Starting Again

 

If I told you I’d met someone who has been in business for 30 or more years what would you think? If you think this businessperson has a few lessons to share, you would be right. If you are thinking this person has made plenty and now looking forward to taking it easy, you’re wrong. After 30 plus years in business she has lost everything. Now, fresh from serving her bankruptcy she is starting to rebuild, and rebuilding sensibly, playing to her strengths.

Sam had been in and around businesses from her teenage years working in the family business and then establishing her own family business.

I come from a strong ethnic and family background, says Sam. We held traditional family values with a high work ethic. Our family is close. I have also spent a lot of time in my community, sat on a number of community boards some with substantial resources. I was fortunate enough to meet a number of high high-level diplomats and government officials. Some of these are still my friends even though I no serve on these community groups given I was for a time a bankrupt for a time. 

Sam commenced her own business, owning and operating a popular franchise. The business was acquired with loan funds using the family home as security. You can’t get money from the banks unless they have bricks and mortar, says Sam.

Confident with the success of the first franchise, Sam puts a business case to acquire a second franchise again with an advance against the family home. The second business was successful, indeed better than the first business.

In order to gain some influence over the franchisor and secure a greater market share a third and fourth franchise was acquired. These acquisitions make Sam’s business the single largest operator in the region. I was hoping to be an influencer, too big to fail so to speak. These acquisitions were again purchased with loan funds.

Not long after the fourth acquisition, the industry starts to decline, largely attributed to digital disruption, with Sam and the franchisor both misreading and mishandling this disruption. Over two to three years, sales declined at a rate of 1% to 2% per annum. In year three alone sales had fallen by as much as 20%.

At a business level the decision to acquire two additional franchise stores in light of a declining market would appear to be a poor decision. It is arguable Sam had failed to align her business with the environment. Rather than restructure existing operations to meet the ailing market conditions Sam increased her exposure with further acquisitions.

Sam may be the biggest regional player but from the franchisor’s perspective where franchisees are managed nationally Sam represented a market threat. If Sam was able to manipulate the franchisor then as a collective other franchisees may be able to do the same. Yes, head office was difficult to deal with. They were far from perfect, in fact they missed change in market conditions big time. If they missed it with all their market analysts, what chance did I have?

Sam plays in the field I call community. In this field Sam has standing and power. In fact if you look hard enough you can see Sam attempting to mirror the position she held within community, in the field of commerce.

I didn’t have any option really other than to sell the businesses. The franchise agreement has complicated rules as to who she could sell the business to and requires franchisor’s prior approval. It got very complicated very quickly. I not only had to deal with potential purchasers, but also the landlords, some of whom where not being paid, so they wanted their interest protected. Also not only did the banks have security over my business there were also other lenders, I had to borrow money to fit out some of the shops. There’s not a lot left from the sale after you pay these guys out. 

Making matters worse I had a number of people interested in the businesses but they were not franchisor approved. The financial stress became too hard. I had the thought to breach the franchise agreement a number of times. 

Frustrated by an inability to obtain further credit funds and the freedom to sell the business to the market, Socrates decides to look after his main focus – family, reputation and staff.

At the time the thoughts that were going through my mind were how my reputation and the community groups I was involved in would be tarnished as a result of my financial issues and possible collapse of my businesses? 
 What would be the impact on my family? What will the family and community say? How do I to deal with my employees?

I had to breach the agreement and I sold two of my stores to two independent operators. 
 I didn’t spend too much time trying to sort out the rest of it. I figure if commercial operators weren’t going to help then the risk they took will become a reality. So I started to sell personal assets, paid the bank debt out and found a new home to rent in the same area where I was living. Before I took the bankruptcy option I decided I needed time to sort out all my community commitments. I was able to retire gracefully from these positions. 

Then I mustered up the courage to talk to my family and inner circle of close friends. I told them were I was at, what had happened and I was planning to do. I was so surprised, the reaction I received was the total opposite to what I imagined, I was overwhelmed with support. I should have done this first. After I became bankrupt I experienced my first family Christmas where I wasn’t dealing telephone calls, finding cash to meet the wage payments or the bank loan. The only thought that came into my mind then was why I didn’t do this earlier.

In the end I wasn’t worried about rules, regulations, taxes or the franchisor. Sam argues she did not do anything wrong. I never set out to become a financial disaster, someone of it was outside my control. According to my values I not have done anything wrong. I know I am responsible but I have paid the price for this.

There is a lot happening in this example, not just the business issues. The reality is that this is a classic example of not aligning business strategy to what’s occurring in the market place and having the vision to understand what will happen. There are also a lot of business dos and don’ts but that’s not what this story is about.