Ice Cream Dreams (Risk Assessment – Part 1)

There’s a lot that’s going to come together in this post today.

Franchises…

Risk Management…

Success…

This morning, I was doing some research for a project that’s coming up, and I wandered onto a follow-up editorial style piece in reference to the WSJ article about the failures that the Cold Stone Creamery franchise is running into.

One piece of wisdom I’ve found in business is that people are really interested in success stories. But, really the gems of wisdom are in looking at failures, especially when failure is far more common than success. In the franchising business, 70-75% of franchises fail. And that’s not the franchisee. That’s the franchisor. There’s a lot tied up in how those businesses fail, but looking at the anatomy of a failure is the way to go. Success can have some luck tied up in it, but generally, with that many failures, you can disect how it happened and look for common themes.

Additionally, there’s a third point in that article that should be addressed. And tied up in there, is why you want to examine the successes too.

3. Will the product survive a downturn? A $4 scoop of ice cream is fabulous business when most folks are feeling flush. It isn’t such an easy sell when people are cutting back discretionary spending. Ask yourself how you’d market any franchise during tough times as well as good times. And prod the company about how much leeway you’ll have to shop around for better deals on supplies.

I’m not sure I totally agree with this. I agree with the idea that you want to walk into a business decision with open eyes. But, you should never completely shy away from a business decision just because there’s some risk. This point led me to think of a couple of different things. One is an episode of “The Big Idea” with Donny Deutsch that I caught. It featured a number of risk experts, one of which was Tim Sanders.

Tim is a grand guy, and a joy to talk to. At the end of a conversation, you feel like you can take on the world. In this episode, he talked about “risk” and what it means in this economy. The people who, not only survive, but prosper in an economic downturn are the ones who see it as a chance to make money. If all you see is the chance of the sky falling, then you’re going to hide your head. If you take some chances (albeit calculated and careful chances), then you’re much more likely to be successful.

When I thought about this point in the editorial and what Tim had talked about, I started thinking about a local St. Louis favorite, Ted Drewes frozen custard. If you come to St. Louis, I’ll make sure that you get to visit this place. Beyond it just being an excellent dessert, it’s a marvel to watch from a business standpoint. The number of customers they process, in what looks like controlled chaos, is absolutely incredible to be seen. Additionally, they survived the Great Depression…all while selling ice cream frozen custard.

So, while there’s a point to be made about trying to sell an extravagant commodity in an economic downturn, it’s not impossible. And if you abandon all but the safest of bets, you’ll just blend into the rest of the sheep. When you look like the same person down the street, then you might survive, but you’re not going to excel. The person who diversifies and makes calculated risks is much better positioned to win the game.

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