Lessons From Businesses That Did Not Survive 2009

The New York Times has an interesting article about small businesses that failed to make the leap into the new decade.  While some business owners may become alarmed, I believe this is an opportunity to take a look at your own business to see if you notice any red flags.

“This is arguably the worst year for small business since the Great Depression,” said Mark Zandi, chief economist of Moody’s Economy.com.

The article profiles several now-defunct businesses:

• Knight-Celotex, a Northfield, Ill. maker of fiberboard. When the construction industry took a nosedive, Bank of America declared the company in technical default because its debt exceeded the percentage of cash flow established in its contract.
  Lesson: Choose your partners carefully. Similar to how we select friends, identify partners who will support you when times get tough and not kick you when you’re down.

• Rococo, a women’s fashion boutique in Houston.  Sales dropped from $40K per month to five consecutive days with no sales. 
  Lesson: The owner, Jennifer Watson, wishes she’d rented from a “small non-commercial landlord who might have been more flexible when times got tough”.  Budgeting for hard times, by setting funds aside when the business is doing exceptionally well, would be appropriate. A second lesson would be to diversify sales; Ms. Watson could have expanded the brick and mortar storefront and focused on online sales. I wonder what Ms. Watson is suggesting by working with smaller non-commercial landlords, as if they don’t mind not being paid rent and won’t have the muscle to go after you, offering more flexibility on your end-  but I could be mistaken.

• Body Styles by Mel, a Forest Hills, Md., fitness center. Mel Royster moved into a new location, quadrupling his gym in 2007. With $20K monthly rent, Royster put himself in the undesirable position of forcing him to keep a packed facility to break even.
  Lesson: Don’t stretch your business to the breaking point. Royster could have expanded on a smaller scale, instead of going from 4,000 to 16,000 square-feet; he could have opened a separate location. This would have allowed him to service more areas while maintaining his main successful base. During hard times,  he could close the second shop if necessary. Expand but don’t over extend. Continue to evaluate your employees, while good help is hard to find you have considerably more at stake and more to lose – you are the boss for a reason. Royster, who believes his employees weren’t selling aggressively enough had some final thoughts: “I didn’t have the right business people in place to generate the revenue I wanted, I tried to run it like a family, and I think I got a little too relaxed.”

The article continues to analyze several businesses that unfortunately failed to make it into the new decade. It’s easy for me to sit at the comfort of my desk and make assumptions but in reality I’ve been in the trenches – as most small business owners – where it’s impossible to think strategically when you’re trying to keep your head above water. The profiles are disheartening for the business owners but valuable lessons for those still standing.