Episode 118: Small business Fights Back! with Michael Arrieta 

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to the WealthAbility show where we’re always discovering how to make way more money and pay way less tax. Hi, this is Tom Wheelwright, your host, founder and CEO WealthAbility. So the government has been waging a war on small business for several years now. Starting with COVID, we’ve got tax implications. There’s things going on right this minute. So today, what we’re going to discover is one entrepreneur’s effort to combat this war and his ideas on what do we do about this war on small business, which is near and dear to my heart as I love small business owners and entrepreneurs. And his name is Michael Arrieta. Did I get that right, Michael?

Michael Arrieta:

Michael Arrieta. Yeah, that’s fine.

Tom Wheelwright:

Michael Arrieta. I’ll get there.

Michael Arrieta:

There you go perfect. It’s perfect.

Tom Wheelwright:

Michael Arrieta. And Michael, if you would, welcome to the show and if you just give us a little of your background and why you are doing what you’re doing.

Michael Arrieta:

Yeah. Thanks so much, Tom. I love what you said. Make a lot more money and pay less taxes. That’s a good way to grow our great country. So my name is Michael Arrieta. I’m the founder and CEO of Garden City Companies. We’re a people first holding company and we buy, grow and forever hold small to mid-sized family-owned companies. So every single morning we wake up and we speak to retiring business owners or business owners that are thinking about their succession plan they need in place, or they need a liquidity plan. A lot of them are all baby boomers, and they’re saying, “Hey, I’ve owned this business for 10, 20, 30, 50 years and I need to do something with it, right? I can’t die with it. So I need to do something with it.” So we have a very no nonsense approach that we come alongside that business owner, we speak to them, we get to know their business, learn their business. We buy those companies from them and we help grow them. And we have no intention of flipping them. And so the reason why we do that, our purpose is because we want to see people thrive. So we want to create amazing work environments where their workers could thrive, prosper and flourish.

Tom Wheelwright:

I love that. So it’s an interesting niche. We serve a similar niche at WealthAbility. We have a network of CPA firms that serves only the small business and only that small, medium sized business. So small businesses, basically, we’ve seen them under attack for several years now. During COVID, if you were a small business, you had to be closed. If you’re a big business, you got to be open. That was very clear. That was a very clear policy of … By the way, remember, that was a previous administration. So that’s been a policy of several different state administrations, local administrations, as well as the federal administration. And we currently see this attack on small business. Now, what attracts you to small business? What is it that you like about the small business, particularly instead of going the route that most aggregators do, for example, and they go and they take small and create big?

Michael Arrieta:

Yeah. Most private equity companies, especially try to focus on midsize to large cap company. Yeah. I think our government has not tried to attack small businesses. I just think they don’t understand them, which the result is hurting them. Right? And so in terms of small businesses, small operating companies, right, you need to learn how to run a balance sheet. You need to learn what actually creates profit. You need to learn supply chain and labor and the cost of goods. And our governments have never done that. They don’t run a balance. They just print money. Right? And so it’s speaking Mandarin to someone that only speaks English, right? They do not know how to relate or support or advance our great country, small to mid-size businesses.

The reason why I love small businesses, it’s a backbone of every local community that there is. Right? Of course, there’s the monster companies that we look at, like the FAANG companies or the huge oil companies or CPG. But if you look at wherever you live in Arizona, where we live in Georgia, right? When your heater breaks out and it’s 98 degrees in Atlanta with the humidity, where are you going? You’re going very, very likely to go to a small to midsize company. I don’t even know the largest HVAC company that exists in Georgia. The largest one maybe does 50 million most of revenue, which is a small business. Right? And so they’re the backbones. We don’t have running HVAC. We don’t get to fix our plumbing if it’s leaking. We can’t do what it is that we do in our country without landscaping, without mechanics, right? Without small healthcare practices like doctors or nurses or paralegals. Right? So our entire, entire infrastructure that we run our true day to day on is mainly operated and brought to you by small to midsize companies. So for me, yes, I could go invest in tech companies and do that, but I’d rather invest in a critical need that our country needs to have for the next decades to come.

Tom Wheelwright:

Whether it’s intentional or unintentional, it is happening that small businesses under attack. Big businesses attack them regularly. Walmart’s been putting small businesses out of business for years as have a lot of … Amazon put small businesses out of business, and Microsoft put small technology companies out of business. You expect it from the big companies. You don’t expect it from the government. It makes sense. They don’t really understand it. I read in the Wall Street Journal that the average time spent in private industry of the Biden administration officials is 2.4 years, which means that the average 25-year-old has more private industry experience than those people running our government. So that might explain why they are a little ignorant of how small business or how business actually runs. So how does a small business protect themselves? What does a small business in your mind have to do to thrive?

Michael Arrieta:

Yes. So we always see it from three perspectives; culture AKA people, technology and sales/marketing. So let’s start with culture so people. So big companies, right? Versus small companies. So recruitment, it’s a lot easier for a large Amazon, Walmart, whomever to go recruit people when they have a lot of recruiters, when they have tools and resources online, when they have a lot of dollars for fairs or they have any sort of recruitment dollars needed compared to a small business, right? Then you look at developing. People are now wanting purpose in the marketplace. They want a clear advancement opportunity, right?

And so when you look at these companies that large companies could have their employees switch from job to job if they’re not satisfied, go from department to department, a small business does not really offer that, right? So in terms of developing that employee, it’s not the same fashion. So what we look for in our small business when it comes to culture and people is, how can we create the most caring, Chick-fil-A like culture, where when people work there, they actually feel loved? They feel seen, they feel acknowledged, respected, dignity, right? They feel like they could actually have a sense of living and mission and purpose. A big business cannot compete with us on that.

Tom Wheelwright:

So give us two or three ways that a small business can do that.

Michael Arrieta:

Sure. A monthly or biweekly town hall, you bring all your people together and you tell them how we’re doing as a company. We all want our employees to think like owners, let’s treat them like owners. Owners look at the P and L. Owners know what’s good, bad, and ugly. We put this entire Chinese wall with our employees that we do not want to let them know how it’s really going so they can’t really think like an owner. So transparency is one of the ways. Another one of the ways is development and leadership development. So we’re constantly looking for ways to tell them how to conflict resolution, how to greet customers, problem solve. Right? We also look at how to help them out financially in terms of telling them new ways to save like Rich Dad Poor Dad, which I know that you’re involved with. Things like that, resources that we give them, savings that we give them. We give them tools around marital counseling, right?

The two biggest issues of any working class person is marital issues and financial issues. So what would it look like for an owner to come alongside the two biggest issues employees have to say, “Hey, let us help you with that.” Right? Actually doing one on ones. That’s something a lot of big companies don’t do well. It’s actually meeting with people, say, transparently, how’s your job going? How can we do better? It’s just caring. That’s all it is. It’s literally caring. So if we do that as small businesses, we will eat the lunch of those big businesses. They can’t do that. Right? They’re two large. They’re too bureaucratic to people.

The second one is technology enablement. These big businesses are really good because they have massive technology teams. So know what new technology exists out there, how to quickly procure it, how to deploy it and change management. Small businesses, it’s horrible right now. These small business owners that a lot of them are boomers know this thing called technology has been around for a long time. And when you ask them what their strategy is, they tell you that they have a website, right? That is not acceptable. That was [inaudible 00:09:58].

Tom Wheelwright:

That was acceptable in 1995.

Michael Arrieta:

Yes, exactly. Right? And so this is something that small businesses need to grow a muscle and then say, what technologies exist? How can I procure it? How can I quickly implement it? And how is this a mandate that my employees must start to implement and adopt rather than it’s up to them, right? And so they need a lot of support there. That’s something that it’s not as easy turn on the switch as culture, right? And start to care more. That is something that they need professional help on. There’s a lot of services. There’s a lot of firms out there, right? People could contact me and I’d be happy to send them to some, but you need to think through how to manage your customers through a CRM, through dispatch systems. You better be on QuickBooks, right? You better use things like DocuSign. All these sort of things that are very easy plug and play that would dramatically help you run faster, more efficient, more leaner, and potentially eliminate some jobs. So I know it’s difficult to say, but it is unfortunately the only way we can compete with the bigger ones, right? So technology enablement. And the last one is sales and marketing, right? Is that we have the chance of going above and beyond for our customers and loving them and meeting them in a way that large businesses cannot. Right?

I live in Atlanta and there’s massive pest control companies here, right? They have all shared services GNA, Terminix, and all these companies. So they could go and spray my lawn way cheaper than the small guys can, clearly, right? They have a more size of scale. They have buying power, buying the products at a much cheaper price. But what they cannot do is they cannot serve me as a human better than the big guys can. So the company I’m with, they speak to me. They ask me, is your daughter having a birthday party this week? We won’t spray at that time. What areas do you feel is the best, the worst? They write me notes on my birthday. They send us Christmas cookies. These things that they go above and beyond, they actually win me as a human being, which these big businesses, they’re no longer treating us like humans. They’re treating us as a cog in the wheel, as a serial number. So we could beat the big businesses by going back to the fundamentals, right? Of treating people the way they want to be treated.

Tom Wheelwright:

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No question. We find that in my industry, in the CPA industry where you’ve had a lot of consolidation, right, into these big, what I call the cheesecake factory firms, right? Where they’re really big and you got a really big menu and they’ll do everything. They just do it very adequately. Right? And that’s it. And there’s no personal. They’re not taking time for you. They’re not actually proactively helping you. They’re not checking in with you. And this is why we specialize in the small CPA firm for the same reason is because the big firms just won’t do that. It’s not even that they couldn’t, it’s that they can’t make as much money. And that’s really all they care about is making more money.

Michael Arrieta:

Let me give you hope really quick on just an example. So a lot of my investors are owners of very large, quick service restaurant brands and franchises. And one of the biggest key themes right now going across America is these micro restaurant chains are eating their lunch. So you look at big box restaurants and their lines are completely empty. Yet you go to a curated, authentic human focused, little micro 10 location restaurant, and they’re slammed, right? Why is that? They’re going back to the fundamentals of let’s provide a good product. Let’s treat people the way they want to be treated. Let’s do it on time and let’s be nice, right? And I believe surely if you do three things, you will win a customer every single time. One is deliver a product or service without defect. Two, do it on time and time you promise. And three be nice. If we could do those three on service or a product without a defect, if we could be on time and if we could be nice, we will win the [inaudible 00:14:55] every time.

Tom Wheelwright:

You would think that, that would be obvious, right? But you’re right. I find that you rise to the top 10% simply by doing those three things.

Michael Arrieta:

Yes. Yes. Every time. If you go to a restaurant and they give you a steak that’s cooked perfectly and it comes out of time but the waiter’s a jerk, worst experience. The waiter’s amazing and it came out perfectly timing, but it’s overcooked, it’s a horrible experience as well. Right? So you need all three and these small businesses, they focus on those three fundamentals, they’ll win every single time. It’s happening in the hotels as well. Right? So these small boutique chains, you can’t get into them versus you go to a Marriott and they’re giving away the rooms for free almost, because no one wants to stay there anymore. So it’s happening. And I hope it happens more.

Tom Wheelwright:

Yeah, I agree. So what are some of the biggest challenges that you’re seeing small businesses facing? Because you see all these different small businesses, you’re deciding, do I want to acquire you? Do I not? What challenges are you seeing that they’re facing that potentially could kill them?

Michael Arrieta:

Yeah. Labor is horrible right now. It’s really difficult to recruit good labor. As you know, COVID changed that a lot with our government really incentivizing them not to work and incentivizing them to stay home. So people are still tainted by that. You have also companies like Waffle House or a lot of other good companies, but they’re paying a very low income people a very high wage, making very little profit of their company themselves so they’re killing a whole capitalistic model. So when you look at us trying to hire people, we just can’t compete really against the big box at retailers, the big box stores. Also, in regards to labor, it’s really hard these days finding people that believe what we believe, in being humble, in being hungry and always being willing to be smart and learn more. Right? So our country needs to develop more good workforce, kind of the good old American way of what we built our great country on.

Tom Wheelwright:

I mean, outside of culture, how does a small business attract those people?

Michael Arrieta:

You need to be really strategic and wise as your sources of employment. So we’re constantly looking at former military and veterans. We’re constantly looking at former athletes of schools, right? We’re constantly working with churches and saying, do you have good people at your church that are looking for work, right? So you have to be very wise. The Indeed, Craigslist online reviews, just go, press submit, those do not work anymore. End of story. They do not show up to the interviews. If they show up to training, they do not show up to day one. If they show up to day one, they would not show up the next day. It does not work. So you have to be very, very, very wise and strategic about the pockets that you try to target of getting you good, good labor.

Tom Wheelwright:

How [inaudible 00:17:56]

Michael Arrieta:

Let me give you a quick example. I just heard about this, a company in Texas. They’re in the building maintenance, janitorial industry. All of their best field managers are former teachers. They’re former principals. So they finally found a little niche of saying to these people work hard. They haven’t made much money, but they care a lot about running a tight ship and having people learn. Right? It was amazing. It’s a genius source of recruiting good, good talent from. We need to think like that.

Tom Wheelwright:

One of the challenges of course, is that the big business, they’ll do couple of things. They will recruit on price. Right? They’ll pay more than the small businesses can afford to pay. And they will say, “Well, you can work from home in Tulsa, Oklahoma. You don’t have to be in Dallas, Texas.”

Michael Arrieta:

Yeah. So two things, Horst Schulze, the founder of the Ritz-Carlson, he did a study with JD Power and what people want out of work, you would think money is top one, two, three. It was number six. It was number six. What people want most out of work is purpose. They want to be part of something bigger than themselves they said. They want to feel as though they matter. They wanted a voice. They wanted some elbow room. They wanted their voice to be heard. Those were like all the things I just said were the top four things. Right? So what would it actually look like that when someone comes to work at your janitorial company pool building CPA firm inspection, home inspection company, whatever may be that you say welcome, you matter here. And we are building the world’s best home inspection company you’ve ever seen. And we’re going to be the finest company you’ve ever seen. And by being employed here, we selected you, we didn’t hire you. By being employed here, you yourself are now considered as a person of excellence, right? Giving them that dignity, involving them in something bigger than themselves. How do these great nonprofits … I’m involved with a lot of nonprofits. How are they recruiting such good people still? How is that happening?

Tom Wheelwright:

Right. Because they pay almost nothing.

Michael Arrieta:

Yeah. They’re involving them in something bigger than themselves. And the people would say, “You could pay me 300,000 and I won’t leave.” Well, why don’t we think like that in the business world? So why don’t we actually, again, focus on the human rather than the business? Why don’t we focus on what makes the money instead of the actual money? So that’s one. To answer your specific specific question, what was your question again?

Tom Wheelwright:

So what about they can work from somewhere else and you need them to work there.

Michael Arrieta:

Yeah. So a big thing in that is the playbook has been … you need to rewrite the whole playbook, right? You need to rewrite the whole playbook. Having an office with cubes and having to be a certain way and having the vending machines say put in a dollar for a Coca-Cola, right? Because everyone else is doing that. Again, these small businesses are operating the stone ages for the most part. Now, when your competitors saying work from home in your pajamas with boxers on while you’re drinking your coffee and your dogs licking your toes, right? How do we compete with that while needing them in the office, is you need to change your work office environment. We go extreme and say, “Well, we’re not going to be like Google and give them a massage and give them free food, breakfast, lunch, and dinner.” It’s like, “No, you don’t have to, but why don’t you actually put some more human element in it? You actually believe that space is important?”

I do. I have a chair with a pillow and I like it here. Right? It makes me feel warm. We need to actually make the investments to our workplace and have people want to go there. Have we ever asked our people, how would you enjoy the office more? Which would probably make them want to come to the office more. Right? It’d probably be get rid of the Benny machine, which you pay $500 a month for, and you have your people pay. Go to Costco and get free Coca-Cola. Put it in there and people feel loved and seen. So you need to completely rewrite the whole model.

Tom Wheelwright:

I love it. Okay. So this has been fantastic. I could literally go another hour on this topic, and we’ll have to have you back for sure. Just in wrapping up though, what would be in your mind the top two or three things that a small business owner ought to be considering right now, something that they can do in the next few weeks even to change the way they do business to compete?

Michael Arrieta:

There’s a lot. Now, I’ve to start rapid firing. One is create a recession mitigation plan. If we all believe that we’re going into recession or we’re already in a recession, you better have a plan right now, option A, B or C that you’re going to pull the lever on before you’re caught with its tide going out. Two is raise prices because inflation was 9.1% last month, right? And you are probably not raising prices fast enough, right? As you’re offering your product or service or your salaries or whatnot, your gross margin is getting absolutely obliterated right now likely. Three is be very strategic on where you recruit people. Four, if you don’t have a vision statement of inviting people onto a journey, you better create a vision statement to invite people onto a journey. And number five is find out at least one solution of technology you could roll out by the end of this year that will help either create a better employee experience or better customer experience that helps you automate your business in a better fashion.

Tom Wheelwright:

I love it. Awesome. It’s Michael Arrieta and it is joingardencity.com. Is that right?

Michael Arrieta:

Garden City Equity or joingardencity.

Tom Wheelwright:

That’s awesome. So thank you so much, Michael. Thank you for all you’re doing to encourage, to educate small business. I believe that entrepreneurs are the lifeblood of the world and that without entrepreneurs we’d be in a lot of trouble and we need to encourage that entrepreneurship. So thank you so much. Remember also that as I wrote in win-win wealth strategy, the government will actually pay you to start a business. The government will pay you to do these things. And so remember that as you do these good things, as you reinvest in your business, boy, you’ll end up doing is making way more money and paying real less tax.  We’ll see everyone next time.

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