Paying Bonuses

Bank of America just took money from me and, in return, they tried to harm my business.

I wil explain. First, a little background. Our company, K2awards, is an internet company that sells trophies, all kinds of them. Soccer trophies, basketball trophies, bocce trophies, you name it. You would not think it would be affected by the recession. The entire industry has been affected and business across the board is down. Suppliers are complaining and begging retailers for business. The causes are myriad. Companies are cutting back in general. Fewer employees mean fewer employees getting awards. Youth leagues are struggling to get participants as parents wonder if they need to pony up another $100 in fees and $50 for uniforms and equipment (even more for equipment for some sports.)

As a result of all this, we had a soft fourth quarter and I did not pay our employees any bonuses. This is the first time ever and I was not happy about it. I did, however, have the opportunity to pay part of the $4 billion in bonuses to Merrill Lynch employees. While this was not a direct payment, it was pretty close as a result of the $40 billion government bailout of BankAmerica. I pay taxes. Fortunately, lots of taxes. And who funded the bailouts, yes that was us. And where did that money go? To highly paid executives who performed so poorly that they had to be bailed out by Bank of America and the government. John Thain, the ex-CEO of Merrill had the feeble excuse that these failed executives needed the bonus for retention so they could help salvage the franchise that they had destroyed. Where are they going to go? What financial firm is hiring.

Now the real kicker. I funded the Bank of America bailout - not just me - all of us taxpayers, but I did far more than my percapita share. The rationale for the bailout was to ensure that the banks had money to lend to businesses. And what happened? Bank of America reduced my line of credit. In other words, I paid Bank of America bail out money, so they could lend me less. THe most perverse thing is as that my portion of the bailout money is about equal to the my line of credit with Bank of America. Is this how we are going to stimulate the economy? I do not think so. Fortunately, we are very conservatively capitalized and we do not need the money. If I did need the money, 30 more people would lose their jobs. With that said, we just hired a new employee and I would like to hire more. But there is a real question as to the sanity of that when my tax dollars are being taken and given to companies that are making business tougher for me. It may be a bad idea for me to invest.

In my last post, I mentioned the measures we are taking as a company to reignite the business. We are moving faster and more aggressively. The results are looking very promising with orders rising well above prior year.

This has been more of a rant than a blog. But I had too.

Managing In Turmoil

I am not too proud to admit that managing k2awards in this environment has not been easy. We have ridden the internet wave to become kind of big for our little industry. This past fall, however, everything changed. Competition has become fierce on the internet just as growth in internet spending is slowing. This is particularly true in our industry. From bit players who have everything drop shipped, to bigger dealers that are cutting price to keep up volume, competition hits from both end of the spectrum.

To combat this tough environment, we are taking advantage of the change in Washington to change our business. Yesterday, the new president took the first step in addressing the issues facing the nation by acknowledging that we have issues. Unfortunately, he did seem to lay a firm framework as to how we are going to address these issues.

We took it upon ourselves today to outline the issues facing our company: the intense competition, the decline in employment, the missing discretionary dollars, and the nagging operational issues. I then outlined a framework for how we were going to act. We reiterated the freedom (and responsibility) for everyone to look at every part of the business to identify and ACT UPON issues in an urgent manner. This urgency is required in all aspects of the business regardless of the seeming importance. Urgency in putting out orders. Urgency in improving processes. Urgency in training employees. Urgency in cleaning up work spaces. Urgency in maintaining equipment. Urgency in promoting the business.

We have to act like there is no time. Because there is no time.

Helping the Economy is not that complicated

This blog is designed to help the small business owner cope with the inevitable issues that constantly surface. While most posts will be focus on actionable business activities, the macro economic environment now suggests that we as business owners must take an active role in making sure that the overall business climate improves. What frustrates me the most is that many issues are not that complicated.

Case in point is the debt load being loaded onto the US tax payer. Some of this debt appears to be required to stimulate the economy. I understand that. What I do not understand is the continuing transfer of money from the US to oil producing countries that in general do not like us much. Where is the rational outrage and national drive to stop sending money to people who wish us harm.

Reducing our payments to these countries ($700 BILLION in 2008) is basically free money. But how do we this? It is not that compicated - we use less oil. How do we do that? It is not the complicated - we drive fewer miles in more fuel efficient cars. So how does this happen?

First, last spring's run up in oil prices pushed us to drive fewer miles for the first time ever. So there is now a proven (as well as intuitive) correlation between gas prices and miles driven. Let's tax gas prices back up to the $4/gallon and take that money and pay ourselves in any number of ways. I favor a reduction in FICA, but any tax cut works. You may claim that $4/gallon hurts our standard of living. If we make no changes it could. But if we are smart, it would have minimal impact on our standard of living and we still get that tax break. Here is how. Say you drive an SUV that gets 15 miles per gallon. If you replace that with a Prius at 45 miles per gallon, which works for 90% of your driving I bet, your gas expense is the same if gas prices triple - and yes, you still get the tax break. Suppose you say, I am tired of funding the terrorists nations and decide to walk once in a while or car pool from time to time - you actually come out ahead.

As business owners, we look at big issues that affect our business and react in a rational way. I ask you to show outrage to the Congress at sending money to unstable regions and start behaving rationally for our own safety and success. It is not that complicated. Show some outrage.

The TrophyHusband-Radical Moderate Begins

As an owner of a small business, I keep hearing from our political leaders that we are the engine that drives the economy. Unfortunately, the policies that we hear have nothing to do with helping small innovative businesses. I am starting this blog in the hope that our voice will be heard, and that we can begin to start a dialogue as to how we, as small business owners, can prosper in a very difficult environment.

As a bit of background, I started an internet trophy company called k2awards about 7 years ago with the idea of making buying trophies easier and cheaper. We have grown to become one of the largest trophy companies in the country by being innovative and reinvesting heavily in the business. Until recently, growth was relatively easy as we surfed the internet wave. Now as the economy softens, we are having to be smarter and more nimble to keep up the growth. In future posts, I plan going into more detail on how the company started, but for now, I hope this serves as context to my comments.

The most egregious example of our political leaders saying nice things about small business and actually acting in the opposite direction is the bailout of Chrysler. Chrysler is an odd company to bailout for lots of reasons. First of all, it has been shedding jobs for many years. Should we not support companies increasing payrolls? Secondly, Chrysler is owned by Cerberus, a private equity monster by name. These owners hardly need a bailout, just check out their homes and incomes over the past decade. Third, while we look for ways to reduce the price of oil, we are asking the car companies to build small cars that noone seems to want to buy. There is absolutely no rationale for it. Finally, we need to invest in the future and not in the past. Perhaps Congress should read the children's book "Mike Mulligan and the Steam Shovel" (think they can get through that?) to learn the lesson that fighting progress works for a while, but in the end, it is a losing battle. Yes we need a domestic car industry that produces more fuel efficient cars, but propping up Chrysler is not the answer.

Let's invest in small, innovative, growing businesses as Congress says it wants to do, and not in the past.