“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”

How does this famous quote by the ancient Greek thinker Archimedes have any relevance to minority owned businesses in urban neighborhoods?   

We've spent some time interviewing small business owners in Baltimore and Philadelphia and we've discovered a recurring problem that needs to be addressed.   Here's an example.  One dude who owns an auto repair garage in East Baltimore has a thriving new business.  He has a line of customers bringing their cars in and he also runs a mobile auto repair service.  It was hard for him to pull himself away to talk to us for even 15 minutes.  Let's call dude, "Bill". 

Most of Bill's clients pay in cash.  Bill proudly manages to report very little of his revenue on his tax returns.  He is "stacking cash".  What could be wrong with this?  Realizing that we had a very short time  to communicate with him before he had to get back under a car we hit on a couple of strong points.

Capital Corner-:"Bill, do you realize that there are two types of money?"

Bill -"Uhm, good and bad?"

CapCorn-"No, The kind that you work all week and then go get a check and the kind that gets mailed to you. Which one do you want?"

Bill- "The kind that gets mailed to me"

CapCorn, pointing to a row house across the street- "If you had $25 thousand could you buy that row house?"

Bill- "yep"

CapCorn- "would that be a good investment of $25 k?"

Bill- "sure"

Now we turned the conversation to the issue of leverage (and we only had a minute, 'cause one of Bill's customers was telling him to stop goofing around and get back to fixing her car). We confronted  Bill with the idea that he may be "looking down the wrong end of the telescope."  If Bill took that same $25 k he could buy FIVE row houses on that block instead of one.   He could put $5K as a down payment on five different houses and use a bank to finance the balance of the purchase price.  If the properties appreciated 10% over 3 years he could stand to make $12.5K profit on five units instead of $2,500  on one.  That is a five-to-one improvement on return.  This is the power of leverage. 

How does this example of leverage relate to Bill's actual business?  If Bill were to REPORT his true earnings in his auto repair business, if he were to move from a grey market cash biz to an above board business with financial statements and accurate tax returns, he could leverage his existing revenue stream.   Yes Bill would have to pay more in taxes and have bookkeeping costs.  And yes Bill would have income that an ex could see and possibly lay claim to.   But the ability to leverage revenue is ABSOLUTELY ESSENTIAL for Bill to be able to grow his business to the point where he could have true wealth; where he could have the kind of money that gets mailed to him.   

There is no reason, through leverage,  that Bill could not expand his business from a two bay garage to a four bay garage.  There is no reason, with the right business plan, that Bill couldn't have several garages around the city and a fleet of mobile mechanics that could even serve government contracts.  However, there is no way that Bill will get the kind of growth he needs by "stacking cash".  Bill must begin the process of building a reportable business.  This is the only way that  he can effectively communicate his vision and plan to a lender or an investor in a compelling way.

The key to growing a business is using"other peoples' money".   We will hit on this point again in a future blog. In the meantime if you want to get the kind of money that gets mailed to you,you will have to learn how to leverage the revenues generated by your business. 



The author, Philip Stephano, is a social media marketing strategist in Bucks County,  PA.  He is passionate about helping local and regional business around the country to use social media as an effective tool to find local prospects and customers. To learn more about Stephano go to http://about.me/philipstephano

The Capital Corner: "There are two parts to a deal"- Negotiation101

The Capital Corner: "There are two parts to a deal"- Negotiation101: "When negotiating the purchase or sale of a property or a business it is important to remember that there are two parts to a deal: price and ..."

"There are two parts to a deal"- Negotiation101

When negotiating the purchase or sale of a property or a business it is important to remember that there are two parts to a deal: price and terms.   I like to say, "you pick one, and you get the first pick!"    Supposing you are selling a car and you jokingly say, "I pick price and my price is $1 million dollars, LOL".   OK, now it's my turn and I get to pick the terms:  "I will pay you one dollar a year for the next million years!"   That is an exaggerated example that illustrates the two sides of a negotiation.  

I remember one deal that my partners and I negotiated.  Our objective in negotiations was to lock up the property immediately, have a contract that accomplished this at low upfront cost with lots of "outs" (contingencies), and to get the sellers to agree to provide a piece of the financing.  We were confident that given these buyer-favorable terms we would be able to form a partnership and be able to finish the acquisition.  In any event we had mitigated the cost of failing.

We met the sellers at a neutral location (it is important to negotiate on your own turf or at least neutral turf.)   I remember they confidently demanded $1.6 million for the property.  Our counter offer?  We offered them $1.8 million!  At that point we had complete control of the negotiation and we went about getting the terms that we needed in order to finish the deal.   We got the deal signed up immediately with almost no deposit, we got an agreement that had contingencies in place in case we were not able to get the acquisition funds together, and we got them to agree to take a 2nd mortgage for a piece of the $1.8 million purchase price.  

That deal ultimately was funded in a Limited Partnership for $2.8 million and my partners and I split a $1 million note payable to us at the settlement table.  Many years later we sold the property for $8.5 million (and we sold it for cash- no financing provided by the sellers.  We got price AND terms!)  Remember, there is more to a deal than squeezing on the price.   Knowing this can be a useful tool in risk mitigation and allocation which we will blog about soon.  Cheers,


The author, Philip Stephano, is owner of PrimalTweet a social media marketing company in Bucks County,  PA.  He is passionate about helping local and regional business around the country to use social media as an effective tool to find local prospects and customers. To learn more about Stephano go to http://about.me/philipstephano

"Keep going, no matter what"- Baltimore's Reginald Lewis, entrepreneur

Reginald F. Lewis was born on December 7, 1942, in a Baltimore, Maryland, neighborhood he later described as “semi-tough.” Strongly influenced by his family, he began his career at the age of ten by delivering the local Afro-American newspaper. Fortune Magazine reported that “as a child, Lewis kept his earnings in a tin can known as ‘Reggie’s Hidden Treasure.’” The tin can had been given to him by his grandmother, who taught him the importance of saving some of everything he earned. Reginald later sold his newspaper business at a profit.

During his high school years at Dunbar, Reginald excelled in both his studies and sports. As quarterback of the football team, shortstop on the baseball team, and a forward on the basketball team, he served as captain for all three teams. Reginald was also elected vice-president of the student body; his friend and classmate, Robert M. Bell (current Chief Judge of Maryland), was elected president. In addition, Reginald worked nights and weekends at jobs with his grandfather, a head waiter and maitre d’.

In 1961, Reginald entered Virginia State University on a football scholarship, majoring in economics. He graduated on the Dean’s List despite having a rough first year academically as well as losing his scholarship due to an injury. After losing his scholarship, he worked in a bowling alley and as a photographer’s assistant to help pay his expenses. In his senior year, the Rockefeller Foundation funded a program at Harvard Law School to select a few black students to attend summer school at Harvard to introduce them to legal studies in general.

At the end of the program, Reginald was invited to attend Harvard Law School—the only person in the 148-year history of Harvard Law to be admitted before applying to the school. He arrived at Harvard with $50 in his pocket. During his third year at Harvard, he discovered the direction for his future career in a course on securities law. He wrote his third-year paper on takeovers. He graduated from Harvard Law School in 1968 and went to work for a prestigious New York law firm (Paul, Weiss.)

Within two years of graduation, Reginald established his own law firm, the first African American law firm on Wall Street. He focused on corporate law, and he also helped many minority-owned businesses secure badly needed capital using Minority Enterprise Small Business Investment Companies (venture capital firms formed by corporations or foundations, operating under the aegis of the Small Business Administration).

A desire to “do the deals myself” led him to establish the TLC Group L.P. in 1983. His first major deal involved the $22.5-million leveraged buyout of the McCall Pattern Company. Reginald nursed the struggling company back to health and, despite a declining market, led the company to enjoy the two most profitable years in its 113-year history. In the summer of 1987, he sold it for $90 million, making $50 million in profit.

In October 1987, Reginald purchased the international division of Beatrice Foods, with holdings in 31 countries, which became known as TLC Beatrice International. At $985 million, the deal was the largest leveraged buyout at the time of overseas assets by an American company. As Chairman and CEO, he moved quickly to reposition the company, pay down the debt, and vastly increase the company’s worth. By 1992, the company had sales of over $1.6 billion annually, and Reginald was sharing his time between his company’s offices in New York and an office in Paris (most of the company’s businesses were in Europe).

With all of his success, Reginald did not forget others; giving back was part of his life. In 1987 he established The Reginald F. Lewis Foundation, which funded grants of approximately $10 million to various non-profit programs and organizations while Reginald was alive. His first major grant was an unsolicited $1 million to Howard University—a school he never attended—in 1988; the federal government matched the grant, making the gift to Howard University $2 million, which was used to fund an endowment. Interest from this endowment is used for scholarships, fellowships, and faculty sabbaticals. In 1992, Reginald donated $3 million to Harvard Law School—the largest grant in the history of the school at the time. In gratitude, the school renamed its International Law Center the Reginald F. Lewis International Law Center. Among other programs, the grant supports a fellowship to teach minority lawyers how to be law professors.

In January 1993, Reginald’s remarkable career was cut short by his untimely death at the age of 50 after a short illness. At his funeral, a letter from his longtime friend, David N. Dinkins, former mayor of New York, was read. In the letter, Dinkins wrote “Reginald Lewis accomplished more in half a century than most of us could ever deem imaginable. And his brilliant career was matched always by a warm and generous heart.” Dinkins added, “It is said that service to others is the rent we pay on earth. Reg Lewis departed us paid in full.”

Even after his death, Reginald's philanthropic endeavors continue. During his illness, he made known his desire to support a museum of African American culture. In 2002, the Vice President of the foundation read an article in the Baltimore Sun describing a museum of Maryland African American History and Culture slated to be built near Baltimore's Inner Harbor.

After further research and discussion, especially relative to the partnership between the museum and the Maryland State Department of Education to develop an African American curriculum to be taught in all public schools in the state of Maryland, the foundation made its largest grant to date to the proposed museum; $5 million dollars. The money is an endowment with the interest to be used for educational purposes.

Lawyer, entrepreneur, philanthropist, Chairman, CEO, husband, father, son, brother, nephew, cousin, friend—Reginald F. Lewis lived his life according to the words he often quoted to audiences around the country: “Keep going, no matter what.”

Quoted from http://www.africanamericanculture.org

Philip Stephano

Executive Director

The Capital Corner

The author, Philip Stephano, is owner of PrimalTweet a social media marketing company in Bucks County,  PA.  He is passionate about helping local and regional business around the country to use social media as an effective tool to find local prospects and customers. To learn more about Stephano go to http://about.me/philipstephano