by Dave Driscoll
You own a business that has survived, thrived and prospered for years. Then something happens … consumer tastes change, innovative technologies disrupt the markets, a pandemic hits, demand shifts away from your product or service in favor of chasing what’s new and hot ….Remember Krispy Kreme doughnuts vs. the Adkins Diet? IBM Selectric typewriters and Commodore 64 computers vs. the Apple II? Receiving and paying bills through the mail vs. the internet?
When you see a potential disruption coming straight at your livelihood, what do you do? Work harder, assume more risk, and improve productivity and efficiency? Chant the phrase “Hard work and risk-taking pay off … it’s the core of the American Dream”?
Yes, you do all these things, and you may feel a bit better because you’re engaged and busy. However, at the end of the day, are you really going to return to the days of prosperity without changing your business model? Probably not.
What are your options?
1. Sell, acquire or merge with your competitor(s). If your market or industry has excess capacity, consolidation to decrease supply could be the best solution.
2. Recognize your strategic assets and buy a business in a market /industry that has a better future. Perhaps you have the building, fixtures, technology, systems and employees in place. Coupling your strategic assets with those of another business in a tangent industry may provide growth and utilization to construct a profitable new path, lessening your dependence on a declining market and technology.
3. Liquidate. Liquidation is not failure. It is a realistic analysis acknowledging your current position, the future of your industry and/or the ability to recover an acceptable level of success. Ask yourself, “Are the business’s prospects for tomorrow equal to, better than or worse than today?” Your honest assessment will allow you to address whether liquidation is your best route. Self-sacrifice is easy; making difficult decisions is hard.
Begin your deliberation by considering your strategic assets.
Remember how hard assembling those strategic assets was?
The people - How many folks did you go through before you assembled your current team? Hundreds? Thousands? Your team was built as a result of hard work and is your strongest strategic asset. Invite trusted employees into your vision. Seeking their knowledge and assistance multiplies your brain power and may reveal an exciting new opportunity.
Technology and systems - Acquiring the right technology to run your business was likely a significant challenge. Considerable doubt and anxiety go into choosing the best systems and infrastructure while the cost escalates. Systems are predominantly an operational result of trial and error with education, research and tribal knowledge thrown in. That amounts to an expensive learning curve which can be leveraged for a new model or fresh direction.
Buildings and fixtures - Probably only a few of your physical assets perform a very specific task, while the majority are used by nearly every business. Office space and furniture, warehouses, pallet jacks, compressed air, tools and computers — the cost to duplicate what your business already owns would be enormous and time-consuming. Leveraging your in-place assets is strategic thinking.
Next, consider buying a business.
Identify businesses with a market opportunity that touches that of your business and can utilize your strategic assets. A good place to begin your search for a tangent market is to analyze your customers and suppliers. Tangent markets may not be obvious and can require some research and creative thinking to recognize.
Identifying opportunities to slowly diverge from your current trajectory into a tangent market can be challenging and exciting, pumping fresh energy into your enthusiasm. However, those potential markets do need to be analyzed carefully. You don’t want to begin moving into another market that may be heading in the same direction as your current business. Another word of caution: Don’t bet the farm. Move slowly, quietly and deliberately after exhaustive investigation.
If there is one thing that my career in business has taught me, it’s that survival relies on knowing when to zig and when to zag. Understand your market, follow your unique (but realistic) view of the future and take the educated risk of being proactive.
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.