Business is the ultimate competitive sport. Success is dependent on vision, execution, talent, resources, and timing. Shortcomings in a business model can be fatal. The ability to innovate and adapt are fundamental elements for long term achievement.
America lost a legendary wine industry entrepreneur recently with the passing of Anthony Terlato. It is not a reach to believe that Mr. Terlato’s influence touched virtually every wine drinker who enjoyed a social glass this century. How is this bold statement about a person most people do not know by name possible? The statement is possible because Anthony Terlato introduced a varietal of wine, Pinot Grigio, to the American marketplace. In 2019, American consumers purchased over $1,340,000,000 of Pinto Grigio (https://lizthachmw.com/2020/02/24/the-us-wine-industry-in-2020-slowing-sales-but-opportunities-still-present/) incredible growth from its first introduction to consumers with late night advertising by Mr. Terlato on “The Tonight Show”. The introduction of a new product or service to the marketplace has been the foundation of success for many entrepreneurs. Top tier entrepreneurs also demonstrate the ability to innovate and adapt as the economic conditions and their marketplace change. One of Anthony Terlato’s innovations to sell wine was the introduction of free printed wine lists in the Chicago metropolitan area, featuring his products, for restaurants, so menus did not need to be reprinted by the business owners. Today, a separate wine list at a restaurant is the standard. He also built a private dining room at his corporate headquarters, so he could pair wines with his menu choices, often self-prepared, to present his products in the best possible venue. Guests in the dining room included Julia Child, Lee Iacocca, and Philippine de Rothschild. Additional information on Mr. Terlato’s life can be found in his memoir, “Taste: A Life in Wine” ( https://www.terlatokitchen.com/products/taste-a-life-in-wine). He is an authentic American entrepreneurial success story.
COVID-19 has created unique opportunities and challenging environments for businesses in 2020. It is in situations like the present when the talent rises to the top and poorly designed business models and executives lacking the necessary knowledge, experience, and ability fail.
Businesses are going to fail in 2020 and 2021 due to COVID-19, an unique and likely non-reoccurring event in the foreseeable future. This is unfortunate, however in many cases the deaths were simply the moving up of inevitable mortality timelines and in many situations has the potential to improve the sustainability of an economic environment and strengthen the remaining businesses.
An analogy for what is presently occurring in the economy with COVID-19 is a naturally occurring forest fire (e.g., lightning strike ignited). A forest fire of this nature has many benefits for the ecosystem including clearing out dead material and overcrowded environments creating new opportunities for growth, restoring nutrients to the soil, and for some species of trees fire sparks the production of seeds and continuation of the species ( https://greentumble.com/the-ecological-importance-of-forest-fires/).
The same basic principles are occurring in the local, state, and national economies in the United States. Entrepreneurs with vision and execution ability are taking advantage. The death of a business leaves five items of value in its wake. The first item is a space, often with industry appropriate tenant improvements (e.g., overhead crane systems, loading docks, kitchen ventilation, etc.). A vacancy creates an opportunity to lease or buy a property that was not previously available. Just like a hermit crab, many businesses need to move to grow and thrive. Vacancies create this opportunity for businesses. The second asset left is equipment. A business failure often creates opportunities to purchase quality equipment at value pricing. The third asset is talent. Most businesses have quality employees on their team. These employees, who were previously unavailable, become free agents available to be hired without concern for non-competition agreements or the negative optics of “stealing” valuable personnel when a business fails. The ability to acquire quality employee talent will likely be higher over the next 3 – 12 months than it has been in the last five years. The fourth item available when a business closes are customers. Customer loyalty is built on product quality, knowledge, and superior customer service. It is difficult to move a happy customer. A business failure creates a customer need for migration. A business in the right place at the right time when a competitor fails has the opportunity to gain a customer and lay the foundation for building future loyalty by being there in a time of need. The final asset available when a business ends operation is vendor relationships. Vendors like customers are loyal. Many will not change relationships unless given a reason. A failed business gives a vendor a freehand to establish new relationships without damaging a prior customer. The evolution to a new relationship has the potential to be mutually beneficial for both the customer and the vendor.
An opportunistic entrepreneur has the ability to both enhance their business model and help another business owner in their time of turbulence. “Win-Win” outcomes can include the assumption of a facility lease with a personal guarantee or the acquisition of equipment creating the ability to retire debt.
Many marketplaces were overcrowded pre COVID-19 making it difficult for entrepreneurs to operate successful business models even when they did everything right. COVID-19 has reduced overcrowding in many industry segments through killing weaker businesses. The positive implications for the surviving companies include reduced marketing & advertising expense, the ability to sell products with appropriate profit margins, and the acquisition of the talent necessary to grow.
“Necessity is the mother of invention” is a famous expression of unknown origin (Possibly Plato). COVID-19 has created an enormous opportunity for businesses to improvise, adapt, and innovate. Six months ago, it was not possible to get a margarita to go from a restaurant in the Pacific Northwest, plexiglass separation and floor stickers for social distancing did not exist, and masks to mitigate community spread of the coronavirus did not exist in the limitless artistic variations found on display throughout American society. All three of these examples represent new economic opportunities for businesses. The additional opportunities to serve the public and business community with a product or service are as limitless as an entrepreneur’s imagination.
The 2020 train has left the station. It has traveled uphill through rain, sleet, and snow. Days of additional inclement weather are on the horizon. The forecast also holds predictions of middle road days and glorious days in the sunshine. All these conditions offer entrepreneurial opportunities to serve customers and make money. The only questions are do you have the knowledge, experience, and ability to succeed while others are failing and can you improvise, adapt, and innovate in a COVID-19 world? Many will succeed exponentially in business during the next six to eighteen months. Will it be you?
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.