telephone messages from companies that have buyers ready to purchase businesses just like yours? Do you RSVP for a presentation at the local steak joint on how to make your retirement savings grow faster? Probably not.

We don’t worry about rejecting various forms of mass solicitation because they aren’t personal, and we don’t expect the sender to take our lack of response personally. An actual, traditional sales cold call is personal, and the salesman is relying on your reluctance to offer a “personal” insult to gain face time. Rejection of the daily flood of sales contacts has become so automatic, however, that we no longer consider any rebuffs to be either personal or rude.

Cold calling has been replaced by warm calling, a contact backed up by a referral, Linked In connection, or shared common interest. As we increasingly categorize, catalog, limit and prioritize our relationships, those outside the circle have less chance of getting through, even if they show up in our lobby.

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6 Responses to “Everyone has Gotten So Rude!”

  1. Phyllis Pickard says:

    It is true that we don’t see cold call sales people, but we do try to treat them courteously.

  2. Mike Havel says:

    Interesting and so true. The World has changed! When I started in sales in 1979, I use to park my car in an industrial area, and walk the block making cold calls. I do not believe that would work in today’s world.

    Just like a lot of us grew up with an open chain link fence or no fence at all. We all knew our neighbors.

    Today most fences are tall wooded structures that are not open to your neighbors to see in, and a lot of us never see or know our neighbors.

    I agree that most of my calls today are “warm calls”. Either the customer found us on the web and ask to see us, or I connect with a referral or follow up from a show.

    However I do miss the FUN of making cold calls. Use to learn a lot about an area and meet new and interesting people.

    Mike
    .

  3. Jim Edholm says:

    I began selling in 1964. From day #1 – based on the sales book used at my Monsanto sales training course, “How I Raised Myself from Failure to Success in Sales” by Frank Bettger – I always worked by appointment out of respect for the other person’s time. I felt that just “dropping by” suggested that the CEO or Purchasing Agent had little to do besides entertain me.

    That said, when I would call for appointments, I usually got a somewhat friendly reception and an appointment.

    In 1975 I changed to selling estate planning/financial planning just like your subject in your opening story. We called on business owners – valuable, illiquid assets like a business need cash, i.e. insurance, to pay estate taxes at death. WHen I made that switch, also moving to New England from the Midwest at the time, I found an ENTIRELY different atmosphere – hostile, suspicious, defensive, closed off.

    Since then it’s only gotten worse. Coward that I am, I now employ a telemarketer to “sell” initial telephone consultations. Easier appointment to get, somewhat less productive than face-to-face.

  4. Mike Wright says:

    As pointed out, the Internet has changed so much. It used to be that sales calls were an important source of information. Now we are constantly bombarded with information, and the challenge is on filtering most of it out. Which comes across as abrupt or rude. We have been trained the we can search for what we need when we need it. Knowing exactly what we are looking for has become the challenge.

  5. Jeff Ostroff says:

    Our distribution business requires cold calling. We get no where with phone calls and little with emails, so we go to the prospects. In food service this has not become entirely unexpected. We apologize for interrupting, introduce ourselves, leave a card, ask for a card and a future appointment. Rarely are we treated poorly and the results are still worthwhile.

    • John F. Dini says:

      I agree, Jeff. The restaurant industry – perhaps due to the more hectic nature of mealtime rush and lulls combined with the “hospitality” aspect of greeting everyone as a potential customer, is one of those where cold calling is still effective and expected.

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