It goes without saying that we see change in the small business community of Longmont all the time. When I started my practice, I got coffee regularly at La Vita Bella at 5th & Main, the Dickens Opera House was still the longest-standing bar and foodery in town, and fun establishments like Wibby, 300 Suns, and Abbott & Wallace were still in the “ideation” phase of their development.
It’s no surprise that we see change because, well, small businesses are hard. The Small Business Administration estimates 20% of small businesses fail in the first year, 50% fail by the 5th year, and 65% are gone after a decade. We see new restaurants come and go, people trying to hang their professional shingle, and so on; and it’s not always to say that the business had any problem with its products or services. Sometimes life simply gets in the way for the owners or the key employees and the dream simply can’t be sustained.
This week, we’re looking at three current event case studies in the Longmont community. What they are (or aren’t) doing about their survival, and what lessons we can glean from how a business prepares or fails to prepare for upcoming challenges. Please note as we dive in that none of these case studies are under review because of any particularly unique or special insight or information I have on hand, but as observations of publicly available information.
The Longmont Climbing Collective
It was rather newsworthy back in December when a heavy wind storm ripped half the roof off the Longmont Climbing Collective. Not to be defeated, they quickly posted up a GoFundMe to raise $311,856 to pay the deductible on the roof. No, that’s not a typo: A $311,856 deductible. The claim given in the GoFundMe page is that their insurance policy had a deductible of $2,500 for all claims except for those related to wind and hail.
While I don’t doubt that the policy had a substantially higher deductible for wind and hail claims (because other than wildfires, those have been the bulk of property insurance claims in Colorado for the past decade), I am given pause here. When I read about the deductible level, alarm bells rang in my head. Not because I doubt the deductible is that high or otherwise that it could cost that much to repair a metal roof on a large and tall building, but because it suggests the owners took on a substantial risk and it’s come back to bite them.
There’s a basic adage in the world of finance: If you can’t insure it, you can’t afford it. No one would buy a 5 million dollar mansion and then fail to carry homeowner’s insurance on it, or drive a Lamborghini and decide not to have auto insurance. And while the comparison I’m making here is not to suggest that the Climbing Collective didn’t have insurance (they claim to have had it in the GoFundMe), they purchased a commercial insurance policy that had an enormous and apparently unaffordably high deductible for wind and hail claims, aka, one of the most probable insurance claims they could face. I have no doubt that either the same carrier or another carrier would have offered them commercial insurance on the building with a much lower deductible and a higher premium. Therein is the “un-forced error” in question here: Was it reasonable for this small business to forgo paying higher annual premiums to adequately insure their building rather than saving a few thousand dollars a year? Did they understand the risk they were taking? None of that is to suggest this was deliberate on their part, but this is a level of risk that could easily do any business in, and one that is terrifying to imagine.
This is an important lesson for any small business owner: If you cannot afford your insurance, you cannot afford to operate. There is too much exposure to liability in a small business, whether that be from malpractice, slips, trips, and falls, or accidents that hurt you, your property, or others on your property. Whether it be not carrying an appropriate aggregate limit of liability coverage to insure harms to others or forgoing paying extra premiums to have a deductible you could afford in the event of a claim, it is incredibly risky to put your income, business, hopes and dreams in a position that you cannot afford, whether as a risk-taking measure or by accident.
Martinis Bistro
Martinis has been a landmark foodery in Longmont for as long as I’ve lived here or been aware of what a good restaurant was. The business has changed hands a few times over the years, but its reputation for excellent drinks and great food is well-founded here in Longmont. Over the past year or so, the current owner has been outspoken about the challenges of running a small business like Martinis; in particular, the challenges of labor costs, food inflation, and still trying to keep the menu prices accessible while providing the familiar high-quality experience Martinis is known for.
Martinis is a noteworthy case because while the business itself has done everything it can behind the scenes to make itself thrive as a small business, the owner has also gone out of her way to be more than transparent about the difficulties the business has. She has posted to social media sharing about a night in which there was a single table that came in, or another occasion in which the lunch hour was entirely unattended by a single patron. These are natural frustrations to share, and the good news is that each time there has been a positive response from the community to help make up the difference.
While it would be easy of me to simply say that “the community needs to show up and support this business,” that’s not a value proposition. That is to say, while going to Martinis is sure to result in a great drink and a terrific meal, that’s not enough of a value proposition for the case to be made here. No matter how many times the dining room is empty or full, or the patio is occupied or patrons are absent, the business itself has to provide a value proposition that drives mutually beneficial interest.
We don’t see the same concerns being voiced by restaurants like The Pumphouse or the Roost. Not because they don’t suffer the same labor and food cost problems, but because they’ve figured out an effective niche of price and value that brings customers back repeatedly and frequently. It’s a rare Friday night you’d find the Red Zone empty and an unheard of Saturday that you wouldn’t have to wait for a table at Jefes. None of this is to say that Martinis is doing anything wrong in its offerings or that its prices aren’t fair, but that the business’ occupation in a category of “fine dining” in the Longmont community means it’s going to be treated more often as a “special treat” sort of place than a “Wednesday night family regular” sort of spot.
Do I have a particular recommendation for Martinis to overcome its reported challenges? Sadly, no, I am not a restaurateur, and I do not claim any special insight into how best to run a restaurant. I can only make the industry-agnostic observation that pleading and complaining for patronage from the community is not a long-term business strategy. Any business must have a reliable and consistent value proposition and messaging to sustain itself for the long term, or it will be put into a position of dire straits. In that regard, we have to wish Martinis the best, not only in its short-term patronage, but also that it can adjust its business model or marketing to give it more consistent and reliable attendance.
The YMCA
For those not regularly in attendance at the YMCA, earlier this week a sign was posted on the front desk:
“We have some good news and some bad news to share with you today. Since early last fall, we have been working with the City of Longmont on a partnership to support the Longmont YMCA. In its simplest form, this partnership would be a division of services. The City will take on the aquatics, fitness and recreation parts of the facility, and the Y will continue to provide all licensed childcare at the current location.
On Feb 28, the Y will cease membership, fitness and aquatics operations of the Longmont Y starting at noon. We apologize for how quickly this is moving, but due to a recent system change, we are not able to support the Longmont Y membership functions, including check-in, program registration, etc., after Feb 28. Our goal is that the city will reopen the facility as a recreation center soon after. This partnership still needs to be ratified by City Council, so please understand that nothing is final until that time.”
Ignoring the need for Oxford commas, the sign goes on to explain that it has struggled financially and that non-profit funding and government cuts have made it harder and harder to operate the facility, and that city council ratifying the absorption of the YMCA would be a win-win for the YMCA and the city.
So what can we take from this? Well, first and foremost, there is the natural concern that the city may not be able to absorb the YMCA as a facility. While it’s already “turnkey ready,” the city has reported dramatic declines in sales and use tax over the past year and is already faced with some financial challenges, and absorbing the operation of a facility not otherwise budgeted for could be an additional challenge. As a member of the YMCA I’d be more than delighted to see it stay open and continue operating, but there are still lessons to be learned here.
Many socially-supportive community organizations and non-profits are reliant upon grant funding to defray programs and services. RTD loses money every year without substantial tax funding to keep the buses running, childcare is heavily subsidized in certain areas and at certain income levels, and many grants for non-profits providing community support services come with strings that essentially require them to offer many services effectively for free or a loss. The benefit of running a 501(c)3 is that you don’t have a profit motive and don’t “have” to run a profit. The problem is that non-profits are like any other business: They live and die on their cash flow.
While it’s reasonable for any non-profit to assume that if they provide a public good there should be a reasonable amount of funding to be accessible to keep the organization’s public good going, that assumption relies on a foundation that the political priorities and budgetary allowances of their patron agencies will remain accessible indefinitely. This is, politely, a foolish assumption. As we’ve seen both locally and nationally, political priorities change all the time, and government funding comes and goes on a relative whim. Any organization, especially a non-profit, must have a mechanism by which it can generate its own revenue, and in turn, needs to be able to support its core functions on that revenue.
The plea from the YMCA is, succinctly, that the Y cannot operate its gym and classes on its membership revenue; and while I and others have enjoyed a lower cost membership as a result of that business model, it simply flies in the face of basic business logic that it would otherwise charge less than it needs to function. Every other private gym (Golds, Planet Fitness, Vasa, The Longmont Athletic Club, and so on) operates on the revenue it generates from its membership subscriptions and a la carte services and add-ons. The Y could operate no differently, but has, whether through complacency or challenges of management, found itself in a position where it cannot afford to offer similar services at its current or otherwise competitive prices. The result is that it now must fall upon the graces of a city currently experiencing financial challenges to take on its burdens. In other words, hope is the “business strategy,” and much as we love to hope, hope is an unreliable patron at best.
The Otherwise Inevitable
No business is immune to risk. Economic, regulatory, political, you name it, and risk can come knocking. It is essential for both new and existing businesses to account for risks. Sometimes you can build up enough goodwill that the community can show up to save you, or that pennies from heaven will otherwise stave off the necessity of shutting your doors. But a business or organization of any kind must exist and be sustained upon the value it offers to its constituent clients and customers. If the need for the entity is not so great that it can offer products and/or services sufficient to warrant market-rate prices that sustain its operations, then, despite how good and valuable it may be for some, it is not enough for all.
I wish all the case studies discussed here the greatest of success and I hope they will all continue to keep their doors open for many years to come. But hopefully, these present cautionary tales about the necessity to manage risks, innovate, and compete in the interest of staving off the otherwise inevitable lapse into closure.
Dr. Daniel M. Yerger is the President of MY Wealth Planners®, a fee-only financial planning firm serving Longmont, CO’s accomplished professionals.