Small businesses have been hit hard while many investors got a punch in the face. Emergency orders and lack of paying customers are forcing many companies to close shop. Meanwhile, the February stock market crash and oil market implosion just two months later have ruined many investors. Sad stories and pleas for government help have become the norm.
What is not being said are the stories about the small companies hustling past disruption and the investors on the short side of those trades. For these, it is a prosperous time. The people going against conventional expectations are the ones securing their future.
Ye Olde Steak House has been in the King family since it started in 1968. During its 50 year history, the restaurant survived a devastating fire and the death of its founders. Today, this icon of Knoxville, Tennessee eateries is at risk of closing for good.
“We are like one big family,” said Donna Hood to Knox News, a server at the restaurant since 1979. A sentiment shared by many small businesses across the country. While it sounds good, the problem is that it encompasses a fallacy. That is people serving the business instead of the business serving people.
When The Immovable Moves
Entrepreneurs have an engrained falsehood that their company must survive at nearly all costs. Professional traders seek to cover their potential losses before making an investment. However, most small business owners go all in without a way out.
History proves that at times, disruption kills entire industries. Local economies die, large competitors move-in to dominate, and societal preferences change. During these circumstances, it is best to take a short position.
A fund prospectus disclaims, “past performance is not indicative of future success.” While referring to an investment, the same holds true for business. This gambler’s fallacy has blinded so many into financial ruin. Forcing them to remain loyal to a sinking ship.
After many years of operating a successful company, it becomes hard to imagine a set of events that would cause it to fail. Malcolm Gladwell summed it up in his book, The Tipping Point. “Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push—in just the right place—it can be tipped.”
When this tipping occurs, no amount of hard work will move it back to where it was. Neither the 50-year-old restaurant or Fortune 100 corporation are immune. There is a set of circumstances that can kill them both. Trying to bail out either when their relevance is gone becomes a fruitless endeavor.
Gamblers advise, “never bet on a team you like.” Meaning that emotion and probability do not mix. Investors and gamblers alike look at the odds. Measuring the risk against the reward. Once a person has an emotional attachment to the outcome, they cease to be objective.
Making a bet that a celebrity will die is entirely different than wagering when your grandmother will. There is a similar emotional toll faced by entrepreneurs when their legacy falters. Everyone else can see that it is time to exit but emotions and false paradigms keep them at the helm as the ship sinks.
Making a Graceful Exit
Startup companies are advised to begin with an exit in mind. The first question asked by a would-be investor is, “who will acquire you?” In contrast, a small business is often viewed as a family heirloom. Something to pass down to future generations.
The problem that many small business owners face is the notion that they are related to their company. “It is family,” is the common phrase used. In many cases, the business becomes the family’s identity. Changing it alters their culture. Removing it leaves them faceless.
While scary, exiting a business that is no longer viable will protect the family’s finances it was created to serve. Based upon circumstances, it can be liquidated or pivoted into something relevant for today.
Examples of companies evolving past failures are numerous. So are failures from those holding onto false notions. By thinking like investors without the burden of emotions, companies can evolve past disruption. Is it difficult? Yes. Is it worthwhile? Absolutely.