It's no simple thing to turn around a company facing financial ruin.
Financial struggles are a reality for many businesses. Some hit such hardships that bankruptcy is the only way out. Research from the American Bankruptcy Institute revealed that in 2016, more than 3,000 businesses filed for bankruptcy each month, on average.
While filing for bankruptcy might seem like a death blow for your business, it doesn't have to be. Few know this lesson better than Scott Fischer, CEO of Dippin' Dots, which you might know of as the "ice cream of the future."
After the ice cream company filed for bankruptcy in 2011, Fischer stepped in and turned the company's fortunes around. In 2017, he led Dippin' Dots to record growth, including 300 million in sales last year.
We recently spoke with Fischer about keeping things moving in the right direction when your company falls on tough financial times.
Q. What strategies can businesses use to dig themselves out of bankruptcy?
A. Businesses and brands can work their way out of bankruptcy by exercising federal laws that provide for a process to selectively acquire assets. Those laws allow the bidder to acquire the assets free and clear from any claims and liabilities while discharging undesirable assets or contracts. This approach is called stalking horse bidding, and if executed correctly, it can create a windfall for the acquiring party.
I have gone through this process with a couple of brands. Dippin' Dots was my first experience using that process and a benchmark of how the process can create substantial opportunity. I was able to acquire the Dippin' Dots brand and all of its core assets and contracts that I believed had value while discharging the assets and obligations that I believed to be a burden to the business. Then I was able to cleanse the assets by buying them free and clear from any previous claims and liabilities through the federal process. This allowed me to acquire the brand, intellectual property, goodwill, hard assets, and its corporate infrastructure with its employees, which allowed for the growth of the business and its cash flow to snowball from its emergence from bankruptcy.
Q. How do you keep employees working hard and staying focused when your business is experiencing rough financial times and employees are worried that their jobs are in jeopardy?
A. Transparency is key. If a business is under financial stress, and its employees are sticking with the business and working hard, then corporate and brand loyalty are likely woven through the corporate infrastructure.
I believe that a company and its leadership have an ethical duty to provide employees with reciprocal loyalty by being transparent and maintaining a healthy line of communication through the process. Communication and coordination are critical attributes when working through points of financial stress. By maintaining integrity and loyalty within the corporate infrastructure, a company can monitor the health of the enterprise; react and make decisions when needed; and utilize a diligent, focused, and collaborative work ethic needed from employees during this critical time.
I am happy to report that we held 100 percent employee retention throughout the bankruptcy and that 33 percent of our employees have been with us for 10 years or more.
Q. When purchasing an established business, what should entrepreneurs look for?
A. Entrepreneurs should take advantage of what established businesses can offer in an acquisition. Some of these opportunities include a historical cash flow, a blueprint of the business, accumulation of assets, institutional knowledge, existing culture, issues with the business that can be improved, and identifying areas of expansion.
Learning of existing challenges, issues with the business's financial model and budget, and other burdens of the company can create opportunities for improvement, growth, increased efficiency, and value enhancement. I would rather buy a business at a good price that has a lot of room for improvement than buy a business at a prime price that is operating the best it can. Those types of challenges provide the entrepreneur his or her opportunity to build value.
I also enjoy looking at historical cash flow and past tax returns. Tax returns provide a true snapshot of the company's financial history, and having the historical financials can provide an entrepreneur the true story of the company. What worked through the business's maturity and what didn't work? Which years of the economy and markets worked for that business model and what economic events, seasons or market changes had a negative impact on performance? This type of information can be invaluable when evaluating risk exposure, projecting opportunity and running projections in due diligence.
Q. Running one business is hard enough, how do you know when it is time to expand and purchase an additional brand?
A. I believe it is awareness of your purpose, plan and expectations. Whether running one business or multiple businesses, it is still a focus on business and the cost or collective costs to produce a dollar. Strategic and cultural alignment are critical points of focus when considering expanding through the acquisition of additional brands.
The initial areas I consider when working through that thought process is what strategic initiatives the purchase provides, such as acquiring Doc Popcorn for the purpose of co-branding with Dippin' Dots to support getting our products and brand back into the mall segment. Historically, Doc Popcorn was strong in this area, but Dippin' Dots had a declining presence in malls.
I'd also look at the cultural fit. For example, when Dippin' Dots looked at acquiring Doc Popcorn, we analyzed the corporate infrastructure that we currently had in place to manage and operate Dippin' Dots Franchising to determine if we could use the same infrastructure to run Doc Popcorn. This ultimately allowed us to have two separate brands and two separate franchise structures but one culture that allowed both brands to provide mutually beneficial support to the growth of each.
The number of new co-brands, and the additional product(s) of each brand as a result of the co-brands, is easy to quantify and measure, which allows us to ensure that the plan meets expectations and to manage those expectations.
Without a strategic plan for the acquisition of an additional brand, there may not be a purpose for the purchase. If there is not cultural alignment, then there is an increased risk of unnecessary time, money, and morale that could be spent in attempting to coordinate and manage both.
Q. When running multiple companies, how do you ensure each brand is getting the attention it needs to succeed?
A. It is critical to make sure that you have experienced and diligent teams running each, and that the teams have strong communication and coordination skills.
You must have a team focused on the management and needs of its business, yet is still aware of what is going on with the other brand(s), and how the different brands can support each other.
In most cases, it seems that if brands operate as separate silos, then there is an increased risk of wasted opportunities, mismanagement of expenses, less coordination, and a separation of cultural structure that supports growth.
Q. How do you know if your brand is ready for franchising?
A. I have always believed that brands are ready for franchising once there is a blueprint to a business model that is marketable, easy to understand, has steady cash flow, and offers something attractive about its trade secrets, trademarks or other assets of intellectual property that provide value for that franchise.
I look at franchisees as being strong entrepreneurs. You may have a retired couple looking for an ongoing revenue stream and who enjoy building a business together in retirement, or a family looking to start a family business under a franchise, or a larger-scale corporation looking to inject investment capital into a franchise to grow a nice-sized operation. It is the packaged business model – and the tools to support the opportunity – that the franchise is selling to those entrepreneurs, so I believe that the brand needs to look at what opportunity and tools it has to offer.
Q. Now that Dippin' Dots has recovered from its 2011 bankruptcy, how do you ensure the business doesn't regress and return to financial instability?
A. By math and awareness. For every dollar infused into the company, we ensure that we know where that dollar is going, what the purpose is for that dollar and what the expectation of its performance is. Then we measure that performance to ensure it is meeting its expectation and fulfilling its purpose.
This approach has supported each dollar meeting or exceeding its expectation for supporting a purpose, covering any potential debt and producing the projected returns. The snowball of this practice has allowed Dippin' Dots to build its financial integrity and the additional capital from its returns to grow the business while reducing any debt exposure.
Awareness is strengthened by the communication and group dynamics among the team, which is supported by our corporate culture. Having this type of awareness of the other departments and teams throughout the company, and the communication to coordinate all of the pieces to the puzzle of our corporate infrastructure, has allowed us to follow our goal of realizing controlled, coordinated, and sustainable growth.
We have also mitigated our risk exposure by adding and building a diversified revenue stream with Dippin' Dots Cryogenics, which uses our patents in the cryogenic process and applies them to pharmaceutical, nutritional and meat industries. The idea uses Dippin' Dots logistics, international distribution and shipping containers for these cryogenically frozen products. This revenue stream has a different cost to produce a dollar, different market segments, along with different seasonality.
By providing diversification to our revenue stream with the cryogenic technology segment, along with pursuing other market segments and points of presence, such as focusing on the impulse consumer by selling Dippin' Dots at convenience stores, we are able to diversify the risk of seasonality with our core business.