Buy or Build?

In one of my many roles here in Nashville, I’m helping a local non-profit evaluate a potential source of revenue.

It all started off with my wife, being the super-connector she is, introducing me to a Director who needed some help getting a retail store up and running. Having done this twice before, it was a natural fit. This organization already had a reputation for used home goods, and they wanted to start a high-end furniture consignment store to provide an additional revenue stream into their operations, reducing their need for donations, grants, and government funding. So I put together a business plan to help them evaluate some of the key variables in the decision.

As part of the preparation, a search was done for similar businesses for sale. And what was found was the very store that was being used as a perfect example of what they wanted to create.

Last night I presented a new plan, showing what it would take to buy it vs. build it. Having bought and sold a business before, this was very comfortable ground for me and I enjoyed the questions that came from the group. I was vocally biased on my recommendation, because the only negative in the the comparison is the cash needed to buy the company. And it’s not my money….

I’ll admit I was dubious about this endeavor when I started. I’ve been an astute researcher of non-profit retail operations and I’ve always enjoyed watching those interesting decisions where The Cause conflicts with The Business. The example I use frequently is when Red Rock Coffee was dealing with the common problem of cafe squatters, people who come in, buy a small coffee, and then sit at a two-top or four-top table for 3-4 hours. The Business demanded solutions like covering up outlets, turning off wifi, or restricting computers to certain tables. The Cause, in this case, demanded that all feel welcome and that the cafe be treated as a community resource, open to all. So in the end, the decision was made to educate and inform, not berate. Reminders were carefully posted and servers were instructed to politely ask for additional orders if they noticed someone had been at a table for a long period of time. Probably not the best way to maximize revenue, but it kept the spirit of the space alive.

So, that brings us back to my doubts. I don’t think the organization has the strength and willpower to go through the difficult challenges of starting a retail business from scratch. Yes, they have a nest egg for investment, but starting a business from scratch is risky, especially for an organization that has absolutely no retail experience.

So I think they should buy the company. For $500K. They get expertise, experience, a great location, and much faster and less risky return on investment. The only problem is that their nest egg isn’t big enough.

So what do you think they should do?

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