Before the ink has dried on newspapers reporting the impending close of 600 Starbucks locations nationwide, news has surfaced that clothing retailer Steve & Barry's is preparing to file for bankruptcy. For many years, both the coffee giant and the clothing chain have been two of the most-discussed, high-growth companies. So what has gone wrong?
In the case of Starbucks, the general consensus among the business blogosphere is that the company, eager to appease investors, embarked on a path of overly-ambitious expansion. Shifting their focus away from the customer and toward the bottom line, Starbucks abandoned their thorough location-finding talents to map out several hundred new stores.
A new Starbucks cafe can have a tremendous impact on a local real estate market. The arrival of the white-green-and-brick facade in a neighborhood represents a "stamp-of-approval" for the neighborhood, and has nearly become synonymous with modern gentrification. This being the case, landlords began to make attractive deals with new storefronts, sometimes offering several months in free rent to a Starbucks willing to open its doors on their property.
Rushing quickly to fill these locations with baristas and customers alike, Starbucks began to take advantage of such real-estate perks. It appears such perks started to motivate location selections more than the high-quality demographic research the company is known for, as over 70% of the proposed store closings will be locations opened within the last two years.
As the markets suffer uneasy fluctuations, it also becomes difficult for landlords to continue such “sweetening” efforts for the coffee juggernaut, as well as for other large retailers.
Another such company is Steve & Barry’s. Though the retailer has experienced annual sales over $1 billion and solid performance in their newest stores, it still suffers from small margins due to their discounted pricing strategies. Their rapid expansion became dependent upon such real estate perks, which have all but frozen in the current market.
There are numerous ways out of the frying pan for Steve & Barry’s, including possible acquisitions. And Starbucks is only predicted to take a short-term media and investor relations hit from the news of the store closings. But still, the question remains: Is it possible to grow too fast? And when is aggressive expansion a bad idea?
Expansion is a bad idea when it is more opportunistic than strategic. That’s not to say that companies shouldn’t take advantage of opportunities they spot, as that would be counter to the nature of entrepreneurial business growth. What it does mean, however, is that they should approach any expansion with a careful and well-mapped out plan. Once the business has documented their vision, it should ask if it is pursuing growth in the best interest of the company, or whether it is growth only for the sake of growing.
Both Starbucks and Steve & Barry’s took advantage of market conditions to fuel expansions that were ultimately unsustainable.
From the entrepreneur’s perspective, growing “too fast” would seem like a great problem to have. But if the growth is more opportunitistic than strategic, it can be unsustainable and carry unforeseen risk.
Has your business experience rapid growth?
What were the pitfalls, if any, that you encountered in the process?
Growthink is very excited to announce our
sponsorship of Twiistup 4, a networking conference that will take place on July
17th at the Viceroy in Santa Monica, CA.
Twiistup events bring together entrepreneurs and investors from the areas of media, entertainment and technology, and give startups an opportunity to showcase themselves. Twiistup conferences are quickly becoming “must-attend” events for those interested in learning about what's new in the
Twiistup 4, which sold out immediately, will feature presentations from 11 exciting startups, 7 of whom are Southern California locals, plus 4 "crashers" from Texas, Vancouver and the San Francisco Bay Area. Read more about the "Show Offs" here.
For more information, visit the Twiistup site here.
Most entrepreneurs have a strong aversion to the word random. The word, which is defined as “without definite aim, purpose, method, or adherence to a prior arrangement,” is the antithesis of what is typically perceived as good business practice. Oddly enough, one author believes randomness, and how we deal with it, can be the greatest indicator of whether enterprises will succeed or fail.
In his book The Drunkard’s Walk: How Randomness Rules Our Lives, Leonard Miodinow discusses in great detail how the laws of randomness are a driving factor in our successes, and how this is counter to the widely-held belief that success is directly derivative of talent or intelligence. Research from the last decade suggests there might be some merit to this line of thinking, and supports the idea that “the ability to persist in the face of obstacles is at least as important a factor in success as talent.” When faced with miscellaneous setbacks, it is the persistent one, rather than the genius, who will prevail.
For entrepreneurs, persistence is a must. At the end of the day, it isn’t just the philosophical prowess needed to envision the perfect solutions to problems, but the resolution and doggedness to actually get in there and solve them.
The Today Show recently featured a segment on entrepreneurship -- specifically, how many individuals are beginning to start businesses in response to a fragile economy and job market. As unemployment rises (currently up to 5.5%), many driven individuals find themselves without jobs and are forced to find creative solutions to their economic pressures.
Presented in the clip below is the
story of Tracy Huges, founder of The Rum Cake Fairy Dessert Company.
The segment provides much highly useful information to new entrepreneurs, including the importance of having a good credit history, building trusting relationships with potential investors and creditors, and most importantly, carefully constructing a formal business plan. Business plans are a crucial step in the funding process, and are required documentation before pursuing capital from an SBA affiliate or micro lending institutions. While the segment places less focus on angel investors or venture capitalists, it’s important to note that such documentation is also a prerequisite for seeking equity funding as well.
Special attention is given to the personal loan management company Virgin Money (www.virginmoneyus.com). Such companies allow their users to formally structure loans between friends and family, which can be a fantastic way to manage early stage debt.
As every entrepreneur knows, a great business plan is essential for effectively launching a business. As the business grows, an effective strategic plan is required to successfully reach the business’s full potential.
But what about planning your exit strategy?
Far too many business owners do not realize that careful strategic planning to sell your business is just as important as planning to launch and grow your business.
In addition to an independent lifestyle and personal fulfillment, a successful exit is the primary motivator for business ownership and entrepreneurship.
(Not to mention that a successful exit tends to improve one’s lifestyle and personal fulfillment...)
Because acquisition is the most common exit for an entrepreneur / business owner, here are some tips to better prepare you to sell your business.
Don’t Wait Too Long To Sell
Many business owners wait until the last minute to try and sell their business. They wait until the business is stagnating, or they are exhausted with running the business. In fact, the best time to sell is when business is booming.
But Take Your Time – Don’t Be in Too Much of a Hurry
If you are in too much of a hurry to sell, you will probably leave a lot of money on the table. Buyers – especially sophisticated larger corporations – will likely sense your urgency and will take advantage of it in the negotiation period.
Start the Process Early
It’s a good idea to begin preparing 2-4 years BEFORE the sale. It’s much more expensive and time-consuming to rush and prepare all of the necessary financial and other information in a few months than it is to consistently record and compile records over a period of years. This record-keeping is also important for your business’s growth, since it provides more perspective on your company’s performance.
Get Your House in Order
Make sure that you have been keeping accurate financial records and that your assets are ready for sale. This includes both tangible assets such as equipment and inventory, as well as intangible assets such as contracts, leases, patents, trademarks, etc. Make sure that everything is assignable to the buyer and be prepared for extensive due diligence.
Try to See It From the Buyer’s Point of View
A buyer’s motivations are often different than the typical business owner’s. While the entrepreneurial business owner may get excited about innovation and creative strategies, the buyer cares much more about the potential for stable revenue streams and growth potential. Take time to understand your potential buyer’s point of view, interests, and motivations.
Make Yourself Less Central to the Business’s Success
The buyer wants to buy a business – not you or your job. From the buyer’s perspective, it’s better if the current owner is not important to the success of the business. Therefore, in planning for the sale of your business, you should begin training your management team to take over critical business functions. If all of the key decisions revolve around you (the owner), then the value of the company will be limited without the owner – and therefore, the business is less attractive to a buyer.
Meanwhile, Keep Focused on Running (and Growing) Your Business
When starting the sales process, you must keep a laser-sharp focus on your business’s operations. It’s important that you do not get too wrapped up in either the sales process or in the romance of any particular sale offer. As difficult as this is, it’s best to act as if any deal can fall through, even if you are in the final negotiation period, because any deal can come unraveled at the last moment. Keep your focus on growing your business until the check has cleared and is in the bank.
In addition, you should do your best to keep the sales process confidential so that you do not endanger relationships with any key clients, employees, or partners whose departure could threaten a transaction or the operations of your business.
Get Professional Assistance
If you are a business owner seeking to sell your business, you can benefit from outside advice and assistance. As the old saying goes, “The attorney who represents himself has a fool for a client.” The same applies for a business owner selling without an advisor. Your advisor will provide you with guidance regarding valuation, due diligence, and the marketing of your business opportunity. Without a competent advisor, you decrease your chances of selling your business at its maximum price.
Even if a Deal Comes, Be Prepared to Say No
If you have invested a lot of time and energy into the search, negotiation, and due diligence phases, you may be reluctant to reject any deal that comes across the table. However, just because you have a deal in front of you, you do not have to take it. If the price is not attractive or if the deal is not right for another reason – and it cannot be mended – you may be wise to walk away and consider the next opportunity.
Sometimes, during the process of preparing their business for sale, business owners will find themselves at the helm of a much more profitable, attractive business. If you have a profitable business, keep in mind that you have other options at your disposable. In addition to selling your business, you can continue to grow organically, raise growth capital, and/or explore strategic partnerships.
It’s important to continually evaluate your options throughout all phases of business growth to ensure that you are making the best decisions for the long term.
Founded in 1999, Growthink is a leading middle market investment bank. Our professional investment bankers have assisted clients in raising more than $1 billion in growth financing, as well as advising on mergers and acquisitions transactions.
Need assistance with your business exit strategy?
Consult a professional business plan consultant.
Looking to sell your business?
We have considerable experience advising middle market business owners on the sale of their businesses. Contact Growthink's investment bankers today.
The marketing plan describes your strategy for penetrating the market, delivering your product, and retaining your customers. This video explains how to create an effective marketing plan.
For the new entrepreneur, there are few factors with a higher correlation to unbridled success or devastating failure than the ability to raise capital. In an economy of questionable strength, dreaming up a shiny new venture of revolutionary proportions is no longer the battle; the new challenge is finding the minds that will fuel that venture with dollars. In New York, one business-woman named Yao-Hui Huang has borrowed from popular culture to devise a sensational way to bring new ventures face-to-face with potential investors.
Admittedly, the project known as the Gauntlet is far from the first organized attempt to bring entrepreneurs and investors together. How this differs, is that it emulates the strategies of the highly successful TV show: American Idol. Similar to the show, which employs a panel of industry experts, the Gauntlet has a panel of judges with expertise in law, accounting, finance, technology, and investment.
Contestants who make it through the rigorous application process are chosen in groups of three to present at the monthly gathering. In front of the panel and an audience of over 100, entrepreneurs get seven minutes to pitch their venture along the areas of: problem, solution, market, industry, overview, operations, and financials. Presenters are then inundated with feedback from the audience and panel, and a select few go on to receive venture capital.
It is nice to see a refreshing approach to matching the right investors with the right entrepreneurs. Also, this structure provides the ability to share a business model with peers and experts while allowing the entrepreneur an attractive opportunity to refine, revisit, and hopefully improve areas of their business strategy.
Would your business plan be ready to go through the Gauntlet?
We are proud to highlight two exciting new clients at Growthink: iControl and Pop! Technology.
iControl is a periodical distribution and marketing company and division of The Current Companies.
iControl provides web-enabled newspaper billing consolidation services to newspaper vendors and retailers, including CVS and Barnes & Noble. With more than 8,000 active accounts, iControl is the largest provider of such services in North America by a ratio of more than 2-to-1.
Growthink will be consulting iControl on their strategic planning and business development initiatives.
For more information on our work with iControl, please view iControl's recent announcement here.
Pop! Technology is a Dallas-based creator of 'active' barcode information systems used by the food, beverage, pharmaceutical and health services sectors.
The company's technology transforms a standard barcode into an interactive barcode that provides real time information about the status and condition of their products at all points of the supply and distribution chain, from manufacture to end user.
Watch this video to learn more about how Pop's technology works.
This past May, Pop! Technology retained Growthink to assist with a $2M capital raise to expand their operations.
Here is a recent post on Pop! Technology from Texas Startup Blog.
Your business plan must not only define your competition, but demonstrate your venture's distinct competitive advantage. This video explains how to create an effective Competitive Analysis section for your business plan.