Chapter I
Our dauntless entrepreneur sees an opportunity.
Of course it all starts with an idea. Necessity being the mother of invention, it could be a problem needing a solution or a solution to a problem we don’t yet know we have. Circumstances compel some entrepreneurs, curiosity others, ambition still others. No matter the motivation, the entrepreneur, recognizing an opportunity and comfortable with risk, has the initiative to pursue a vision and the self-reliance to learn the skills and acquire the resources to turn vision into reality.
The path is never smooth and failure lurks at every turn.
In addition to the known obstacles, which are no less difficult for being known, there are the random unknowns; and today, both the known and unknown difficulties are intensified by the speed at which business moves. Failure is inevitable, perseverance a must, as are enthusiasm, flexibility, critical thinking, and refined communication skills.
Given the right measure of creativity, ability, and timing, the entrepreneur gathers the resources to start a business. Because every startup ultimately strives to become an established business, the development of the enterprise has been broadly characterized as the business life cycle: idea, startup, growth, expansion, and maturity. Of course, each individual startup will not only be assaulted by the obstacles unique to its character and its particular resources, but also will face the challenges imposed by the business cycle itself.
Initially these challenges are issues of scarcity. Is there enough capital to fund startup operations? Can the business sell enough product to enough customers to produce enough cash flow to sustain those operations? In these early stages, the time horizon is relatively short—the business measures success and failure in weeks and months. Later, if the company grows, the entrepreneur must delegate tasks, and in so doing is forced to recognize strengths and weaknesses. As the business becomes stable financially, the focus inevitably shifts from innovation to efficiency. The time horizon extends and cash flow forecasting gives way to strategic planning. Finally, as the business matures, chances are the entrepreneur has become a CEO who answers to equity shareholders and a board of directors. At this stage, the business must either re-invent itself or risk decline and death.
Throughout most of the 20th century, the great entrepreneurs created value and wealth through economies of scale. Businesses grew more efficient with size and generated better products at lower cost and higher margin. In the first part of the century, entrepreneurs figured out how to build production lines and integrate the firms which supplied those lines. In the latter half of the century, we began to lean out those production processes and create efficient, responsive supply chains. It all worked.
However, the continuous evolution of the production process toward greater efficiency demands a certain degree of stability, and ubiquitous computing, big data, and machine learning have shifted the game. With the development of information technologies, data analytics, and artificial intelligence, not only has the way we do business fundamentally changed, but also the rate of change has continued to grow faster and faster. The faster the environment changes, the less stability, and the faster the value of what you’ve created at any point diminishes. Today, we’re shifting from continuous improvement to continuous innovation.
Speed, however, is relative. Historically, business innovation has always increased the speed at which business is done, and despite what may well be quantum changes in the business environment, the basic questions of business strategy still apply. In fact, a command of these business basics may provide the entrepreneur with the foundation necessary for agile innovation. Who are the customers and what do they want? What does the business sell; what value does it provide? How will it manufacture and deliver this value? How does the enterprise remain distinct from its competitors? These are not “ask, answer, and done” questions. Today’s entrepreneur must ask these questions regularly, get the answers quickly, and respond rapidly. That’s the essence of an entrepreneurial quick pivot.
With an emphasis on innovation at every stage of the business life cycle, there’s been a growing body of study and discussion on how to promote creativity. Prominent among those discussions are “first principles thinking” and “design thinking.” Just like the basic tenets of business strategy, neither idea is new, but both are currently enjoying a re-interpretation and a revival.
Serial entrepreneur Elon Musk popularized an Aristotelian idea. Essentially, first principles thinking demands that you set aside conventions, analogies, assumptions, prior experiences, and benchmarking. What about a problem or a situation or a set of elements do we know—absolutely—to be true? These are the first principles. Be skeptical of any premise until it’s been tested, until you’re sure it holds. Musk:
I think it’s important to reason from first principles rather than by analogy. So the normal way we conduct our lives is, we reason by analogy. We are doing this because it’s like something else that was done, or it is like what other people are doing . . . mentally easier to reason by analogy rather than from first principles. First principles . . . really means you boil things down to the most fundamental truths and say, “okay, what are we sure is true?” . . . and then reason up from there. That takes a lot more mental energy.
To see how first principles thinking might have an impact on creativity, consider the difference between the cook and the chef (with credit to writer Tim Urban here). The chef invents new tastes from a knowledge of how the elements of food work in combination. The chef has a command of the principles. On the other hand, the cook, absent that command, executes a recipe. Without the recipe, the cook is lost. Without the bounds of a recipe and with a command of principles, the chef creates. Oftentimes, when we reason from first principles we discover a new way of solving problems.
Design thinking is another method that has been demonstrated to spawn innovation. Again, nothing new. Thomas Edison, who arguably was the inventor of the modern R&D lab, employed design thinking. He certainly echoed a designer’s understanding of creativity: “one percent inspiration and ninety-nine percent perspiration.”
What is new is that the designers who, traditionally, just made things look nice are now being asked to create goods, services, and systems that better meet the marketplace’s needs and desires. Tim Brown, CEO of the innovation and design firm IDEO and sometime lecturer at Stanford’s d.school, clarified the shift: “The former role is tactical, and results in limited value creation; the latter is strategic, and leads to dramatic new forms of value.”
This shift has been brought about by the evolution in the developed world’s marketplace from industrial manufacturing to information, communication, and service delivery. Now, the problems innovators and entrepreneurs confront are user-centered, complex, and often ill-defined. Designers are comfortable in this environment and business has found that the process by which designers create solutions is not only effective, but also can be codified. With the process of design thinking, we can learn to create and innovate. But like Edison said, innovation rarely comes with a sudden flash of insight, but rather with hard work.
Depending on which pundit you consult, design thinking can have virtually any number of steps. IDEO says five: Empathize, Define, Ideate, Prototype, and Test. Learn about your audience, your customers; carefully, operating from first principles, define the problem; reasoning up from first principles, suggest solutions to the problem; build one or more solutions; and test those solutions. How well do they solve the problem for the audience? Can they be built within the resources of time and money?
This process, however, should be seen as an exploration, not as a prescription; and “crit,” as designers call it, must be applied at every stage of the exploration. Each discovery, definition, and conclusion must be rigorously subjected to strong critique and if an idea is found wanting, it is discarded. Call it a failure and move on. Experienced designers know that some ideas are just wrong and pursuing them is a waste of time.
And last, but certainly not least, expect to go through this process again and again and again. That’s where the perspiration comes in. Edison: “I have not failed. I’ve just found 10,000 ways that won’t work.”
For the entrepreneur, each one of those 10,000 failures is one step closer to success.
Chapter II
Our hero braves a forbidding land.
As Mark Twain said, “The secret of getting ahead is getting started.” But when it comes to starting a business, just getting started may be the hardest part. The statistics are daunting—one researcher found 75 percent of all venture-backed startups fail—as are the challenges —assembling the right team, managing cash, establishing a market presence and a customer base. So how do you become one of the startups that actually gets ahead?
It certainly won’t be easy. If you’re not willing to put in the work, or lack clear focus, if you can’t balance the confidence to be persistent and the humility to take advice, if you don’t have some measure of business savvy, chances are entrepreneurship is not for you.
But let’s say you’re one of the rare few who has those entrepreneurial characteristics. What issues can you expect to confront as you start your business? What are the common causes of failure? If you can anticipate and eliminate a few of those, you might have the energy and the resources to deal with all those things you never saw coming.
CB Insights, a research firm that tracks private companies, investments and acquisitions, conducted a post-mortem of failed startups. They found the top three reasons for failure are: the market has no need for the product, the cash reserves are inadequate, the management team doesn’t possess the necessary mix of skills. Put another way, you could call that insufficient research, lack of tangible business knowledge, and a lack of clear self-critique. Admittedly, that’s a harsh interpretation, but if you intend to risk time, money, energy, and passion, it’s probably a good idea to make sure—as sure as possible—that you’ve got a good handle on the basics.
Auburn alumna Stacy Brown built Chicken Salad Chick, a $75 million business from—literally—her own kitchen. Her startup process—calculated or not—is a model of good research. She started as a fan of chicken salad and ordered it wherever she went. Along the way, she discovered that chicken salad is on just about every lunch menu in every restaurant in the South. She also discovered several favorites. Then she set about borrowing the spiciness of one and the texture of another and combining it with the lightness of another. Over months and months, she tested these combinations, serving them up to friends and family until she got it just right.
“I listened to what they said and I tweaked and tweaked and tweaked,” she recalls. “I knew I had the recipe when they closed their eyes and made really weird noises.”
Then she customized the basic recipe to appeal to the individual preferences she found along the way—this one with fruit, this one with nuts. She co-designed her product with her customers, sold it door to door, and could predict the reaction of her consumers. Her path to the marketplace was by no means smooth. At one point, the Health Department shut her down. She couldn’t sell chicken salad from her unregulated home kitchen. But when customers continued to call, she knew she had a product that the
market wanted.
Brown will be the first to tell you that she needed business skills to help her company take off. Those skills came in the form of partner and husband Kevin Brown. It’s no revelation, for example, that startups often have trouble with cash. Despite careful business plans and pro forma statements, a new venture is just that—new. Chances are the analogues used to develop business plans and pro formas don’t really apply because—if the startup is innovative —those analogues don’t, by definition, exist. And that leaves entrepreneurs to learn by doing. Richard Branson makes it pretty simple: ”Screw it, just do it and get on and try it.”
That said, the successful entrepreneur doesn’t just introduce a new product or service, she creates a business; and a knowledge of business principles is vital. Entrepreneurs may have to learn by doing, but they also have to put what they’ve learned in a business context. Quickly. Time is not a friend in the startup world. Begin with the best plan you can generate, based on the best information you have and be prepared to revise that plan, and your direction, with the education experience provides. Command the basics of the basics: marketing, accounting, management, finance. Or find somebody who does.
Those somebodies make up your team and that team will be a key element of your success, or lack of it. You can come up with an idea on your own, maybe even build a product and make a few sales, but you can’t scale a business without a team. Auburn MBA Haitham Eletrabi founded Tennibot, a company that makes an autonomous, robotic tennis ball collector. He’s hiring his team and says, “Bring in smart people to help you out, add value, and help solve the problems. You can’t do it alone.”
Building an effective team starts with a clear-eyed understanding of what you do well and what you don’t. Then prioritize the skills you need. Here’s where a mentor can help. Not only can a mentor add experience to your own, but he or she can give you an objective evaluation of strengths and weaknesses.
Bear in mind that each member of your startup team, just like you, needs to communicate effectively across disciplinary lines, and hopefully, possess more than one skill set. Versatility is a key attribute. At this point the business is small, the environment unpredictable, and a corporate culture non-existent. Committed team members are more important than obedient employees, so keep the hierarchy flat and reach agreement around a common vision and a common goal. Look for the right fit. It’s a marriage.
Because life moves quickly in the high-growth, high-pressure startup phase, personnel needs emerge quickly and there’s the temptation to fill them quickly. Resist it. There’s a maxim that’s become popular in Silicon Valley: “Hire slow and fire fast.” That doesn’t mean that you should agonize over the decision, especially since an unfilled position may harm the enterprise. And it doesn’t mean subjecting candidates to a long, laborious process. It does mean that you should think ahead. Anticipate the need for talent and create a potential pool by mining the advice of your partners and mentors—your network. Determine what you’re looking for, interview carefully, even invite a candidate to work with you for a day or so. You can be deliberate and quick, and you’ll avoid over-hiring and creating a bloated staff; you’ll keep your organization lean by retaining only the people you need and that leanness will keep folk in the right roles.
Startups commonly fail because they’re built around the wrong product, lack tangible business skills, or assemble the wrong team, but does reversing those shortcomings mean success? Turns out that the top factors for success are a bit different and a whole lot squishier: passion and purpose; willingness to listen, learn and adjust; ability to clearly and articulately communicate. Brian Scordato, founder of Tacklebox Accelerator, makes it pretty simple: “Everything great has a clear theme. Books, startups, movies, vacations, online dating profiles, a dinner party—everything. But themes are hard, particularly for entrepreneurs. They force us to do something we hate: Focus.”
So what’s the theme of your business? What’s its story? Scordato’s right. Expressing a theme succinctly, telling a tight but all-encompassing narrative, is hard work, but doing so gives you, your partners and most importantly your customers, a clear, consistent and compelling understanding of your intent, of the relevance, plausibility and value of your product. In a word, its “why.”
Author Joseph Conrad once said that, “A work that aspires, however humbly, to the condition of art, should carry its justification in every line.” He may have been talking about fiction, but his idea works equally well for business. Every product, every service, has a story attached to it. Sometimes that story is pitched to investors, sometimes it’s told in a mission or vision statement, sometimes a balance sheet, an ad or by the product design, even its packaging. But across every venue it must carry the same clear, consistent idea. The investor, the customer, the banker, the employee will each make a story out of the words and images and numbers the entrepreneur provides, but each of those stories should convey the same intent. The successful entrepreneur has focused the narrative so well that it’s clear and consistent, so that each aspect of the story supports the other. No less, and certainly no more.
Conrad concluded, “If I succeed, you shall find there . . . all you demand and perhaps, also, that for which you have forgotten to ask.”
That’s the way to galvanize an investor, inspire a team, and motivate a customer. That’s the way to start a business.
Chapter III
A new partner makes himself known.
That little startup of yours is making a place for itself in the marketplace. The company is really starting to grow now, so how do you manage that growth and maximize the benefits in this stage of the entrepreneurial cycle?
It’s a challenge every entrepreneur hopes to face. Take Michael Otwell and Parker Duffey, the 2003 Auburn grads who co-created Tailgate Guys.
You’ve seen their trademark white tents. They dot the landscape east of Jordan-Hare Stadium, providing customers comfortable places to kick back, have a drink, eat a few wings, watch games on satellite television, and do what college football fans do best before kickoff—tailgate.
Tailgate Guys began as a local college football gameday-oriented business in 2008. What started with $60,000 in loans in a small apartment office has evolved into a national phenomenon with rights to tailgate properties at 40 locations across the country—including most of the SEC, the Atlanta Falcons, Buffalo Bills, and the University of Southern California.
Tailgate Guys has moved beyond the startup phase in which initial ideas innovate the product and investors are perpetually courted for survival. It’s a growing business—one that has not yet reached its full potential, perhaps, but one that has reached the point of sustainability.
“A lot of people see us as an overnight success,” says Duffey, who is president and CEO. “That’s definitely not the case, though. We can attribute a lot of our growth to our quality in our deliverable and the way we stand behind what we do.”
Solving a problem and creating a satisfying experience for customers are key steps in fueling growth. It’s working for Bellhops, founded by Cameron Doody, a Harbert supply chain management alumnus.
Fresh out of college in 2011, Doody and a few buddies brainstormed over a weekend of hunting near Childersburg, Alabama. Instead of bagging trophy deer or wild turkeys, they brought home a business plan. “We decided that the parental strife of freshman move-in was just about the biggest problem we could think of at the time, and that’s where the initial company came from,” Doody says.
Parents suddenly had another means to move their sons and daughters into or out of Auburn dorms or apartments. Dads no longer had to worry about throwing their backs out of alignment. The moving business that originated in Auburn is now a thriving company relocated in Chattanooga, Tennessee. Bellhops has made more than 200,000 moves and expects to grow more than 200 percent by the end of 2018. The company’s growth has also been spurred by repeat business—20 percent of customers use it more than once within a calendar year.
As with Tailgate Guys, Bellhops and any other venture entering this stage, the startup phase is complete, the company is growing, but growth potential remains. So do challenges, such as the need to keep improving the products or services that brought the company this far.
“I see this every time we start a new property,” Duffey explains. “The first few years, everyone is so fired up about what we’re doing. Over time, one thing I see is that people begin to expect a little bit more than they had before, and I don’t think that’s misplaced. I’m the same way. It’s human nature.” To counter that, Duffey says Tailgate Guys works to meet customer demand by improving service—whether it’s cold water bottles or hot coffee in the morning at clients’ tailgate drop-off points, or taking measures to improve technology around the tailgate.
“People look at us like, ‘This year, Tailgate Guys did this. Next year what are they going to do?’” Duffey says. “You always have to look for ways to enhance the service regardless of what type of business you are in. In the future, we are going to really add a lot of convenience, partly with more access for our guests via technology.
“If you stand behind your product, do what you say that you are going to do and do it well, communicate clearly with your client, then a lot of business will come from that.”
Doody notes that a business can’t build itself around marketing hacks or public relations stunts. “You maintain growth in a company when you consistently deliver on the promises you make,” he says. “At the end of the day, our people deliver on our promises, and I think our commitment to them has driven the fun, positive and reliable experiences that Bellhops is now known for. We’ve grown because we have built a better experience.”
A fresh vision can go a long way toward promoting success, especially for an entrepreneur without specific experience in a business area. “Whether it’s moving someone into a dorm or moving a five-bedroom house across the country, the options are just poor,” Doody says. “You don’t know what you are going to get. Since we weren’t in the moving business before this, we saw the problems with fresh eyes and have been able to use technology to rethink everything, from our transportation model to our workforce management system.”
Doody says his team made “a million mistakes” along the way, but some mistakes were worth making. “Some mistakes turn into golden opportunities that you never would have had if you didn’t make the mistake in the first place,” he says. “Others you learn from the hard way and never do again. I don’t think that there is one mistake that sticks out, but I can say that a lot of our success has come from trying hard things, failing at many and succeeding at a very important few.”
Doody believes in rapid growth—unless a company cannot maintain quality. “You can throttle back growth overnight, but you can’t throttle up quality overnight,” he says. “Don’t sell your soul for short-term growth.”
As a business begins to grow, the entrepreneur likely will find a need for advice, particularly in areas where his or her own expertise is lacking. Duffey says it’s important to cultivate and maintain a trusted network of mentors. “There were some expenses that we incurred that we could have prevented if we had sought some outside input instead of not having that guidance around the business in the first few years.”
Financial support is critical, but entrepreneurs should be wary of the cost, not just in dollars and cents, but also to the innovative soul of the company. “So many startups nowadays are looking for outside funding,” Duffey says. “There’s a lot of money that’s being thrown around out there. So many young businesses immediately look to that and they lose control. Not only do they lose control, but they lose their own personality and their own ability to bootstrap.”
Scott McGlon, Entrepreneur-in-Residence in the Tiger Cage Accelerator and Incubator, says growth is people-driven.
He’s an investor who has also owned a number of successful small businesses since 1998. “First and foremost is your team and second is your customer base and how you grow that customer base,” says McGlon, a 1992 Harbert College alum. “There’s a saying out there, ‘the solo entrepreneur.’ But it’s your team you have around you and the culture comes from the individual who leads that company.”
CEOs set the tone, and who they hire makes all the difference. McGlon encouraged CEOs to hire individuals who are more talented than they are and have as much, or more, experience. “What’s very important for startups to understand is As hire As, Bs hire Cs, and Cs hire Ds,” says McGlon, who co-founded the Online Commerce Group, an e-commerce company with multiple divisions that he sold in 2014. “Those Cs and Ds are the ones who bring down a company.
“If you want to understand stunting the growth of a company, it’s filling critical roles with B and C players. Those are the ones that don’t see themselves as the top of their class, those who don’t have passion and drive for the business, and those that don’t operate within a culture that they choose to come and work in. It’s extremely important to hire above yourself.”
Growing businesses must continue to innovate to stay ahead of the competition, McGlon notes, or they will be forgotten.
“All entrepreneurs and business owners who have a taste of success realize that there is always somebody behind them who is going to want to do it bigger, better and stronger than they did it,” he says. “You can’t rest. You’ve got to constantly reinvent yourself and be innovative, taken initiative to an extremely high quality and be assertive. If you don’t have those four components, you will get passed.”
Establishment is a great feeling for any entrepreneur. Gone are the days of begging for investors or striking deals to manufacture and distribute your new product. Sure, different sets of problems exist, and no company can afford to rest on its laurels. But it’s a darn good feeling to have made it this far.
Now it’s time to expand.
Chapter IV
An arduous journey, a chance of success.
The expansion phase of the entrepreneurship cycle is treacherous territory for a business—filled with opportunities but also loaded with potential dangers. The initial intense focus that brought the business from idea to reality is no less needed now, as poorly planned expansion or an unwise departure from the core qualities that brought initial success can threaten the future of the enterprise.
This may be a time for prudence. As Neil Petch, chairman of Virtugroup, writes, “You can give yourself the best possible chance of continued success through careful planning. Look at your resources, be realistic about the effort and cost and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers.
The business graveyard is littered with organizations that took on too much and failed.”
For some companies, it may be a time for bolder action. “I believe in aggressive growth, but it’s got to be done right,” says Auburn alumnus Parker Duffey, co-founder of Tailgate Guys. “You have got to be aware of the numbers and you have got to have the people to back it up. So many times people get out and try to grow so fast without the human capital.”
Planning is critical. In reviewing his company’s spreadsheets, Duffey says, “I’m looking at every one of these down to a fraction of a percent on each budget and every single line item on that. There are a lot of companies who grow just to grow, but to be successful in growth, everyone in the organization all the way to the top has to be aware of every expenditure. The tail can wag the dog very easily.”
To get to the point of considering expansion, a company has overcome plenty of obstacles and its leadership has learned many lessons about what makes the business work. But the learning process is far from over. As business writer Sharon Nelton notes, “Expanding a company doesn’t just mean grappling with the same problems on a larger scale. It means understanding, adjusting to, and managing a whole new set of challenges—in essence, a very different business.”
Expansion will require hiring new employees. The hiring process is important at any stage of a company’s development, but all the more so in a period of expansion. Even the most well-crafted marketing and production plans still have to be implemented by employees, so personnel systems have to be solid as well.
As a company expands its operations, its management of necessity will become less centralized. The smaller operations and smaller numbers of employees that were manageable by the founders of the company will be growing larger, requiring more supervision than a single executive or even a handful of early-stage managers can now provide.
As expansion increases market share, still more new management challenges arise. Now a company’s competitors likely will be larger, with more assets to bring to bear in the marketplace. The expanding company is moving into a higher level of competition.
Making this move may require additional capital. What’s the best way to get it? How will the company deal with the new responsibilities this can create for its shareholders, investors, and commercial lenders? The financial picture that seemed straightforward in the startup phase can get a lot more complicated.
It’s gratifying for a company to have its products or services in greater demand, but the company has to find a way to meet that demand. If demand exceeds current production capacity, that may require a bigger facility, for example. But what about that five-year lease the company signed a year ago, when the current facility seemed like adequate space? Then there are the additional equipment purchases, along with the additional employees, most of whom will not have been part of the startup from the early days and so will need to learn the corporate culture and core values and objectives of the company.
And those core values and objectives can’t be forgotten. There was something special, something distinctive, about the company that helped it get to this point. Lose that, and the company not only may have trouble continuing to attract new customers, but also holding on to its existing ones.
A dropoff in customer service is not uncommon when a company begins expanding. It’s not intentional, but it often results from the pressures of trying to manage the demands of expansion. One small business owner lamented that “when the workload increases tremendously, there’s a feeling of being overwhelmed. And sometimes you have a hard time getting back to clients in a timely fashion. So the very customer service that caused your growth in the first place becomes difficult to sustain.” Maintaining staffing levels that help maintain strong customer service is critical.
The role of the entrepreneur will change as the enterprise moves into this phase of development. The hands-on role of the company’s early days, when it had fewer employees, fewer obligations, and the owners did more of the basic tasks themselves, is no longer feasible. At that point, Nelton writes, “it’s time for you to change what you do. You need to become a CEO—that is, the leader, the strategic thinker, and the planner—and delegate day-to-day operations to others.”
It’s also important to acknowledge that an expanding enterprise may benefit from the expertise of outside professionals, accounting, or legal experts, for example—who can cover the areas the entrepreneurs’ skill sets cannot.
Ultimately, a successful expansion generally comes down to proper planning, which includes not only plans for personnel and facilities, but also ongoing study of the market. Startups carefully study their markets in the beginning, but often don’t continue to monitor them as closely afterward. In an increasingly competitive and complex business environment, that’s a likely path to stalled growth, unprofitable expansions, and eventual failure.
Chapter V
The fruits of labor.
Remember Pac-Man, Space Invaders, Frogger—those 1980s video arcade classics that swallowed your parents’ hard-earned quarters? So does Don DeMent, but maybe not as fondly. DeMent, a 1963 Auburn business graduate, wasn’t spending his time saving the planet from alien bugs. Instead, he was operating an arcade on Wire Road with about 300 of those games and pondering whether to sell it.
He didn’t. Offered $1 million for his gaming business, DeMent, already an accomplished restaurateur, declined to sell. “Man, video games were hot then,” says DeMent, who also placed video game machines near the rear of his original Momma Goldberg’s Deli at the corner of Donahue and Magnolia for patrons to enjoy.
Except they weren’t as hot as he believed. “I had nothing in those games other than the credit that I accumulated,” he says. “I didn’t sell—and then the bottom fell out faster than anything I’d seen in my life. I went back to the man who offered me a million dollars for the business and said, ‘I’ll sell it to you for $500,000.’ He said, ‘No thanks.’ Within six months, I couldn’t give the games away.”
The market had changed. DeMent wound up eating nearly a million dollars in debt. Game over. At least that game.
But not the restaurant game. Momma Goldberg’s—founded by DeMent in 1976—thrived as he applied some of the lessons learned from the arcade debacle. Momma Goldberg’s, best known for its multitude of deli sandwiches, including the Momma’s Love, became an Auburn institution. Unlike those 1980s video games, the food from Momma Goldberg’s remained popular and the business flourished.
When you’ve scratched and clawed to start a business and finally found success, what’s next? Some sell and cash out. Some don’t sell and pour more heart and soul into their creation. How do you decide?
DeMent considered Momma Goldberg’s his baby, and he tended to it as a father or mother would a newborn. “I would get in there at 4:30 in the morning and sometimes wouldn’t leave until 4 a.m. the next night,” he says. “The extent of work involved in the restaurant business is so incredible. But I loved seeing all of the customers that came in year in and year out. A lot of customers thought, ‘If I don’t have my meal at Momma G’s before the football game, then we are going to lose.’
I never dispelled that rumor.”
But DeMent says the long hours at the deli “burned his body.” “I was down there maybe 40, 50, 60 hours per week,” he says. “I built the place with my hands—the siding, the boards on the outside, the painting, the concrete laying—everything. I even did repairs.”
Along came Nick Davis. Not only was Davis a successful restaurateur, but Davis also was a Harbert College alumnus and served on the Auburn University Alumni Board, where DeMent’s wife, Betty, once served as vice president for alumni affairs. “I really thought a lot of Nick as a businessman and a person,” DeMent says. Davis inquired about the restaurant and DeMent, who wasn’t totally sure he was ready to sell yet, gave him a price anyway.
“Nick looked at everything and didn’t get back in touch with me until a couple of years later,” DeMent says. “Then he approached me and said, ‘I’m looking at this other business here in Auburn.’ I said, ‘Nick, that is not a good business. But if you still want to buy Momma Goldberg’s, you know what I want for it and I would be willing to make some kind of deal.’”
Both parties were happy at the 2014 sale, although DeMent says cleaning out his desk at the original Momma Goldberg’s location was “the toughest day of my life.”
The owner of a mature business has overcome a lot of challenges to reach that point of success, but there are still real threats to continued success. High among them is complacency, says Dan Moultrie, who founded outdoors giant Moultrie Feeders in 1981.
“It’s a business-killer,” says Moultrie, a 1979 Harbert graduate. “You can never afford to believe that you are at the top. We were fighting and clawing every day—even when we held the No. 1 ranking for outdoor cameras and feeders. If you are not fighting and clawing, then you are going to slide down the other side of the mountain… We went after it every day like we were behind.”
Moultrie’s success in the business world landed him a spot on the banking boards of Colonial and US AmeriBank. From time to time, he saw business owners and managers of successful organizations act foolishly with their resources.
“The first thing I did when on those loan committees and people brought me their financial statements was look at their toys—planes, boats, beach houses, that kind of stuff,” he says. “That told me a lot about their lifestyles and how they ran their businesses. I’m not saying that there is anything wrong with these if you can afford them, but in a business that needs capital, let’s just say it’s very common that you see business owners who are loaded up with toys run into financial problems.”
Even if your business is on top of its game and complacency or poor financial decisions are not issues, Moultrie notes that potential problems will arise. “Problems can be identical to smaller startups—just on a different scale,” he says. “For example, we always believed in owning every facet of our manufacturing so that we didn’t get held hostage by somebody else that you weren’t as important to.”
When suitors with deep pockets come knocking, what do you do? There are plenty of variables to consider, and sometimes it’s simply hard to let go. The product was your idea, your creation. You made the first hire. Your first dollar made from the business is framed and dated above your desk. Now somebody else wants control.
“Is the seller willing to release control?” asks Darryl Rosser, a veteran of the private equity world. “Some entrepreneurs have this mistaken belief when potential buyers tell them ‘You’re going to run this just like before. We need you. You’re the one who built this.’ No sooner than the deal is done, they learn it’s really not going to be the same. They learn they really don’t have that control and the new buyer has another person in charge.
“If you are not willing to relinquish control and recognize that this isn’t going to be your business any longer—you cashed the check, you gave away control—then you must be willing to suffer the consequences.”
But this isn’t always the case. Rosser, a 1973 Harbert College graduate in industrial management, adds that potential buyers often encourage former owners/founders to be involved. Because that person played a crucial role in the success of that company, the buyer may believe the best chance at ongoing success lies with some engagement from him or her.
Moultrie, who sold his company to Ebsco Industries in 2001, is an example. Even though the company is no longer his, one might mistake him for the company CEO, president, CFO, and chief marketing officer.
“I don’t know of another business in our industry where a guy has sold but is still involved in the day-to-day operations as much as I want to be involved,” he says. “Most of the time, companies come in and they strip that guy out to get the high salary out and they replace them with their people. But then the secret sauce of the company’s original success gets lost.”
Selling your business isn’t always easy. You don’t always know a willing buyer, or have one approach you. Rosser believes a good way to get the word out is at the bank. Investment bankers know people. “If you can pitch your story and your business to them, they’re going to come into contact with all of the guys like us (prospective buyers) so they can put together a book on the company that tells the complete story in a super-professional way,” he says. “It’s no different than if you put your house for sale by owner, or if you get a professional real estate team involved. But you’re not a real estate professional. You’re not going to know the intricacies of how you get the most exposure for it in terms of your marketing. That’s where the investment banker is going to earn their value.”
When is it best to sell? Much of it depends on your personal wants and needs. Of course, the purchasing offer carries weight, too. “The time to sell is when you have maximized your market share and you can’t capture any more of that,” Moultrie says. “If a deal is not good for both sides, then it’s not a good deal.”
Rosser adds that stages in life are a factor. “If you’re a guy who’s 35 and you think this company still has a lot of opportunity to expand and develop, that’s a lot different than if you are 50,” he says. “Look at it in terms of your personal lifestyle. If you get an offer, are you willing to take money off the table and be comfortable with it? You are minimizing risk by taking money off the table.”
DeMent, recalling his video game machines, suggests that owners sell while they are on top. “Don’t wait too long,” he says. “If your goal was to have an exit strategy somewhere down the line, don’t wait. Sell it while it’s hot.”
But only if the price is right.
“Yeah, that’s the deciding factor in any transaction,” DeMent says. “One thing I did—I had a price and you could take it or leave it. You’ve got to know the worth of your business.”
Moultrie notes that if your business still has “good growth potential,” then you should hang on to it. Also, be wary of repeatedly putting your business up for sale if you aren’t fully committed to doing so. “Every time you put your business on the sale block, potential buyers—and competitors—get a free look into your financials and maybe some things you don’t want them to see. Before long, too many people know your secret sauce.”
“Lastly, you never want to be out-attorneyed in a deal and you never want to be out-accounted in a deal,” Moultrie says. “You go cheap there and you will get cheap results.” HM
