Over a Cracker Barrel - Without any Crackers or Cash...

Note: I have no current position in Cracker Barrel, and have no plans to initiate a long or short position. 

Over a year ago, I wrote about Cracker Barrel’s new CEO’s plan to rebuild, and rebrand the 56-year old Company. I was not exactly bullish on the potential new direction, and was pretty confident it would be a colossal failure. Although they’re now taking heavy heat in the press, and I’m still convinced they’re still driving full speed toward a cliff - it’s still too early to know for sure. But, they’re still sitting on $1.2B in debt, and basically breaking even. In fact, their debt load is greater than their market capitalization. 

I’m not physically sitting in Lebanon, TN, and not working with anyone at Cracker Barrel. I also don’t have the benefit of mining internal data/metrics. But, it’s painfully obvious that they came in with the wrong plan in 2023, botched the launch, and are shooting themselves in the foot PR wise. In many ways, they could not have missed the mark more…unless they’re aiming for a completely new customer base (and ditching their current base). However, Cracker Barrel is not operating in a power position - they’re hugely vulnerable right now. Ditching their core customers, and then chasing new ones is not something a distressed consumer business should be doing. But, it’s not necessarily an uncommon executive folly. 

It’s painfully obvious (to me at least) that Cracker Barrel needed to do something like this:

• Partner with top country singers (especially being based in Nashville) to create actual scratch baked (or close enough) dishes 

• Embrace southern culture (again) - get involved in NASCAR, local events, and go hog wild on SEC football. With NIL, they could literally sponsor a few top players (maybe not the most expensive ones - could literally have the offense lines for every SEC team be in local campaigns) in ALL SEC teams. 

• Actually cook things vs. reheat them, and maybe trim down the menu to just classics.  

• Aggressively court local events - from graduation parties, local charitable events, high school football pre or post game meals, special Sunday brunch items, etc. 

• Double down very hard on the history, kitsch, and original brand. Keep the interiors as close to the original as possible and keep the markets as-is (though maybe with more emphasis on stuff locals want)

None of the actions above are all that revolutionary, or even creative - it’s just embracing the core essence of the brand. In many ways, it’s about driving traffic from the likely, and existing customers - and keeping them out of other places. And though some of these actions increase costs, margins could actually improve too (some higher ticket items, less waste, more impactful advertising, and more event-based traffic). 

Now, what does this have to do with B2B SAAS startups, or venture investing? In my June 2024 article, I focused on doubling down on your authentic brand and your core strengths. In this article, I’ll take it in a different direction - how to handle a distressed situation. 

Every distressed SAAS startup situation is a bit unique - though there are plenty of common threads. Runaway burn (without corresponding growth), ineffective sales/marketing hires, bad product decisions (mainly building things customers don’t need), etc. One of the common situations (especially now) is a company with a heavy preference stack (past investor money raised), and weak metrics/traction (vs. the $s raised to date). Burn is often “coming down” and growth is “right around the corner.” Existing investors are often either checked out, angry, or still somehow drinking the kool aid. Occasionally, the Company really does turn the corner, and start sprinting. But, most of the time, they never make it to the corner, and simply get carried off the track. 

Startups can, and often do have some debt - though the preference stack is almost always much larger. While preferred stock might not be traditional debt, it is a ticking clock - and once growth really slows, or reverses across multiple quarters - the clock can start ringing. The Board can force changes, existing investors can refuse to reinvest, and founders can be pushed to just sell the company (for anything remotely decent). Money becomes extremely precious, and founders have to be hell bent on retaining as much revenue as possible. 

I’ve seen founders react in many ways to this pressure - some walk away, some push for bold changes, and some become more obsessed with solving existing customer’s problems. Most good founders take a look at the Company, the market environment, and the competition - then find a way to get a soft landing (either toward a semi pre-planned exit or being breakeven in a hurry). Most great founders take stock of everything, make sure their core customers remain evangelistic, and then look for all low hanging upsell/new revenue opportunities attached to their existing client base. And, most bad founders either walk away, or push for “bold” new initiatives and spending. 

Cracker Barrel’s leadership team pushed for the latter approach - and it will likely backfire badly. Spending increases, both revenue and margins decrease, and they eventually look up to find themselves in a much deeper hole (that they can’t climb out of). There is nothing wrong with making those bold moves - but it needs to come from a position of power…not staring up from a deep debt-driven hole. 

I hope Cracker Barrel can eventually figure it out, and I always hope these distressed startups can find their footing. But, in many cases, it’s not the slickest, or boldest move that wins. It’s doubling down on your identity, leveraging your core customers, and doing everything possible to find breathing room. Forging a new identity, forgetting your customers or brand history, and flinging more money at an unproven strategy is foolish. I have a feeling that Cracker Barrel’s leadership will find out the hard way - though it is still too early to know for sure…