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The Small Business Death Spiral

The Small Business Death Spiral


Hello and good day!

Yesterday, I had the chance to really reacquaint myself with a good old friend.

I'm talking about our 47% Fortunato No. 4 dark milk chocolate.

With all the new products that our wonderful chocolatier Javier has created over the last couple of years, I've lost touch with our dark milk chocolate in its pure form. The 47% is our most recent base chocolate.

For a long time, many years, we were a one product company. We only made and sold our 68% Fortunato No. 4 dark chocolate. On the back of that one lovely product, we grew to do business in 25 countries, and we were buying cacao from hundreds of cacao farmers.

That's why if I were to sing a song to our 68% dark chocolate, it would be Nat King Cole, I Love You For Sentimental Reasons.

Next came the 36% milk chocolate, formulated at the request of our very first customer, the owner of a chain of bakeries in Switzerland. And then, not too many years ago, we were asked by a customer in Australia to come up with a 47% dark milk chocolate. The result was the product we have now.

I had forgotten what a truly perfect product the 47% is all by itself.

I say that as a scientific statement. I'm not trying to gloat or exaggerate. As a strict point of fact, it is perfect. I can't find a flaw in it.

It's not too sweet. It tastes like our cacao, which means it has a unique chocolate flavor rather than the flavor of a generic hybrid industrial cacao.

It is a European style milk chocolate, very creamy and smooth, with a decadent mouth feel, and without the cloying sweetness that too many milk chocolates have. The flavor is almost entirely cacao, although there is a small touch of dairy and vanilla, but just traces, just enough to make it a milk chocolate.

For the folks who love this product and are suffering through the summer without it, I'm sorry. Truly I am.

If I had to sing a song to the 47% dark milk chocolate, it would be Sam Cooke, Come On And Let The Good Times Roll.

While I pondered this wonderous chocolate that we are blessed to offer, a conversation with a friend came to mind. This friend owns a construction company. He is a general contractor. We hired him to do some work for us in the past and we were beyond impressed. He isn't the cheapest guy in town, but he is far from being the most expensive. He was fast and meticulous and professional. It was an unusually good experience.

I was talking to him, and he told me that he is thinking about trying to grow his business. He knows that I've been in business for a while, and he asked if I had any advice.I told him to make sure that he never sacrifices the experience he was able to give us.

Nothing would be worth giving that up. Here is what can easily happen. A person has a small business in which they do all the work. They have a ton of experience and take a ton of pride in what they do. As a result, customers are happy, and the business gets referrals. The person running the show is busy all the time, but they are just one person, so it isn't really possible for them to be overbooked. They make good money and basically things are good.

Because of the backlog of potential work, and the possibility to make a lot more money, they hire an employee. Given the state of affairs, the owner and the employee are always together, and the owner can make sure the employee is doing a good job. With this employee, the owner is able to do twice as many projects and their income increases substantially.

At night, when the owner is lying in bed, he works through the logic. He thinks, if I am making this much more with one employee, imagine if I had 2 or 3 or 40. I'd become a magnate, and I wouldn't even be doing any of the work. I'd spend most of my time selling projects and growing revenue and I might even take a day off here and there to go play golf. With the extra money and time, my family could do some traveling.

The business owner decides to go for it. He calls the backlog of referrals and puts them all on the calendar. Next, the owner goes on a hiring spree. He hires as many people as he thinks he'll need to service all the projects. He figures that one person is as good as another, and that everybody has the same work ethic and dedication to quality that he has.

Then he sends them out into the world to do the work. It isn't too long before customer complaints come flooding in. Everybody was expecting the gold standard because the owner's reputation preceded him.

But instead, they got brand new employees, who don't care as much and don't have the same level of experience. Many customers ask for refunds or extra work to make up for their disappointment. This causes financial strain, and the referrals dry up.

However, now the owner has all these extra people on the payroll who depend on him. They left their previous jobs and came to work for him. He feels a moral obligation to carry their salaries. So, he begins to hustle to bring in new projects.

But the work is never as good as it used to be.

He finds himself in a strange in between land. He needs the employees to service the projects and he needs the projects to pay the employees. His take home is roughly the same as when he was all by himself, but now he has all these headaches, and he doesn't get the satisfaction of doing a great job.

This is the growth trap for small business owners. And I'd recommend avoiding it at all costs.

It is the most heartbreaking thing in the world to work harder than ever, for the same amount of money, and produce a lower quality product.

The quickest path to self-loathing is taking money from people under false pretenses. You know your service level is mediocre, but you sell it as premium. If you do that, you'll feel sick when you look at yourself in the mirror. But if you do great work, you'll always have decent self-esteem and you'll be able to sleep well at night.

All that being said, there are two ways to grow a business the right way.

The first is to take on outside investors. With that you have the capital you need to build a management team. The investment money lets you carry the loss of hiring good managers. The payoff comes in the long run because the managers make sure your workforce does a good job.

All the new projects a business owner brings in are carried out successfully and the reputation remains intact. This leads to referrals and growth and eventually the company can become highly profitable.

More likely in the case of my friend though is that he should take it very slow. The slow way is the fast way in his case. He should never, ever, sacrifice quality. He should hire one employee at a time. Then he needs to work with them over the years, train them, instill in them a sense of pride, and teach them the required skills.

Once he has developed an excellent crew, the key word being developed because it will take intentional development, he can add more projects and let the team work onsite independently, making sure he always monitors customer satisfaction.

It might take 5 or 10 years longer, but if he goes the proper route, he can still achieve his goal of playing more golf and doing some traveling.

But if he falls into the trap, the dream will never manifest, and he will suffer.

Likewise, here at Fortunato Chocolate, we will never put out diluted products in the name of growth. The slow way is the fast way for our company as well.

Thank you so much for your time today.

I hope that you have a truly blessed day!