Doing business isn’t always easy. Sometimes you might just find yourself in the right place at the right time, but often, running a successful business is challenged by more than your product relevance, but also competition and external factors that are either hard or impossible to control. But more than introducing a new venture or staying afloat with your current business, did you know that there are also barriers to exit?
The global business environment and the state of the global economy influence all of us, even down here in the Southernmost tip of Africa. No one can escape the result of conflict between countries, pandemics, political statements, climate issues like droughts, etc. Even if you are the one selling fuel at what is predicted to be the new crazy price, you might do less business as consumers alter their behaviour and travel less.
In such an environment, where existing businesses often struggle for survival, how hard is it to start a new venture? Barriers to entry can be general or very specific depending on the line of business you are in and of course, your market. When we want to explore a new market for our wines, we must do thorough research. Some challenges like buying power and logistics are not unique to our trade, but for wine, something like cultural differences and palate preferences play an import roll in predicting the success of our future business. While some barriers are product specific, others depend on the market. Generally, to start a business, one requires capital, product differentiation and access to distribution, but government policy, consumer preference, culture and traditions can also make a big difference. It is of the utmost importance to base decisions about introducing a new product or entering a new market on accurate and reliable information. (Read more about barriers to entry)
Sometimes, whether you are forced to or choose to, you want to end your business concern. Perhaps it is not profitable anymore, perhaps you want to explore a different avenue or perhaps you just want to retire. Is this not as easy as finding a buyer and selling? It might be, but have you considered the implications? Sometimes getting out of your current business concern is not that straightforward. There are also barriers to exit.
I read an article about South African farmers exiting the farming industry – why they choose this option and whether they can afford to do it or not. (Read article) The barriers to exit in this instance include financial vulnerability (whether they will be able to survive post-selling), sunk cost (assets bought at certain prices that can’t be sold at book value) and transaction cost (because we all know selling can actually cost you money!). According to the article, these barriers to exit often result in some farmers staying on their farms, but due to financial strains, they don’t invest, they just try to survive.
With family and friends on farms, this is such a depressing idea. I know farmers to be energetic, innovative and passionate about their produce and projects. The article by Jorisna Bonthuys, puts it like this: “While collectively appearing to have a strong appetite to grab the bull by the horns, so to speak, some producers are driven to deal with the challenges as best they can and while they can, in order to add value – on the income and balance sheets. Many producers will, however, eventually retire and sell their farms because no other viable solution is available.”
Just trying to survive can be a reality for all of us from time to time, but it has to be short term. Farmers fighting for survival, can’t make the contribution they need to – from creating employment for local communities to supporting the country’s food security. This is true for all industries. If, for whatever reason, survival is the only plan on the table, even getting out can be a challenge. Government regulations, tax implications, environmental concerns, contracts, employee rights, sunk costs and fixed exist costs can all make it hard to get rid of your business. (Read more)
Perhaps it isn’t positive to think about an exit strategy when you are planning a new business venture, but at least consider how hard and expensive it can be to get out if you are not successful. This might sound quite despondent, but let it rather encourage us to be clued up about conditions and competition and employ expertise when making business decisions. Perhaps considering barriers to exit in the planning phase already, will give you a better chance at success.