Richard Satnick calls it the "accidental empire."
It's the point where an entrepreneur looks around and realizes a small business' success is more problematic than fun. Satnick reached it last year with Laughing Planet Cafe, which since 2000 had grown from one restaurant to seven in Portland, with two more in Eugene and another in Corvallis.
The big time beckoned. People want healthy, affordable cafe meals. It's not just a Portland foodie trend, and it's not going away. Further expansion seemed natural.
But Satnick's heart wasn't in it. In December he sold Laughing Planet to a group headed by his chief executive, Franz Spielvogel, a longtime friend and co-conspirator eager to expand.
He wasn't the first Portland-area entrepreneur to reach that decision point. Oregon is headquarters to only two Fortune 500 firms - Nike and Precision Castparts - but the state bustles with small and midsize companies. Some of those companies inevitably grow to the point where they have to decide whether to go big, and it's not always an easy choice.
Something has to give. In addition to financial risk, founding entrepreneurs may find expansion requires they give up control and a sense of identity.
Some reach the junction and jump, of course. After seven years of riotous sales, production and workforce growth, the Dahl family at Dave's Killer Bread in Milwaukie worried the business was expanding beyond their ability to manage it.
In December, the Dahls announced they'd brought in an equity and management partner. Goode Partners LLC of New York, which specializes in $10 million to $30 million investments, assumed half ownership of the business in exchange for an infusion of professional expertise and an undisclosed amount of cash. Look for Dave's Killer Bread to go national, first by driving deeper into the California market and then pushing into such places as Denver, Chicago and Dallas.
Although the end results differed, the deals involving Laughing Planet Cafe and Dave's Killer Bread shared a key feature. In each case, the founders insisted on transitions that retained the values, culture and quality they instilled.
"The right successor"
Laughing Planet Cafes, quirky and committed to fresh, local fare, won't become a chain of cookie-cutter fast-food outlets.
"It's not enough to hand it off," Satnick says. "I wanted to find the right successor who cherishes the brand."
Likewise, Dave Dahl and his nephew, CEO Shobi Dahl, won't begin producing Dave's version of Wonder Bread. Written into the deal with Goode Partners are requirements that the "breadquarters" will remain local, the company's practice of giving ex-cons a chance to work won't change and the founding family will continue to oversee quality control.
It's a business trend with a distinctly Portland twist, says David Howitt, president of Meriwether Group, which helped find capital and partners in both deals. Increasingly, Howitt says, owners of successful, fast-growing small businesses have idealistic ambition beyond selling for buckets of money.
Consumers are looking for that business ethos, and selected investment banks embrace it as well, Howitt says.
"Told the right way it's part of a story about value," he says.
It's a tightrope walk, however. Some Portlanders howled in 2011 when TSG Consumer Partners, a private New York equity firm, invested in Stumptown Coffee Roasters. In November 2012, Bike Gallery owner Jay Graves sold his business to the owner of the Trek Bicycle Superstore and to Kelly Aicher, a longtime Bike Gallery employee.
Meriwether Group was involved in both of those deals too. The Northwest Portland company invests in some companies itself and guides others through the process, introducing them to investment banks and equity partners that can take small businesses to the next level.
Boos in Portland
In Portland, however, reaction to such changes is sometimes negative. Howitt finds it frustrating when companies infused by outside capital are booed as sellouts.
Regardless, it's something we're likely to see more often. Howitt contends that a number of local companies have the combination of quality, verve and back story to attract investors and drive expansion to other markets, if they choose to do so. He quickly rattles off a string of area businesses he sees with potential: Grand Central Bakery; Pizzicato; Carbon Audio; Bunk Sandwiches; Pok Pok's drinking vinegars; Alma Chocolate; and Schoolhouse Electric & Supply Co.
Business owners considering expansion or whether to take on partners need to carefully evaluate their situation and understand the correct rate of growth, says Tammy Marquez-Oldham, director of the Small Business Development Center and CLIMB Center for Advancement at Portland Community College.
They should ask themselves, Marquez-Oldham says, "what is my business today, who is my customer today? What do they value today and how do I find them?"
The decision by Dave's Killer Bread, the homegrown bakery that sold half ownership to Goode Partners, is an example of a business assessing how it wanted to grow and why, Marquez-Oldham says.
"It comes down to being true to what your business is," she says. "Everything is driven from that value base."
Other business owners will do that kind of assessment and decide to stay local, she says.
"That's OK," she says. "Not every business needs to be destined to be a national-level business."
Get legal advice
Shobi Dahl, CEO of Dave's Killer Bread, agrees an honest self-assessment is key.
"The most important thing is to be able to admit you don't know everything and ask for help," Dahl says. Marketing, finance and operations expertise is out there to be found, he says.
"As we grew we'd go in and out of thinking we knew what we were doing," he says. "But if we'd brought in the right people and the right help earlier, we'd be even stronger than we are now."
Legal advice is crucial, he says. The bakery's law firm, Davis Wright Tremaine LLP, reviewed every detail of the deal with Goode Partners.
"The important thing is to have a lot of conversations upfront and get a lot of things in writing," Dahl says. "It costs money, but it was very worth it to have all that advice on the front end."
When the deal is done, the parties should be "open and honest" in discussing it publicly, Dahl says. "If you feel you need to hide something about the deal, there's probably some reason you shouldn't be doing it."
Transitions are simpler if a big company swallows a smaller firm in cases where the owner wants nothing more to do with the business. Then the sale boils down to a dollar figure.
But things get trickier when a small business wants to retain its identity even as it brings in powerful partners or capital.
Those who have been through it say small entrepreneurs should determine whether the prospective partners understand the business' story. If they don't get it, they aren't likely to protect the history, culture and values important to the founders.
"An accidental empire"
In the case of Laughing Planet Cafe, owner Satnick did a more personal evaluation.
"For me the motivation was perhaps a little different than Dave's (Killer Bread), who had gotten such a monster on his hands he had to bring in expertise and money," Satnick says.
"I recognized that my strengths and interests are in the early stages of entrepreneur inventiveness: the excitement of creating a brand, of plowing a new field when people are telling you it's crazy."
The expansion of Laughing Planet Cafe became "almost an accidental empire that happened while I was off fighting dragons," Satnick says. Running 10 cafes "required a different mindset - things that are not my strengths, not my interests."
Satnick says he recognized the business should continue growing and that Spielvogel, his CEO, was better equipped to oversee the expansion.
"I'm kind of the thrill-seeker at the beginning of things," he says. "At some level I needed to get out of their way."
Working with Meriwether, Satnick completed a deal in which Spielvogel became principal owner, with backers and financing that allow for growth.
As for Satnick, he's back in his comfort zone. He started Dick's Kitchen, a "meat-centric" diner on Southeast Belmont Street.
And now, with an opening on Northwest 21st Avenue, he has two of them.
--Eric Mortenson
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Source: http://www.oregonlive.com/business/index.ssf/2013/01/small_business_growing_fast_bu.html
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