{"id":125,"date":"2018-12-27T16:12:34","date_gmt":"2018-12-27T21:12:34","guid":{"rendered":"http:\/\/pressbooks.library.upei.ca\/smallbusinessmanagement\/chapter\/icebergs-and-escapes\/"},"modified":"2021-07-26T10:32:48","modified_gmt":"2021-07-26T14:32:48","slug":"icebergs-and-escapes","status":"publish","type":"chapter","link":"https:\/\/pressbooks.library.upei.ca\/smallbusinessmanagement\/chapter\/icebergs-and-escapes\/","title":{"raw":"Chapter 6: Icebergs and Escapes","rendered":"Chapter 6: Icebergs and Escapes"},"content":{"raw":"
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SoBe<\/span><\/div>\r\n<\/div>\r\n
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Source: Used with permission from John Bello.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n

John Bello and Tom Schwalm founded SoBe Beverages in Norwalk, Connecticut, in 1996. The name is an abbreviation of South Beach, the well-known upscale area in Miami, Florida. John describes SoBe as playfully irreverent, having brand equity with meaning, a cult brand that resonates in the marketplace. He attributes the company\u2019s success to some luck, missteps by the competition, being aggressive, and tapping into a cultural shift.<\/p>\r\n

SoBe tapped into a cultural shift toward healthier living and wellness and the rise of companies like General Nutrition that focused on wellness products: vitamins, supplements, minerals, and herbs. Their first product, Black Tea 3G, contained ginseng, guarana, and ginkgo. Orange Carrot, another of SoBe\u2019s first successful products, is a blend of orange and carrot juices enhanced with calcium, chromium picolinate, and carnitine. An extensive line of other flavors was added. All ingredients were linked to specific health benefits.<\/p>\r\n

The first two years of operation saw SoBe losing money, but by the end of 1997, the company was on fire. In five years, the company went from $0 to $300 million in sales, and it became a national brand. SoBe was competing effectively at a premium price. Coca-Cola, Pepsi, Arizona, and other brands took notice. Within three years, Coca-Cola was talking to SoBe about a possible strategic partnership. There were fifteen meetings, only two of which were with marketing. The rest were with corporate lawyers (John calls them \u201csales preventers\u201d) and regulators. At the end of 1999, Minute Maid presented the proposal to the Coca-Cola board. Surprisingly, it was rejected. Coca-Cola saw no reason to go beyond carbonated soft drinks, and there were also some leadership issues. Back to square one.<\/p>\r\n

John and Tom started looking at liquidation because of pressure from investors who wanted their money. But there were other reasons they thought about selling. They were not interested in managing a disparate group of investors\u2014bankers, investors, and private equity companies. With 250 employees, the company was growing into something they did not want it to be\u2014and they were not having as much fun. In 2000, the market was flattening, so with a big brand image, it was a good time to get out. They also wanted to get into larger markets, such as schools and golf clubs, but only big companies could get them into a broader marketplace. They hired an investment bank and again went into negotiations with Coca-Cola as a strategic partner. The situation became very complicated and frustrating. Ultimately, a deal with Coca-Cola was again a no-go.<\/p>\r\n

All was not lost. Pepsi (and others) had expressed an interest. John made a presentation to forty people at Pepsi\u2014rather than the multiple presentations he had to make to Coca-Cola\u2014and within two weeks, they had a deal. SoBe was sold in 2000 to Pepsi for an impressive $370 million\u2026a very nice return on an investment of $7 million in cash and $1 million in trade-out services. Part of the deal was that John would stay on at Pepsi for two years to manage the brand, but after one day, it was clear to him that he was not going to be managing anything. Things were moved into committee, and the corporate bureaucracy took over. John likened the experience to \u201cMaking Ho Chi Minh a general in the US Army,\u201d that is, he had a very different way of doing things. He is independent, is unconventional, speaks his mind, and would rather do things and make them work\u2014an approach that tends to be at odds with the culture in large corporations.<\/p>\r\n

SoBe inspired a whole line of functional beverages that people like to buy to make them feel smarter, healthier, and sexier. The company helped to build careers that have lasted. John is very happy with his legacy\u2026and with his piece of the $370 million sale price.[footnote]Source: Interview with John Bello, cofounder of SoBe, August 23, 2011.[\/footnote]<\/span><\/p>\r\n\r\n<\/div>\r\n

Most textbooks on small business and entrepreneurship emphasize, quite correctly, the benefits and joys of owning and operating one\u2019s own business. However, they often neglect to cover many of the challenges of continuing to operate a business successfully\u2014the icebergs that can sink a business. The first half of this chapter covers one of the biggest icebergs: a natural or a man-made disaster and the disaster planning that should precede it. Being able to anticipate a disaster will contribute significantly to its effective handling so that a business can survive.<\/p>\r\n

Even if a small business survives a disaster or another kind of iceberg, the owner may still wish to walk away. If a business does not survive, the owner will have no choice but to walk away. There may be other reasons forcing the owner to walk away, or escape, as well. The second half of this chapter discusses the forced escape and the other end of the spectrum\u2014when things go so well that the business owner is ready to move on to another phase of his or her life. In both cases, an exit strategy will be required.<\/p>\r\n\r\n<\/div>\r\n

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Icebergs<\/p>\r\n\r\n

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Learning Objectives<\/h3>\r\n
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  1. Understand the kinds of disasters that can face a small business.<\/li>\r\n \t
  2. Understand why disaster planning is important to a small business.<\/li>\r\n \t
  3. Describe the process of disaster planning.<\/li>\r\n \t
  4. Describe the sources of disaster assistance for small businesses.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n

    A natural or a man-made disaster is but the tip of the iceberg. Planning for the complexity of what lies below the tip is important for every small business. Small- to medium-sized businesses are the most vulnerable in the event of a disaster.[footnote]\u201cPlanning Can Cut Disaster Recovery Time, Expense,\u201d US Small Business Administration<\/em>, accessed February 6, 2012, archive.sba.gov\/idc\/groups\/public\/documents\/sba_homepage\/serv_da_dprep_howtoprep.pdf<\/a>.[\/footnote]<\/span> It has been estimated by the US Department of Labor that 40 percent of businesses never reopen following a disaster. At least 25 percent of the remaining companies will close within two years. The Association of Records Managers and Administrators estimated that over 60 percent of small businesses that experience a major disaster close by the end of two years.[footnote]Darrell Zahorsky, \u201cDisaster Recovery Decision Making for Small Business,\u201d About.com<\/em>, accessed February 6, 2012, sbinformation.about.com\/od\/disastermanagement\/a\/disasterrecover.htm<\/a>.[\/footnote]<\/span><\/p>\r\n

    Given these odds, planning for disaster recovery makes great sense\u2014even if, in the end, walking away makes the most sense. If a small business owner decides to rebuild, the process can begin after human health and safety are restored, the electricity is back on, and transportation is up and running. Everyone will want life to return to normal following the destruction, but that may not be possible for every small business. The market may change. Conditions may change, and a business must change to succeed in disaster recovery.[footnote]Darrell Zahorsky, \u201cDisaster Recovery Decision Making for Small Business,\u201d About.com<\/em>, accessed February 6, 2012, sbinformation.about.com\/od\/disastermanagement\/a\/disasterrecover.htm<\/a>.[\/footnote]<\/span><\/p>\r\n\r\n

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    Disaster Planning<\/h2>\r\n

    In the film Apollo 13<\/em>, astronauts and engineers went through seemingly endless simulations of what might go wrong on a flight to the moon. The astronauts complained that some of the scenarios were unrealistic and almost impossible to occur. But when a near disaster occurred on Apollo 13, the engineers and astronauts were confronted with a problem that had never been considered; however, because of their prior experience with disaster training, they were able to develop a solution.<\/p>\r\n

    Rather than being negative, anticipating what can go wrong can be profoundly positive through either prevention or quickly responding to a crisis. The wise small business owner should appreciate Murphy\u2019s Law (\u201cAnything that can go wrong will go wrong\u201d) and Murphy\u2019s first corollary (\u201cAnd it will go wrong at the worst possible moment\u201d). The most pragmatic small business owner will also realize that Murphy was an optimist.<\/p>\r\n

    The Federal Emergency Management Agency<\/a> declared 741 natural disasters in the United States for the period 2000 to 2011. Of that number, 66 percent were declared across the following six states: Texas (#1), California, Oklahoma, New York, Florida, and Louisiana (#6). However, every state and territory was represented.[footnote]\u201cDeclared Disasters by Year and State,\u201d Federal Emergency Management Agency<\/em>, accessed February 6, 2012, www.fema.gov\/news\/disaster_totals_annual.fema<\/a>.[\/footnote]<\/span> Planning for the aftermath of severe storms, flooding (e.g., perhaps snow melts too fast), fire, a hurricane or a tornado, a terrorist attack, or\u2014in some areas\u2014an earthquake is the key to getting back to business with a minimum of disruption. Not all businesses will face the same likelihood of these disasters occurring, but everyone faces the possibility of fire, severe storms, and flooding. Every situation will be unique, with the complexity of issues depending on the particular industry, size, location, and scope of a business.[footnote]\u201cPlanning Can Cut Disaster Recovery Time, Expense,\u201d US Small Business Administration<\/em>, accessed February 6, 2012, archive.sba.gov\/idc\/groups\/public\/documents\/sba_homepage\/serv_da_dprep_howtoprep.pdf<\/a>.[\/footnote]<\/span> The widespread nature of a the typical disaster means that public services, such as police, fire fighters, and medical assistance, will be unable to reach everyone right away. A business might be going it alone for a while.[footnote]F. John Reh, \u201cSurvive the Unthinkable through Crisis Planning,\u201d About.com<\/em>, accessed February 6, 2012, management.about.com\/cs\/communication\/a\/PlaceBlame1000.htm<\/a>.[\/footnote]<\/span><\/p>\r\n

    According to a recent poll conducted by the National Federation of Independent Business<\/a>, man-made disasters affect 10 percent of small businesses, and natural disasters have impacted more than 30 percent of all small businesses in the United States.[footnote]Darrell Zahorsky, \u201cDisaster Recovery Decision Making for Small Business,\u201d About.com<\/em>, accessed February 6, 2012, sbinformation.about.com\/od\/disastermanagement\/a\/disasterrecover.htm<\/a>.[\/footnote]<\/span> [pb_glossary id=\"1349\"]Man-made disasters[\/pb_glossary]<\/strong><\/em><\/a><\/span> are disastrous events caused directly and principally by one or more identifiable deliberate or negligent human actions.[footnote]\u201cMan-Made Disaster,\u201d BusinessDictionary.com<\/em>, accessed February 6, 2012, www.businessdictionary.com\/definition\/man-made-disaster.html<\/a>.[\/footnote]<\/span> They include such things as arson, radiation contamination, terrorism, structural collapse due to engineering failures, civil disorder, and industrial hazards.<\/span>[footnote]\u201cAnthropogenic Hazard,\u201d Wikipedia<\/em>, accessed February 6, 2012, en.wikipedia.org\/wiki\/List_of_man-made_disasters<\/a>.<\/span> [\/footnote] The better prepared a business is, the faster it will be able to recover and resume operations\u2026if that is the decision. Having a disaster plan can mean the difference between being shut down for a few days and going out of business entirely.[footnote]\u201cDisaster Preparedness: FAQs,\u201d US Small Business Administration<\/em>, accessed February 6, 2012, sbaonline.sba.gov\/services\/disasterassistance\/disasterpreparedness\/serv_da _dprep_howcaniprep.html<\/a>.[\/footnote]<\/span><\/p>\r\n\r\n

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    A Disaster Planning Success Story<\/h3>\r\n

    Joe Bogner of Dodge City, Kansas, learned the importance of disaster planning firsthand. He owns Western Beverage, Inc., a beverage distribution company serving twenty-nine counties in western Kansas. In 2002, Western Beverage sustained millions of dollars in fire damage. Yet the company resumed deliveries after just three days. Bogner was named the Kansas City Small Businessperson of the Year for 2006, partially because of his company\u2019s ability to respond to adversity. As his nomination package stated, \u201cSetting up plans of action and following through are Joe\u2019s way of life. He has proven and is continuing to prove that dreams can come true.\u201d[footnote]\u201cPlanning Can Cut Disaster Recovery Time, Expense,\u201d US Small Business Administration<\/em>, accessed February 6, 2012, archive.sba.gov\/idc\/groups\/public\/documents\/sba_homepage\/serv_da_dprep_howtoprep.pdf<\/a>.[\/footnote]<\/span><\/p>\r\n\r\n<\/div>\r\n

    Four key facts about disaster planning must be kept in mind: (1) disasters will occur, (2) an owner must have a plan before<\/em> the disaster occurs, (3) react with urgency but do not panic, and (4) ride it out.[footnote]F. John Reh, \u201cSurvive the Unthinkable through Crisis Planning,\u201d About.com<\/em>, accessed February 6, 2012, management.about.com\/cs\/communication\/a\/PlaceBlame1000.htm<\/a>.[\/footnote]<\/span> If an owner is committed to having a disaster plan for a business, the plan and process can be structured in a variety of ways. For this section, however, the recommendations on Ready.gov<\/a> serve as the structure for our discussion. These recommendations reflect the Emergency Preparedness Business Continuity Standard (NFPA 1600) developed by the National Fire Protection Association and endorsed by the American National Standards Institute and the Department of Homeland Security.[footnote]\u201cPlan For and Protect Your Business,\u201d Ready.gov<\/em>, accessed February 29, 2012, www.ready.gov\/business<\/a>.[\/footnote]<\/span> The recommendations are divided into three areas: plan to stay in business, talk to the people, and protect the investment. The topics discussed here are presented in Figure 6.1 \"Disaster Planning\"<\/a>. They have the greatest immediacy for a small business.<\/p>\r\n\r\n

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    Figure 6.1<\/span> Disaster Planning [footnote]Source: http:\/\/www.ready.gov\/business<\/a>.[\/footnote]<\/strong><\/h3>\r\n\"image\"\r\n
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    Plan to Stay in Business<\/span><\/h2>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n
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    A business owner has invested a tremendous amount of time, money, resources, and emotions into building a business, so he or she will want to be able to survive a natural or man-made disaster. This requires taking a proactive approach so that the chances of the business surviving are increased. Unfortunately, nothing can be done to guarantee the survival of a business because there is no way to know what kind of disaster may occur\u2014or when. There is also no way to know what kind of business environment the owner will face after the disaster. There are, however, several things can be done to increase those chances of survival. Resist the temptation to put emergency planning on the back burner.<\/p>\r\n\r\n

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    Be Informed<\/h2>\r\n

    It is important to look realistically at the types of disasters that might affect a business internally and externally and prepare a risk assessment. Consider the natural disasters that are most common in the areas where the business operates and think about the business\u2019s vulnerability to man-made disasters. Fires are the most common disasters in the United States, and they are extremely destructive to businesses,[footnote]\u201cFires,\u201d American Red Cross<\/em>, accessed February 6, 2012, www.sdarc.org\/HowWeHelp\/DisasterPreparedness\/Fire\/tabid\/81\/Default.aspx<\/a>.[\/footnote]<\/span> but an owner may not be aware that a community is very vulnerable to flooding from snow melt or that the proximity to a chemical plant makes a business vulnerable to the results of explosions. This is why it is important to prepare a risk assessment so that the business can plan accordingly.<\/p>\r\n\r\n<\/div>\r\n

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    Make a Continuity Plan<\/h2>\r\n

    It is said that a business continuity plan is the least expensive insurance any business can have\u2014especially a small business\u2014because it costs virtually nothing to produce.[footnote]\u201cHow to Create a Business Continuity Plan,\u201d wikiHow<\/em>, accessed February 6, 2012, www.wikihow.com\/Create-a-Business-Continuity-Plan<\/a>.[\/footnote]<\/span> The better the continuity planning is before a disaster, the greater the chances that a business will survive and recover. There are many things that can be done.[footnote]\u201cPlan For and Protect Your Business,\u201d Ready.gov<\/em>, accessed February 29, 2012, www.ready.gov\/business<\/a>[\/footnote][footnote]\u201cHow to Create a Business Continuity Plan,\u201d wikiHow<\/em>, accessed February 6, 2012, www.wikihow.com\/Create-a-Business-Continuity-Plan<\/a>.[\/footnote]<\/span> The following is not an exhaustive list:<\/p>\r\n\r\n

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    1. Carefully assess how the business functions. Document internal key personnel and backups (i.e., the personnel without whom a business absolutely cannot function). The list should be as large as necessary but as small as possible.<\/li>\r\n \t
    2. Identify suppliers, shippers, resources, and other businesses that are interacted with on a daily basis. Document these and other external contacts, such as bankers, attorneys, information technology (IT) consultants, utilities, and municipal and community offices (police, fire, etc.) that may be needed for assistance.<\/li>\r\n \t
    3. Identify people who can telecommute. Take steps to ensure that critical staff can telecommute if necessary.<\/li>\r\n \t
    4. Plan for payroll continuity.<\/li>\r\n \t
    5. Document critical equipment. Personal computers, fax machines, special printers and scanners, and software are critical to most businesses. An accurate inventory will help a business restore critical equipment.<\/li>\r\n \t
    6. Make sure that all data and critical documents are protected. Critical documents include articles of incorporation and other legal papers, utility bills, banking information, and human resources documents; all these will be required to start over again. The Small Business Administration (SBA) recommends that vital business records\u2014information stored on paper and computer\u2014should be copied and saved at an offsite location at least fifty miles away from the main business site.[footnote]\u201cDisaster Preparedness: FAQs,\u201d US Small Business Administration<\/em>, accessed June 1, 2012, http:\/\/archive.sba.gov\/services\/disasterassistance\/disasterpreparedness\/serv _da_dprep_howcaniprep.html<\/a>.[\/footnote]<\/span> Companies such as Carbonite<\/a> can store records \u201con the cloud.\u201d<\/li>\r\n \t
    7. Identify a contingency location where business can be conducted while the primary office is unavailable. Many hotels have well-equipped business facilities that can be used, but remember that other businesses may need to do the same thing. It is good to have a contingency plan for a contingency location.<\/li>\r\n \t
    8. Put all the information together. The continuity plan is an important document, a copy of which should be given to all key personnel. Do not distribute the plan to people who do not need to have it. The plan will contain sensitive and secure information that could be used by a disgruntled employee for inappropriate purposes.<\/li>\r\n \t
    9. Plan to change the plan. There will always be events that could not have been factored into the plan. For example, the contingency site is damaged beyond use or the business\u2019s bank is in an area that will be without power for days. Situations such as these will require immediate changes to the plan.<\/li>\r\n \t
    10. Review and revise the plan.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n
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      Talk to People<\/h2>\r\n

      Without good communication, the internal and external structure of a business\u2014and its daily operations\u2014will face challenges that may ultimately lead to its downfall.[footnote]Kristie Lorette, \u201cImportance of Good Communication in Business,\u201d Chron.com<\/em>, accessed February 6, 2012, smallbusiness.chron.com\/importance-good -communication-business-1403.html<\/a>.[\/footnote]<\/span> Strong communication skills are, therefore, a vital part of business success. When first starting out, the owner will need good communication skills to attract and keep new customers. As the business grows and new employees are required, these skills will be needed to hire, motivate, and retain good staff.[footnote]Leslie Schwab, \u201cSmall Business: The Importance of Strong Communication Skills,\u201d Helium<\/em>, June 20, 2009, accessed February 6, 2012, www.helium.com\/items\/1486526-strong-communication-skills-are-required-for-success-in-small-business<\/a>.[\/footnote]<\/span> It is for this reason that the employees of a business should play a central role in creating a disaster plan.<\/p>\r\n\r\n

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      Involve Coworkers<\/h2>\r\n

      Providing for the well-being of all employees is one of the best ways to ensure that a business will recover from a disaster. A business must be able to communicate with them before, during, and after a disaster. There are several recommendations for doing this, including the following:[footnote]\u201cPlan For and Protect Your Business,\u201d Ready.gov<\/em>, accessed February 29, 2012, www.ready.gov\/business<\/a>.[\/footnote]<\/span><\/p>\r\n\r\n