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2020

It’s amazing what a fresh set of eyes can do.woman-shopping-1727684.jpg

 

One of the dangers of owning a business and being the boss is that one can tend to get myopic; you see what you see and know what you know and getting a fresh, outside perspective can sometimes be challenging.

 

That came to light for me recently while coaching some MBA students. Their big idea? Creating a platform that would be a better way for businesses to offer free demonstrations in their stores.

 

“What problem does that solve,” I asked.

 

“It gets people into stores!” they replied.

 

Good point.

 

And that got me to thinking about the state of business in this new decade. If you are going to be starting a business, which makes more sense – an online store or a brick-and mortar store? Well, let’s consider the pros and cons of each:

 

Brick-and-mortar pros and cons

 

We hear a lot about the so-called “death of retail.” My take is that there is of course some truth there, if exaggerated. Yes, big box stores like Sears and J. Crew are in deep trouble, but, that said, small business is as healthy as ever.

 

This is especially true in this robust economy, and that too is no small thing. People have money, and are spending it, and they are still spending it in physical stores, despite what the naysayers say.

 

Consider the bookstore. If ever there was a type of business that seemed destined for the scrapheap of history, it was the physical bookstore. Such an antiquated, cute notion – wandering and browsing through a shop with a limited number of titles and retail prices.

 

Not long ago, the headlines screamed that huge competitors like Barnes & Noble were going to put them out of business. Didn’t happen. Then it was surely going to be Amazon who was going to swallow them all up.

 

That didn’t happen either.

 

According to the New York Times, “The American Booksellers Association, a trade group for independent bookstores, has grown to 1,887 members with 2,524 locations as of May 15 [2019], the highest participation since at least 2009.”

 

So that’s the good news. People still like going into stores, and if the store is well run and competitive on price, it can thrive.

 

The downside is that it is considerably more expensive to own and run a brick-and-mortar store. Labor, rent, insurance, etc. are all overhead costs not matched by their online equivalent.

 

E-Commerce pros and cons

 

Despite the above, we all know that the trend in shopping is towards e-commerce. Amazon isn’t Amazon for nothing, and Alphabet, the parent company of Google, just topped a trillion dollars in valuation because of all those little ads pointing people to online stores.

 

The pros are obvious: People love to shop online and are only going to do more of it. The cost of entry is significantly lower than getting into a physical store. And, for example, with something called “drop shipping,” you do not even have to carry inventory to stock your online shelves.

 

But the good news is also the bad news. Yes, there are a lot of people shopping online, and yes that is where things are headed. But that also means that there is a lot of competition.  Getting heard above the din is no easy feat online. Getting people to your little online store, and then getting them to buy from you and not someone else is challenging.

 

So, what’s the best choice? How about both? Open a store and sell online. Heck, if Jeff Bezos is now selling both online and off (Amazon Go, Whole Foods, Amazon Bookstores), it might not be such a bad idea.

 

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert Steve+Strauss+Headshot+SBC.pngcolumn is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide materials for informational purposes only, and is not responsible for, and does not guarantee or endorse any of the third-party products or services mentioned.  All third-party logos and company names mentioned herein are the property of their respective owners and are used under license from Mari Smith.

 

Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation

It is difficult to comprehend just how far and fast WeWork went from nothing to something and then from something to nothing.chuttersnap-cGXdjyP6-NU-unsplash.jpg

 

But let’s try, because in WeWork’s epic rise and fall, there is a vital lesson for small business people. Consider:

 

  • WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. Their big idea was this: Because office space in New York is so expensive and finding, furnishing, and maintaining a nice office was cost prohibitive, WeWork would buy or rent offices, make them cool, and then lease shared office space to tenants. The idea took off.
  • By 2014, WeWork was considered “the fastest-growing lessee of new office space in New York” and was on track to become “the fastest-growing lessee of new space in America.”
  • By January 2015, WeWork had 51 coworking locations across the U.S. and Europe - twice as many as in 2014. WeWork was named one of the “most innovative companies” of 2015 by Fast Company magazine.
  • In 2016, the company raised $430 million in investment capital and had a valuation of $10 billion.
  • In 2018, SoftBank invested $3 billion in WeWork, and another $2 billion a year later.
  • In January 2019, WeWork was valued at $47 billion. Its IPO prospectus said, in part, “Our mission is to elevate the world's consciousness.”

 

And that is when the wheels began to fall off.

 

So flush with money was WeWork that it started spending in extravagant, crazy ways. How crazy? Let me share a personal story:

 

Two years ago, I was asked by WeWork to attend its Creator Awards in New York. It was a wild night; unlike anything I had ever seen, and emblematic of everything that was to go wrong.

 

WeWork’s CEO Adam Neuman was supposed to award one winner $1 million, that, in and of itself was wildly extravagant. But so overwhelmed was he by the 13 finalists, that he spontaneously decided to award a second winner another $1 million, and then he decided to give each runner up about $250,000 each.

 

The $1 million night became a $4 million night, and it happened in 45 seconds.

 

Multiply that by private jets, excessive growth (We Work bought the storied Lord & Taylor building on 5th avenue for its headquarters for $850 million) and crazy policies (Neumann sold the “We” trademark to his own company for $5.9 million) and you can see why its plan for an IPO in 2019 started to go up in smoke. In a few short months, WeWork’s profligate spending came under intense scrutiny and before long:

 

  • Its $47 billion valuation fell to $8 billion in nine months
  • Neumann resigned as CEO
  • The IPO was shelved
  • SoftBank took control of the company

 

What Went Wrong (Besides Everything)?

 

First, obviously, their spending was out of control, but it was more than that. Clearly, Neumann never graduated from the entrepreneur stage to the businessperson/CEO stage.

 

Entrepreneurs like Neumann are necessary. Their vision, passion, and energy are needed to get a company launched. But that is not enough. Vision doesn’t pay the bills. Before long, if you want to last, you need to learn and master the more mundane parts of business – law and taxes, insurance and finances, hiring and firing, and so on. WeWork never did.

 

Second, WeWork grew too big, too fast. That too is a danger to be avoided. Scaling a business is not easy. To go from one person (where most business start) to 2 to 10 to 100 and beyond requires planning, infrastructure, training, policies, financing and much more. Most of all, it requires time. Setting the foundation in place properly is the best way to create lasting success. Moving too fast allows one loose Jenga piece to topple the whole structure.

 

Third, hype and hyperbole do not a business make. Oh sure, we all like buzz and attention, and that can help grow a business but attention, if not managed, is just so much hot air.

 

Example: I once helped a pizza joint get the attention of a local food critic. One Friday, the critic wrote a glowing review of the restaurant. That weekend, the place was slammed, but because they weren’t ready, they didn’t have enough wait staff, ran out of dough, and pissed off a lot of customers.

 

Buzz can be a buzzkill if not managed properly.

 

The moral? Grow fast and furious, get high on your own success, get into debt you can’t manage, over promise and under deliver, and you will go from we work to no work in a hurry.

 

About Steve Strauss

 

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert Steve+Strauss+Headshot+SBC.pngcolumn is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation

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