Who Doesn’t Like Donuts?

When I learned about the recent closure of a relatively new donut shop in our area, I was surprised.  As a self-proclaimed donut aficionado with a fascination for unique business models, I was intrigued.
In this Season of Good Cheer and Best Wishes for The New Year, I am reluctant to dampen the mood, but I think this story is worthy of analysis.  

I had patronized the business when it first opened a couple of years ago but decided it was not traditional enough for my tastes.  However, I didn’t think it would fail.  What could have gone wrong?  

An article in our area’s Business Journal provided some answers:

1.    Too much diversification.
2.    Expanded too quickly.
3.    Owner lost stake and control.  

Would you automatically list fried chicken, waffles, sausage & biscuits, wine, beer, and signature cocktails as items you might find on the menu of a donut shop?  Granted, the donut varieties were very creative and included s’mores, Oreo cookie, and butterscotch liqueur with a shot of whiskey flavored options.   

When the owner needed more capital, he took on investors in exchange for a piece of the business.  They pushed for expansion into two other areas and ventured into catering services, resulting in management problems and process glitches.

As profits declined, the owner eventually was forced to sell 100% of his stake.  With the loss of power, he also lost control of critical decisions. 

As someone who is in the business of making credit decisions, our analysts would have been skeptical of this business concept.  Homer Simpson may have loved the combination of the various products offered by The Donut Lounge but running a donut shop/fried chicken restaurant/bar/barista was probably over-zealous.  The quick expansion and the assumption of the business by outside investors also would have sent up red flags to any lender.  

In the end, the consensus was that all three factors contributed to the ultimate demise of this endeavor.  However, this entrepreneur is young and, according to his commentary, has learned some valuable lessons.

In the Spirit of the Holiday Season, as we send our best wishes to all for good health and future success, we hope that this young man’s dream of owning his own business will someday become a reality. 

Can we help make your dreams come true?

Let us know,

Kevin F. Clune CLFP
Clune & Company LC