Saving a business
Your work long hours and endure hard times and eventually get your business on the plus side. Then the bottom seems to drops out. New orders decrease in frequency or get smaller. Where you were doing well before, now you are barely breaking even or worse, losing money. Now you find yourself scratching your head trying to figure out what happened. Maybe it’s a weak or weakening economy that’s making your customers unwilling to spend. Or maybe you have new competitors and don’t even realize it. If you’re in the repair service business you may find that manufacturers are producing products that are more reliable or that are becoming so cheap it isn’t worth the time and trouble to get them repaired. If you are a manufacturer you may be under siege by foreign competitors who are directly attacking our bread and butter product lines. Or your product line is simply going out of style. If you are a retailer you may be losing customers to Internet stores like Amazon.com or if you are a locally oriented business you may have experienced a category killer encroachment by Walmart, Home Depot, Office Depot, or some other similar depot. In one bazaar situation a fellow in the auto paint and body business moved his business from downtown Dallas to rural setting. Many of his clients were fleet operators who had used him for years. In the six weeks it took him to move his operation, all these customers found other shops that were closer, even though he offered to pick-up and deliver their vehicles without additional charge.
You tell yourself that the economy will turn around soon, or that your customers are loyal and will continue to buy from you. You see a momentary pick-up and you think your are out of the woods and boom, business slips again, only now perhaps its an even lower level. Maybe one or two large customers put some price pressure on you. You give a little, but then they’re gone. Will they come back?
This may sound simplistic but you must first figure out the real reasons that you are losing business and or customers. Start by contacting your customers and ask them why they aren’t ordering as much or as often if that’s the case. Ask your suppliers who has been ordering more materials or parts from them and why, if they know. If there are competitors that are getting stronger, find out why. If the business is weakening for everyone try to understand why this is occurring: product substitution, new retail shopping patterns, or simple economics (supply and demand). If it’s the latter you are going to be in a price war to drive out some of the competition. If they have more financial resources or better backing than you then they will win this war unless you do something differently. This would be a very good time to seriously reflect on your current and potential sources of competitive advantage and decide whether they will be sufficient to allow you to carry the day.
Once you understand what is happening to your business, why its happening, who’s doing it to you, and how, you’re ready to admit that your competitive position has become weaker and something has to change for your business to recover. That is going to require a new strategy. As Benjamin Franklyn once said, “The definition of insanity is doing the same thing over and over and expecting a different result”. Put another way, it’s quite common for once successful business owners to conclude that they just need to redouble their efforts and they will once again succeed. It’s human nature to go back to the strategies that once allowed us to be successful. You can see this in big companies who try to retrench by shedding non-core businesses. The most insane example of this that I can thing of involved Western Union who was losing profitability sold off it’s satellite and fiber optics divisions to protect it’s entrenched Mexican Money Order and Telex businesses. Whew!
If you are in a weak competitive position, you are going to have to change your strategy. Changing a strategy means new markets, new products, new services, new quality standards, new pricing, new capitalization, new partners, or some or all of the above. Fore example, if you are in a retail business or, increasingly, a service business that being eaten alive by a category killing depot or national chain: move to where its still cheaper to you’re your business even though your prices are higher because of time and distance considerations. In the drug store business this distance needs to be at least 30 miles from the nearest Walmart –40 miles would be even better. If you refuse to move then you’re going to have to offer something the big boys can’t or won’t: different products that perhaps appeal specifically to customers in your locality: high school spirit items, locally produced crafts, or unique gift ideas. You may want to add on additional businesses like liquor and or beer sales. Here you take advantage of your knowledge of the local area to supply the items that the big boys can’t or won’t.
If you are a manufacturer who is under attack by foreign competitors and you lack patent protection, you may need to shift to custom and small run manufacturing. Sure it costs more to set up these custom runs but you can charge more and the foreigners either won’t be interested or won’t be able to respond as quickly. Here you will be able to take advantage of your industry knowledge and your physical location to work business that the cheap labor/material foreigners can’t. Or you may need to take advantage of your knowledge, skill base, and equipment and make products that people do want to buy. If you’ve been selling unfinished furniture and the Malaysian’s are eating your lunch, you may want to move to custom furniture manufacture or develop some unique, or high quality finishes that involve proprietary techniques. Better yet figure out how toyou’re your plant, people, and machines to build something other than furniture that is in demand.
If you are in the service business you can consider investing in labor saving equipment and pass on the savings to your customers. Perhaps you can add additional related services to your tire business, eg. Brakes, mufflers, inspections, or even engine rebuilds. Look up and down your industry: Who charges the big money and are they vulnerable. Who’s got a lock on the least expensive service and can they sustain it. What’s left that isn’t being addressed. You wonder how you find out the answers. Ask your customers what they would also wish you would sell, or service and decide if these things are being well served by other and whether they are in your capability to do or learn. Then get moving…You are not going to survive, much less thrive, unless you adapt!
Turnaround Management Association – These folks have a wealth of information about how to deal with a failing business as well as direct links to certified consultant who can help you pull it off.
5 Secrets of a Turnaround Ace – Lessons learned from Alec Gores—one who has done it well.
A Biker’s Guide to Corporate Turnaround – If you are not in trouble yet but think you might be, here is a neat approach for staying off the business rocks.
The Corporate Health Check -- A free, anonymous, tool for helping you identify areas of your business that are in trouble.
Copyright 2003, Donald J. Bodwell. All rights reserved. Email: firstname.lastname@example.org