It has been said that one of the big differences between the nonachiever and the achiever is that the latter has mastered the art of applying the obvious. When applying this in looking for trouble in your own business or in others, owners are forced to ponder, “What exactly is the obvious?”
Business people have been caught by surprise by the sight of once-untoppable corporations, such as the Pittsburgh Penguins and AHERF, that stood like immovable redwoods, truncated to bankruptcy by warning signs gone unnoticed (at least by some observers). If large corporations can’t see the forest for the trees, what chance do smaller-business owners have in recognizing trouble before it’s too late?
That all depends on how you apply the obvious, armed with information directly from the Turnaround Management Association’s report, “Signs of a Troubled Business.”
Let’s say you’re in the business of selling donuts. Are you experiencing market lag? Have marketplace changes left your sales lost in a cloud of smoke because of obsolete equipment or failure to keep pace with market needs? Does the donut shop across town offer customers the chance to order its donuts on the Web and have them delivered?
Meanwhile, you’re trying to decide whether to try that neat spider design for your Halloween donut special. If you’re managing this donut company without adequate reporting mechanisms, you face a lack of operating controls, which forces your management to make decisions on stale or inaccurate information that can lead your company in the wrong direction. Also, overdiversification may cause you to spread your business too thin, leaving it to be eaten up by competitors.
Still, who wouldn’t like explosive growth? Often, such growth carries a very high price tag. And leveraging a company to such a degree means you must operate with little or no margin for error.
Business decisions based on emotional issues such as divorce, death or nepotism likewise can lead to a sticky dilemma that pits family against business matters. A recent survey conducted locally by the Family Enterprise Center at the University of Pittsburgh in conjunction with the Steel Valley Authority found that more than 56 percent of jobs in our manufacturing sector are in a precarious position, as they are in family-controlled companies with owners over 45 years of age who have no plans for succession in place.
Deciding which relatives or their offspring should run the business after retirement or death can be one of the most difficult challenges a privately held business owner can face. If you operate without a written business plan, goals may be half-baked and left open to dangerous individual interpretation.
Moreover, ineffective management style could include a founder who is unyielding and allows no decision to be made without his or her blessing.
Then there’s your customer base. Putting all your proverbial eggs in one basket will result in a precarious customer base. If only two of your customers represent 60 percent of the business, you’re obviously vulnerable.
Be sure you’re not overrunning your employee capacity. If your donut business was a sweet success at $5 million a year, it may get dunked at $10 million a year. Managing operations with two stores is much different than managing them for a dozen locations and may require training of your existing work force or additions/replacements of key staff.
Then there’s your relationship with your lenders. Building poor lender relationships will leave a bad taste in your mouth. Fearing that your loan or loans may be in jeopardy, you may attempt to hide financial data from your bank and avoid phone calls. Don’t sugarcoat financial data or withhold key information.
Now that you have a taste of what warning signs to look for, take some time, sit back and analyze your business because, with a good recipe for success, the rest is just icing on the … donut.
Philip Brooks, a management consultant for nearly 17 years, provides interim management services. He is the immediate past president of the Pittsburgh chapter of the Turnaround Management Association. Reach him at (724) 934-4829 or via e-mail at [email protected].
For turnaround management help …
For business owners lacking the expertise of a skilled consultant, merely breaking the surface of this deep quagmire can be a dirty job. For those in search of consultants to help make the job easier, Turnaround Management Association (TMA) offers the leading international association of professionals who assist businesses to manage periods of dramatic change and improve business performance. See www.turnaround.org for more information on the organization and www.turnaroundpgh.org for local chapter events.