Pulling The Plug

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QUESTION FROM: Randy in South Dakota

“As a member of large corporate launch & integration teams, then over a decade as someone who started the day by asking "what can we do better" in my own business; I witnessed first hand the ups & downs of one step forward, two steps back. How do you know when to pull the plug on a process change or improvement you just knew would work, but it didn't. It's one of the hardest decisions we have to make. Actually, it's the second, since admitting we were wrong is sometimes harder. How much time will you give your process change or entire project before you pull it back, tweaking it or scrapping it all together?”

 

HH ANSWER:

ON A CAMPAIGN, INITIATIVE OR PROCESS:

This ability, to read and react efficiently, must be built into the business early on by having an awareness of “Confirmation Bias” paired with a mutual respect for every team member, a genuine appreciation of their unique perspectives and a commitment to revisit / re-evaluate operations regularly.

Determining the length of time you give each failing process… or process that has yet to prove itself - depends upon a myriad of factors including: extended cost, margins, employee impact & perception, guest impact & perception, technology required to sustain, facility impact and ancillary impacts that touch other areas of the operation including but limited to: ancillary revenue centers, the brand as a whole, other outlets or future planned outlets, short and long term plans, vendors, neighboring businesses, the community of which you are a part, etc...

Grow your team methodically or take time to establish a collaborative culture statement to get you all on track. Although starting out with a long-view approach is best, it's never too late to back build integral pieces of framework and establish new policies and procedures like monthly or quarterly reviews with your teams.

ON AN ENTIRE PROJECT:

Sometimes you have to look at a loss like a loss and whether you have a contingency plan in place or not… just “stop the bleeding”. Sometimes you just want to get going while the going is good.

In any situation (e.g., being upside down financially, loss of traffic due to significant changes in demographic, loss of available workforce to draw upon, changes in partnerships, public works impacts due to city or state projects, unsafe working conditions, uncertainty of the future, etc..) sometimes it does make sense to just move on but before doing so - be sure to carefully evaluate your total: financial, legal and overall brand exposure:

Ask yourself the following:

How much equity vs. debt do you have?

What is the value of your current inventory, FF&E in place and/or contracts?

What is your time value of money in this or alternate projects?

Do you own or Lease the building? (if you own, consider my advice to those looking to negotiate a purchase or Lease)

Have you consulted with a restaurant broker, business broker, restaurant / hospitality consultant and/or auction house?

What is the lowest market rental rate or cost persqft for a comparable facility in your market? This is relevent not only for similar uses but for also determining potential alternate / highest and best use for the property / space.

There’s an old adage in brokerage: “Always check with the neighbor first.”…and for a VERY good reason: The party most likely to see value in your business’ location and/or property/remaining term in your Lease will not only have an intimate knowledge of the area; they will have already invested (to some degree) in the area.

Since people who live in and/or do business in the area have already chosen that market, they are, demographically speaking, “pre-approved”. So…have you spoken with those physically closest to you (i.e., neighbors on either side or property owners within a mile) or those “emotionally close” to the business (i.e., management staff on your payroll)?

A common follow-up question I get with regard to closing up shop is “What’s the best way to value my business and or real estate?” to which I respond: “Let’s sit down and talk”. There are a multitude of ways to value your business and so many ways to structure the transfer of ownership...and most often, the structure of the transfer will help define the valuation or the method of valuation (e.g., If you are selling your biz to a multi-unit operator of a similar but different concept it’s valued one way and if you’re selling the biz to your manager, I’d value it another way).

While realtors are certainly an avenue worth pursuing, I’ve found that a business broker, restaurant broker and/or restaurant consultant are far more productive relationships when pursuing an exit strategy or re-positioning as they are not only experienced in reviewing Leases / purchase agreements but also familiar with operational challenges that may increase or decrease the appeal of your business and/or real estate.

Good Luck and let me know if I can assist any further,

Josh Sapienza