Memorial Day for Business

May 21, 2015

Memorial Day this year falls on Monday, May 25, 2015. It is an important day that honors individuals that died in service of the United States. I encourage every person to take a moment this holiday weekend to consider the sacrifice those individuals made so each of us can live in a nation that offers equal opportunity, freedom, and security unparalleled in the world.

Time & circumstances did not result in my life story having chapters of military service, like my father & grandfather, two men I admire & respect significantly. My professional life story instead has placed me in the competitive battlefield of entrepreneurship as both a business owner & observer since the 1990’s. This vantage point allowed me to observe the “deaths” of numerous businesses. Some of these “deaths” have resulted in financial windfalls for business owners, others, unfortunately, have caused financial hardship & mental anguish for entrepreneurs.

The most common “death” of a business I have experienced as a mergers & acquisitions professional has occurred in situations where bigger companies acquire smaller businesses in their industry to increase market share and/or for competitive/strategic reasons. These horizontal or vertical integration transactions often result in a “win-win” transaction for both the buyer & seller and involve a negotiating environment that the professionals at IBA have the knowledge, experience, and negotiating skill to facilitate successfully in the best interest of their clients.

The transactions can be part of an industry trend like occurred in the 1990’s when in a “classic” big fish eating little fish scenario smaller Internet Service Providers (ISP’s) were pro-actively acquired by larger ISP’s in an effort to grow their service area quickly in an emerging industry. A strong appetite for acquisition can also occur when an industry evolves from one dominated by independently owned businesses to one with publicly traded corporate players trying to build their network to satisfy investors & shareholders, like occurred in the last couple of decades in the veterinary industry, with the emergence of companies like VCA (Veterinary Centers of America).

Acquisitions and “deaths” can be motivated by a desire for increased market share like when IBA facilitated a bidding war between Blockbuster & Hollywood Video for the regional video store chain, Encore Video, or Parisian Star Desserts was merged into Essential Baking. The outcomes in all the above examples were positive for IBA’s clients with exits being achieved on the entrepreneur’s terms.

Unfortunately, all business “deaths” do not result in happy endings for entrepreneurs. Business “deaths” can occur for a variety of other reasons. Internet service providers and video stores were mentioned above by design. Both of these business models are examples of industry environments that have evolved significantly in the last couple of decades. It is important for entrepreneurs to keep current on industry trends & technology or they risk being placed at a competitive disadvantage in pursuit of customers & revenues and ultimately forced out of business. An example of a current technology evolution is the April 21 mobile friendly algorithm update by Google which has damaged web presence of businesses that were not ahead of the curve in terms of updating & modifying their websites. It is my recommendation that all privately held companies check whether their website is mobile compatible when searched for on Google, and if necessary allocate the resources appropriate to respond to the situation before damage occurs that impacts revenues & profits.

Generals have lost battles because of poorly executed battle plans. Entrepreneurs have killed companies because they do not have the knowledge & business acumen to successfully navigate the competitive environment of their business. As a business brokerage firm, we advise all business buyers that the one thing we cannot sell is the management ability of the previous owner. The new owner will either be better or worse at running the company. This is a fact. It is common for business buyers to increase revenues, profitability, & productivity at a company post acquisition by introducing increased management enthusiasm, a strong work ethic, knowledge, business acumen, and a fresh set of eyes to the opportunities & challenges facing a company. Failures also occur. In IBA facilitated transactions, we work to create an environment that will facilitate success after acquisition by working diligently to insure a buyer has an excellent base of knowledge and a sufficient support system from previous ownership post acquisition to smoothly transfer executive management of the company. However, these efforts do not guarantee success. Success or failure will be greatly influenced by the executive management ability of the new owner. Business is the ultimate competitive sport. Great rewards exist for the winners, but risk exists commensurate with the potential reward. It is with a heavy heart that I recall good business models run onto the rocks by entrepreneurs who lacked the ability to control the helm of the ship.

Businesses also fail due to simple bad luck. In the 80’s & 90’s, one of the hottest night clubs in Seattle was the Fenix Underground. The club went from an entrepreneur’s dream to bankruptcy due to the Nisqually earthquake that shook Seattle on February 28, 2001 and destroyed this iconic live music venue’s home in Pioneer Square. Efforts were made to recreate the magic & brand at alternative locations, but they were never achieved and unfortunately in 2007 the owners of this business filed for bankruptcy. Blame cannot not be assigned for this business failure, to paraphrase a common saying, sometimes “bad things” happen to “good businesses”. This is part of the risk of entrepreneurship.

Entrepreneurship is not for everyone. It is a career path that mirrors real life in many ways. Many say that once you have tasted the sweet nectar of entrepreneurship, it is impossible to be happy on any other path. This Memorial Day please take a moment to remember the businesses that have been part of your life that no longer exist. They were once vessels for an entrepreneur’s vision, dreams, and effort and should be remembered for the positive impact they made on the lives of their customers.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community 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 in terms of successfully negotiating transactions that are “win-win” in an environment of full disclosure between the parties.