A HANDBOOK FOR ENTREPRENEURS RISKING FAILURE: THE HIGH STAKES OF ENTREPRENEURSHIP

If you’re operating on the assumption that entrepre-neurship is fun – win, lose or draw – you may be in for a surprise. Losing is never fun, especially when it involves money. And winning brings as many headaches as rewards.

If entrepreneurs are “agents of their own progress,” they are also agents of their own demise. Generally, the self-destructive impulse does not surface until the entrepreneur has his business off the ground. As long as he’s hustling, the entrepreneur is comfortable in his element. But as soon as he’s running the business, his success can become a curse. The problems tend to come in ripples, best described in a five-phase scheme of the entrepreneurial venture developed by Dallas psychologist Anne Blocker. We’ve expanded her work considerably here, with our own findings from discussions with Dallas entrepreneurs and the findings of other studies.



1. Excitement/exultation



You’re doing fine here. You can see the forest and the trees. Your exuberance may cause some erratic work habits, though. Try to catch yourself if you begin spending five hours bickering over the quality of the stationery and another three hours “meeting” with your employees. You’ll feel a strong impulse to act businesslike, and you’ll want to feel like you’re solving important problems. Don’t mistake busy work for the real thing. Also, try to keep your impulse to make lists in perspective. The entrepreneur loves to make lists: They can become a surrogate for productive action.



2. Disillusionment/ disenchantment



You’ll know that this stage has arrived when you begin making lists from your lists. The post-sales letdown may deflate your ego, causing you to question the worth of your enterprise. You may even go back and read your prospectus and wonder why anyone ever bought the idea in the first place. One local entrepreneur handled this crisis by writing memos: His staff grew a little tired of the daily communications, but they helped him keep in contact with his company – and with the idea of running a company.



3. Confusion



Even if you manage to overcome your disillusionment, you’re going to encounter considerable frustration in keeping your original goals in perspective. Leasing office space, hiring lawyers, handling employees, paying taxes, and dealing with the public can create a lot of confusion at the conceptual level. You will likely begin to confuse your own interests with the interests of the business: You may already be conceiving your next project, but the business needs day-to-day management. Moreover, losing sight of your original goals may cause you to come up with a whole new set: One restaurateur completely altered the pricing on his original menu to appeal to the younger crowd. Result: His bar business, crucial to the restaurant’s cash flow, began to lag, and the business almost went under before he returned to his original concept.



4. Search for the guilty party



If you make a mistake like the restaurateur’s, you may try to convince yourself that it was the fault of incompetent employees. And this may well be true, since entrepreneurs are notorious for listening to the wrong people during this phase. But if you decide to embark on a purge, make certain you identify the real culprits. And don’t wind up like the local businessman who became so obsessed with his witchhunt that he no longer had to worry about whom to fire: A third of his employees resigned.



5. Punishment of the innocent



When you let employees go, you’ll probably find yourself looking in the wrong places for replacements. Maybe you do need fresh blood, but don’t stray too far afield searching for it. You wouldn’t want to wind up like the local entrepreneur who summarily dismissed all the men on his staff and replaced them with women, because “women are more honest.” He may have been right, and certainly he struck a blow for The Movement, but he also reduced the average experience of his staff from three years to one.

The Rise and Fall of Robert Coit

Robert Coit is like most entrepreneurs, except that he was lucky twice. The first piece of luck was good. The second was bad.

Coit, 41, moved to Dallas in 1958 on the advice of a friend. Fresh out of college, he went to work for Levine’s Department Stores, eventually rising to the rank of boy’s department buyer. In 1966, he became tired of the nine-to-five routine and decided to strike out on his own. With $3,000 in personal savings, he leased a small office on Hampton Road, and opened a fabric wholesale store. Business wasn’t exactly brisk, but he made enough to pay the bills.” I had no grand plans for anything,” Coit says today. “I just wanted to run a small business of my own.

Within a year, Coit’s brother joined him in the enterprise, and the two made plans for modest expansion. By 1970, the business had grown to half a dozen stores doing $ I mil-lion or so in sales a year. Then Coit noticed that a new fabric – something called double-knit – was selling about twice as fast as the rest of his inventory. Following his instincts as a salesman, Coit began buying up as much doubleknit as he could get his hands on and made plans to expand the chain of stores to whatever size was needed to peddle the fabric.

Then Coit decided to take the company public. That fueled more expansion: During the next year, Coit Inter-national opened 350 stores. Robert Coit’s “small business” was suddenly a multi-million dollar enterprise and the new toast of Wall Street. Coit felt he had no choice but to continue to expand. Doubleknit seemed to have an insatiable market: Its durability and low cost made it attractive to all ages and socio-economic classes. Moreover, the capital necessary for such expansion was there for the asking. “It’s pretty hard not to expand when people are knocking down your door, offering fresh capital or saying, “Hey, the next time you tender an offer, give us a call first,’ ” he says. “I began to get the vague feeling that it was getting out of hand, but it was hard to slow down.”

By 1973, Coit International had grown to 856 stores in 42 states, with sales of $100 million and 5,000 employees. Coit decided to branch out. “After you’ve built 350 stores in one year, you figure it’s time to expand to something else.” Coit International began looking for a large retail fabric chain. Coit found one he liked in Florida, National Fabric Stores. It proved to be his fatal move.

Not only did National Fabric turn out to be a dog – Coit International would eventually pump $12 million into it, to no avail – but the doubleknit market busted as quickly as it had boomed: While sales remained constant, overproduction of the fabric forced its per-yard price down. Fabric selling at $6 a yard one year was selling at $4 the next.

Overnight, Coit Interna-tional became the wrong idea at the wrong time.

Coit’s expansion had extended his company considerably: He was in debt to New York Life for $9.6 million; Chase Manhattan Bank for $6.4 million; First National in Dallas for $3.4 million. As sales began to sag, overhead costs on his hundreds of new stores built up. By the time Coit filed for bankruptcy in August 1975, his company’s liabilities totaled $27 million and involved some 3,000 creditors. Pretty heavy figures for a man who began, in his own words, as a “small town fabric retailer.”

The bankruptcy proceedings eventually reduced Coit International to a modest 50-store chain. For Robert Coit, it was probably a relief. “When we were expanding at the rate of a store a day,” he says, “I began to sense that it was out of control. I tried to find management talent, because I knew the growth needed to be controlled better. But I couldn’t attract any – anybody worthwhile was out building his own company. At that point, I wanted out.

“But I couldn’t just cut loose. I had creditors 1 was responsible to. We tried to take care of it by liquidation, but we couldn’t keep up with the debt.”

Did he become a prisoner of the growth syndrome? “A man who has built his business, who does not have avail-ability of capital, is going to be conservative. He doesn’t want to go back where he was born, so he’s not going to risk it. But people were offering me money all the time. When people invest in your business, they expect growth. There were 8 or 10 companies in our industry which were competing. You begin growing and you lose sight of how you got there.

“If the capital had not been available, the company wouldn’t have gone up and down the way it has. All I can say is that I can live with myself today. I’m staying with it. I’ve always had the confidence that if you do it once, you can do it again.

“And the second time, you’re that much smarter about it.”