Not all start-ups or business ventures would end up like Airbnb, Xiaomi, or Starbucks. Unfortunately, as per statistics, more than half of small businesses would close down in less than two years of operation. This is may be due to lack of capital, market, or business management expertise. Regardless, one can shut down his business in a more graceful manner. Read this Harvard Business Review article for more insights:
Much has been written about how to grow a business. Sadly, however, given the daunting business survival statistics, most businesses never get an opportunity to scale up. They start small and stay small, and many eventually shut down, whether sooner or later. Of those few that do begin to scale, the effort to scale up often fails to last, and the all-too-familiar roller-coaster of life in business heads, or threatens to head, downhill. Thus, a far more common challenge is that of scaling down: How to gracefully scale down and close a business – with your reputation, trust, and dignity intact – and live build another business, in another arena, on another day.
To examine how key constituencies — clients, suppliers, employees – can be fairly dealt with, we will deconstruct the story of a company (founded by one of us, Andrew Blickstein) that scaled down after 16 years. A strong, transparent, and trust-driven culture plays a central role in driving a scale-down decision and in managing the process as the it unfolds.
Home Run Media’s Turning Point
Home Run Media, a media agency that helped its clients plan and carry out their marketing strategies, had been operating for more than a decade when a key client in the fantasy sports industry began to grow rapidly, thanks in part to Home Run’s work and to a healthy dose of venture capital that was fueling its growth. Home Run’s media billings and its revenue, took off, growing more than tenfold in less than two years.
Alas, as 2015 unfolded, concerns arose that the client’s business, and that of other similar companies, might not be legal in its core U.S. market. The client, which constituted some 80 percent of Home Run’s billings, advised Home Run that its 2016 billings were likely to fall sharply. Hammering home the point, the client added, “It’s probably a good time to terminate our contract.”
As Home Run’s founder and sole owner, Blickstein had been through a regular series of feasts and famines and ups and downs, but over Thanksgiving weekend in 2015, he decided he wanted no more of it. He wanted out.
Making the Decision
Blickstein and his finance team had already begun to analyze the options. At first they considered finding a buyer for the business, but it became clear that selling his still-modestly sized business would take some time. At his current levels of operating costs, its value – and its cash – would likely erode quickly in the face of the expected fall in revenue. And who be interested in buying a business that was losing its golden goose client, anyway? Not a viable option, he concluded.
On the plus side, his company’s healthy book of accounts receivable indicated that if he could stop the cash burn quickly, he stood a chance to walk away with a tidy sum. He could put his kids through college and buy some time to think about what to do next. “But how,” he wondered, ”do I carry out this decision while limiting the damage caused to those who have trusted me?” There were four key constituencies with whom Blickstein would have to deal, he realized: his clients, his vendors, his employees, and himself.
Home Run’s clients relied on the company to help develop and implement their media strategies. Blickstein couldn’t simply leave them in the lurch. He could not and would not simply tell them he was closing shop and wish them good luck. Not only would such an action breach the trust he’d built with them, but he feared they would be angry and wouldn’t pay what they owed him for services already rendered — or to be rendered as he wound things down. If the receivables failed to come in, Blickstein ran the risk of walking away with little to show for his 16 years of effort.
Blickstein knew how difficult it can be for a client to find, select, hire, and onboard a new agency. He decided to break the news to each client himself, and do so first, before addressing his vendors. In doing so, he suggested agencies that could pick up where Home Run Media left off and execute the client’s strategies in a philosophically similar manner, and he offered to support the client in managing the transition. By the end of January 2016, all of his clients had moved on and, happily, no bridges had been burned.
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