Tom wanted to grow the business rapidly with outside investors and Nancy preferred downsizing the business to retain majority ownership and control
The Thompson Companies is a specialty retailer of children toys. Tom and Nancy Thompson founded the business in 2002, together shortly after they were married. The business started out as a hobby, but rode the wave of a strong economy and flourished enough for both of them to leave their full-time careers to dedicate themselves to the new business. As the business grew, both were in agreement on most business issues.
The business came to a crossroad.
By 2005, the company had grown to $50 million in sales and found itself positioned in a gray area between the small niche businesses and the larger conglomerate companies. The company had grown faster than most niche businesses and the medium-size companies had consolidated into large conglomerates, leaving them in the middle. This left the company in the precarious position of being too large to compete with the “niche” firms and too small to compete with the “big guys”. The cost structure and overhead of the business was too un- wieldy to compete with the smaller niche businesses and they didn’t have the economies of scale and resources that the larger conglomerates enjoyed. The company needed to decide whether to rapidly grow or quickly downsize to compete. Standing ground in the gray area could result in failure.
Couple disagreed on the strategic direction of the company.
Tom desired to grow the business rap- idly, and Nancy favored downsizing the business to a more manageable size. Both strategies were risky, growing rapidly would mean taking on additional debt to fuel the expansion and loss of controlling ownership. Down- sizing would mean cutting overhead and force layoffs rapidly, to keep pace with the lower sales volume.
Being a family business only complicated the decision.
In addition, to the two of them, they had a second generation of two children coming into the business. Equally concerning was the sensitivity of having to terminate long-term employees in their small business, where everyone was especially close and considered a part of the business family. As in many family businesses they were very reluctant to give up control and owner- ship for the business they started. One of the driving reasons for starting a business is to control your own destiny by having the control of being your own boss and full ownership.
Both Tom and Nancy were entrepreneurs.
They enjoyed the hands-on duties in their specialized areas. Tom managed Finance and Marketing, Nancy over- saw Operations and Merchandising. As the company grew, they both were pulled away from their hands-on duties and thrust into more general management roles. Tom welcomed the change, but Nancy missed the more entrepreneurial hands-on involvement. Tom was greatly influenced by his business reading and attending academic programs on the newest concepts and strategies in small business. He learned that successful small businesses often brought in talent from larger companies to help them grow. He felt this was the best strategy to
keep the business viable. Nancy, on the other hand, felt the business had become less exciting as it grew larger and the growth brought along a lot of complexities and risk. The company had been successful and supported a comfortable lifestyle for all of their family at a smaller size. She felt it was more enjoyable when they could be more in control of their destiny with a smaller scale business. The decision really came down to did they want to change into a large formal business or return back to being a lifestyle business.
Nancy reluctantly agreed to give in to the growth strategy concept. After debating both scenarios, they agreed it would be more exciting to grow the business than to downsize. Most importantly, from the personal side, the growth strategy would prevent them from laying off employees and hurting their suppliers, both of who were especially supportive through the early years of the business. The company began to hire outside key executives and the company gradually trans- formed itself into a larger formally structured organization. They stopped short of bringing in outside financing, deciding to finance the growth and expansion of the business through increased traditional bank borrowing, however, it now required significant, onerous personal guarantees.