July 2018 Newsletter Featured Article
The Importance of an Exit Strategy: Lessons Learned from a Business Lost
Jason Alvey, triskeleconsulting.org
For seven years I lived the exciting, fast-paced, and rewarding life of a successful small business owner. I founded a niche retail business, The Four Firkins, a specialty craft beer store. A store that sold only craft beer, and hosted regular beer education classes at two retail locations. The first seven years of business saw rapid growth, increased margins, multiple free television appearances, and even a segment in a national movie about craft beer. The business seemed unstoppable! I certainly wasn’t going to waste valuable time planning for an unthinkable disaster.
I remember what it’s like to start your first business. You’ve done your research, written your plan. You’re confident and ready for the long hours and late nights. It’s go time! Fast-forward three years and your dream has become reality. Your business is thriving under your passionate leadership. You’re putting in 70 hours a week or more and you love every minute of it. You’ve become a celebrity in your industry and peers look up to you in admiration. You have become the personification of your business. Indeed, as far as your customers are concerned you are the business!
It’s a familiar story. Maybe you’re living this experience yourself as you read this, or maybe you know someone who is. If you’re going to start a successful small business this is what’s expected, isn’t it? I remember being told by another entrepreneur, “This is simply what you’ll have to do if you’re going to make it. Your business will become your entire life!”
Many small business owners will never consider having a plan B. In fact, many first time entrepreneurs might view even thinking about an exit strategy to be a kind of fear or admission of failure. We all know failure is the best teacher, however, our culture has such an aversion to it that many small business owners will risk literally everything rather than plan for, or even consider it.
The downturn at The Four Firkins, was at first, gradual. A subtle shift in industry and customer trends meant a small but growing percentage of our customer base began spending money at a variety of direct competitors as well as new, nontraditional competitors. As any small business owner or manager would have done, we responded by differentiating our business even further and giving customers more reasons to continue supporting us. The entire staff was focused on this effort. It was a concerted and increasing battle that became, as a small business owner, all-consuming.
While the fight for business survival intensified and took over my every waking thought, I still never considered the worst-case scenario. I remember the sinking feeling when I first learned about it: an aggressive national chain retailer had entered the market with plans to dominate Minnesota. They brought with them a pricing and labor strategy that we couldn’t hope to compete against. Given that The Four Firkins was already struggling this was particularly disturbing news.
Within months of this new national competitor opening two locations, The Four Firkins took a massive and unsustainable hit. Within a year the business was lost.
What if things had been different? The business itself was unique and had all the hallmarks of success. What could we have done differently to avoid this collapse? A more experienced business owner might have seen the market trends changing and predicted the gaze of outside competition directed at Minnesota. They might have been able to secure investors and increase the financial capacity to deal with an onslaught of these proportions. If done early enough, even an outright sale of the business may have been possible. It could have been left in the capable hands of a much bigger company with similar passions and a deeper war chest. In hindsight, it is easy for me to look back and pinpoint the exact time this kind of plan B should have been enacted. At that time, unfortunately, I would never have believed the business was heading for ruin. I was determined to fight with everything I had. So that’s what I did, and I lost it all.
Acceptance of the very real chance of failure would have been the first step. A well-planned exit strategy would have been the second.
Having an exit strategy is not a sign of failure, it is the plan B you may need one day to save your business.