Case Study #37: Built for Communities, Acquired by Cracker Barrel

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BiscuitsEarly on his journey of building Maple Street Biscuit Company, Scott Moore had to offer a personal guarantee for some of the restaurants that put his home at risk. But he had confidence in the brand, his team, and himself to add to the willingness of a spouse to be exposed to that risk, and less than a decade later that confidence and willingness to take risk was vindicated in a $36M acquisition by Cracker Barrel.

Comfort Food…with an Opinion

Maple Street bakes their biscuits fresh every day with flour and real butter.

On top of that base they have a sausage or shiitake gravy (again, made fresh in house), all-natural never frozen chicken, and house made jams and jellies. While those sound like typical ingredients, their dishes are anything but.

Their “Squawking Goat” got featured on the food network: fried goat cheese and pepper jelly on top of that chicken and in a biscuit. Scott noted that he knew the flavors were familiar but he wanted people to say, “I’ve had those flavors before, but never like that” and that would make Maple Street a destination, not just another diner.

Values

At the core of Maple Street’s hospitality is what they call “gracious service.”

This is a value that flows from Moore’s top level philosophy that a business has a right to do good in the community and gracious service is a way to “earn” that right to do good in the community every day. This isn’t a formula in which someone introduces themselves by name and comes to the table to check on you (Maple Street is a fast casual concept anyway, so you need to bus your own table when finished) but rather a level of care for the food and the customer that shines through.

This even comes through in the words that are used. Locations are not called “restaurants” or “storefronts” but rather “community stores” which are led by “community leaders,” not managers. The community helped give Maple Street its name and even helped name its dishes (like the aforementioned Squawking Goat) so this is another value the company lives and doesn’t just parrot.

Growth

When Moore was putting together the concept, he worked off three different P&L projections. One was simply “average” for the industry. One was premised on doing really well. The last was half of the average.

His idea was that as long as they could at least hit that last projection, the “half of average” one, they could get the business going. He focused on a lean team and profitability from the beginning, and they leveraged an interesting system to grow the concept quickly, using a joint venture vehicle in which someone would put up $150,000 and then enter into a 49/51% partnership with Maple Street for that location. With Moore’s focus on Lean principles and responsible growth, Maple Street had 28 company-owned and 5 franchise-owned locations in 7 states at the time of acquisition.

What’s an important part of understanding how compelling Maple Street’s business was to Cracker Barrel was the fact that they already had a biscuit restaurant concept called Holler and Dash in their portfolio. This acquisition is another example of “if you can’t beat ‘em, join ‘em” and the power of “build it and they will come.”

Key Takeaways

  • Culture truly matters – it’s not just hooey that people give speeches or write books about. It’s what the best companies always have under the hood.
  • Grow responsibly – While Scott had his own skin in the game by personally guaranteeing the first loans of the company, he also made sure that strategic partners who built out restaurants did the same. By staying lean he made sure the money could be invested in growth instead of expense accounts.
  • Stand out – the “comfort food with an opinion” angle hit big and in the first weeks of the first restaurant opening and he saw an hour long line snaking out the door Scott knew his hunch had been right.

Book Club #22: Never Split the Difference, by Chris Voss

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Shaking HandsNegotiations aren’t just integral to business transactions, they are part of our everyday lives. As Chris Voss notes in his excellent book Never Split the Difference: Negotiating As If Your Life Depended On It: “Everything in life is a negotiation… crossing the street, getting your coffee… you’re probably in 3-7 negotiations every single day.”

While we can’t get into everything Chris discusses in his book in a short article, we can discuss a few key takeaways to improve what you’re doing in business (and life) right now.

Mirroring

While Voss now runs a renowned consultancy called The Black Swan group, he got started in negotiations with the FBI in hostage situations.

One of the earliest and most basic techniques taught is mirroring. This consists of repeating back words used by your counterparty, but with a tone of question. For example, “This deal point is really important to us.” The mirrored response could be, “When you say ‘really important,’ what do you mean by that?” or “Really important?” and just let that tone hang.

By repeating their words back to them respectfully and in a tone of inquiry, you allow the counterparty to give you more information. The more information you have, the better position you are in to negotiate.

The 7/38/55 Rule

A UCLA study some years ago explored the importance of three factors in communication: content, tonality, and body language. The importance broke down across those ratios, i.e. 7% of what was said, the content, was important; 38% was the tone used in communicating that content; but a whopping 55% of what came across to the person hearing the content was captured in the body language.

We may all know this instinctively as part of living life in society, but hearing the numbers broken down really underscores that instinct. Tone of voice is more than five times more important than what you are actually saying! If we keep 7/38/55 in our minds more as we communicate, our communications will be better and our negotiations sharper.

The Accusation Audit

A fascinating technique Chris promotes is something called the “accusation audit.” It’s used to disarm people at the very beginning of a negotiation, by calling out all the possible fears and thoughts that the counterparty might be thinking. In a way, it’s calling attention to the elephant in the room so it can’t be an unspoken threat.

An example Voss gives comes from one of his clients who was getting squeezed from above by changing demands from a federal contract and thus had less money to pay out their subcontractors. Voss’ client had a meeting with one of the subcontractors and wanted to pave a way for things to move forward smoothly. She started out the meeting by saying, “I know you might think we are the big contractors squeezing out the little guy.”

By letting the subcontractor know from the outset that she understood their perspective and saying what was unsaid, Voss’ client was able to disarm and explain what the real situation was, which was something beyond their control, and then look forward to a mutually acceptable solution.

If video hits home with you more, Chris also has a Masterclass available.

We’ve got some great negotiating tips as well. Give us a call if you’ve got questions about a business negotiation you’re involved in.

Business Owners Must Act: Strategy, Finances, Marketing and Administration

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Use a Crisis WiselyAny crisis can cause paralysis, and understandably so. People are focused on processing what is happening and they immediately think about the future and what could come in the days and weeks ahead.

Business owners don’t have that luxury to process and grieve: they have to act and do so decisively. Many business owners have done precisely that, but as the Coronavirus crisis threatens to linger even more strategic and surgical action can be taken by business owners across every aspect of their companies.

Here are a few ideas:

Strategy

Once the urgent questions of staff and their working conditions are dealt with, owners can coldly and soberly look at their options.

What does their business plan and forecast look like with a 15 day interruption? 30 days? 90 days? New products and services need to be brought online quickly that can be useful and desirable in the marketplace to counter the ones that are struggling or dying in this environment. A fresh SWOT analysis, updated for the current situation, can help offer direction over the next three to six months.

Finances

We’ve long touted the benefits of a quality banking relationship. This is one of those times such a relationship really shows its worth.

Check in on your payables and see if you can negotiate some longer terms (if you need them). The same spirit of compromise has to be there with your receivables, where the shoe is on the other foot. Where can you preserve long-standing relationships but still make sure you’re being fiscally responsible yourself? Are there any cuts you can make, temporary or permanent to current or forecasted spending?

Marketing

Strangely enough, a time when everyone is home and the internet is the biggest facilitator of daily life, it’s a great time to continue to be in front of your community and potential clients. Local ordinances may require that your physical doors be closed, but your digital doors need to stay open.

Three types of messages you need to be addressing via both email and social media channels:

  • Ways in which your specific customers are affected by shutdowns. Will they be able to continue to get your product or service? Will you be offering any assistance with payments?
  • Ways the local community can be helped. Share the names of your preferred vendors and/or ask your customers on various social media platforms to share businesses that need support and ways that they can be helped.
  • Offering some kind of free or low cost education in whatever you might be specialized in. Traditional cooking schools have moved their offerings online. Restaurants that never offered takeout before have quickly pivoted to add that aspect. You can use the opportunity to share valuable content that might normally be part of your paid services but is a chance to give back at a time when everyone is hurting while also being genuine guerrilla marketing: leading with value.

Admin

If you don’t have an operating manual for your business or it needs a massive update, there’s no time better than a government-mandated lockdown to get a project like that done. It’s a key part of any future exit so why not use this time wisely.

Also be patient with transitioning your team to remote work, especially if you’ve never worked remotely as a company. Your team will need time to adjust, though there are many free resources out there providing tips and strategies to get the most out of a remote working situation.

In all of these departments, and others, focus on solutions that look at the current crisis realistically, neither planning for the worst nor expecting the best, while knowing you’re already making progress in the fight because you’re not panicking, but preparing and pivoting.

We can help you take a look at your business to help make some suggestions on adjustments you can make during this period. Give us a call!

Don’t Panic: Business Buying and Selling in the Age of COVID-19

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Don't PanicSome time ago we wrote about adjustments you could make proactively in your business as COVID-19 started to make larger waves in the global economy. As the crisis grows and lingers, dynamics necessarily change for both buyers and sellers in the marketplace. What we continue to tell our clients here at Apex is: don’t panic. Those who can keep their heads when everyone is losing theirs will prosper when conditions improve. With that spirit of calm, let’s consider some things.

Short Term (the next 90 days)

We have deals in the pipeline and some of them will collapse due to a change for either buyer or seller that was unforeseen prior to these past few weeks. This has nothing specifically to do with the business but more to do with the general business climate. For example, a buyer may get cold feet about buying now or watched income which was going to be cashed out of stocks to finance the sale crater in value. They may see waiting as the best option.

That said, many deals will close, regardless. We saw some of this in 2008 during the financial crisis as well.

While the media may make it seem that fire is raining down from heaven, the reality is that business does go on in many sectors. And not just in the US but worldwide, including the supply chain for all businesses marked as “essential”. Indeed, some businesses are seeing their most profitable months in some years even as they move towards acquisition. Some of those sellers might delay a sale just to continue to ride some of those record profits a couple more months.

Medium Term (the next 6 to 18 months)

Should some kind of lockdown become national in the United States as it has in much smaller countries in Europe, there could be a hit to valuations of businesses, as those are based on earnings including the most recent financial statements.

On the other side, borrowing will be historically easy, as the Treasury and SBA make unprecedented guarantees and funds available. Rates are at historic lows. Some banks may put some additional provisions in the paperwork in relation to COVID-19 and its impact on certain types of businesses. But banks want businesses to move forward, not to freeze up, so they will likely be encouraging rather than discouraging.

Long Term (the next 24-48 months)

As with any shock to the economy of any country, there will be some necessary recovery time. But the realities of life go on.

The Baby Boomers continue to retire, and in record numbers, and many own businesses that have to be sold. Many people will begin to see their jobs through new lenses in a period of remote work. And the idea of buying a business, with its levels of control and opportunities for growth, may become even more appealing.

This isn’t to say that we don’t see some challenges ahead, but we tend to take the long view, because this isn’t the first economic shock we’ve experienced as advisors. Life does go on, despite great uncertainties, and indeed, this time, as any time in life and in business, is only as good as what you choose to do with it.

We look at facts and history and combine them with what we hear from our buyers and sellers and that leads us back to what we started this article with: not panicking.

Do you have questions about buying or selling a business right now?
We’re happy to talk through some of the challenges (and opportunities) with you!

ACT Fast for SBA Funding!

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At Apex, we are practicing social distancing and working from our homes… but we are still working.

CARES Act and PPP

HourglassWith all the recent information going out about the CARES Act and the Paycheck Protection Program (PPP), there is still additional guidance needed from the SBA on how banks are to start processing applications. Our bank contacts have been inundated with calls and have had to prioritize their existing customers ahead of others. For current bank customers, you will find yourself in queue. So call now.

The good news is that the SBA funds will be available, and banks are pulling out all the stops to make it work.

We’ve talked to banks that are moving entire departments to the PPP program, hiring additional staff, and putting other projects on hold. There have been several industry webinars since the Act was approved by Congress and signed by President Trump, to share the latest updates. Each new webinar discussed the changes that were made to the SBA’s procedures as new questions and comments made their way to the Treasury Department and SBA leadership.

It is expected that Friday, April 3rd, the final process will be outlined, and business owners will be able to start completing applications. You will probably get notified by your bank. If not, call them directly.

There are other aspects of the CARES Act that are designed to assist business owners immediately.

Business owners with current SBA loans will have their payments made by the SBA for the next six months! Those who close on business acquisitions prior to September will also have the first six months of payments made by the SBA!
This is actually a great time to move forward with a business acquisition!

If you haven’t called your bank yet, get on it! They will be able to assist you with the best way to move forward for your business and your employees.

We are here to help in any way we can! Call us if you have questions or need some direction.