What are the main causes of stressed and distressed businesses? There are hundreds. But after working as a serial entrepreneur for more than two decades, I see these most frequently:
- People. Specifically, people who end up in the wrong roles. This happens for all sorts of reasons like hiring the wrong person in the first place. Or, the role has evolved but the person has not. Remember, you will not train the person into the right role.
- Leadership. Many leaders are letting their companies down. Whether it’s boredom, attention deficit disorder, hubris, laziness or something else, stressed and distressed organizations often suffer from leaders failing to lead. I’ve had to chastise clients and tell them that the first thing they need to do to start their corporate turnaround is to work harder and work smarter. A struggling company needs more than a 20-hour-a-week CEO. And when you factor in golf, vacations, vendor boondoggles and shopping online, you’d be amazed how many CEOs work less than 20 hours a week.
- Customer concentration. In the old days, I used to love coming to work in the morning. Johnson Controls Inc. in Milwaukee was our biggest customer. The fax machine would be buzzing with orders. Johnson Controls was 85 percent of our business. One day, my partner asked me what I would do if Johnson Controls stopped filling the fax machine every day. I got my butt out the door later that morning. If more than 25 percent of your revenue comes from any single customer, you have a very serious issue that needs to be addressed…now!
- Your marketing stinks. More than a decade ago, on my radio show, “The Computer Show with Ram and Rom,” we used to have the “Ram and Rom Rules of Life.” One of the rules was “The best products don’t always win, but the best marketing always wins.” At the time, we were thinking about Microsoft, which rarely had the best product, but used to have the best marketing. I see a lot of businesses that have really great products and services, surrounded by incredibly lousy marketing. I’m not talking brochures, websites, and tradeshow displays. I mean strategic marketing like strategic pricing, prospect identification, product roadmaps, etc. And if you have a marketing director that isn’t part of the strategic planning group, you have the wrong marketing director.
- Too much focus on expenses and not enough focus on margin. Believe it or not, it’s often much easier to increase gross profit by 10 percent than reduce selling, general and administrative expenses by 10 percent. And less painful. And less destructive. Obviously, a business that’s losing lots of money, in trouble with its bank and in a downward spiral has to reduce expenses. But before it gets to that, the CEO and chief marketing officer should be asking their team at every management meeting, “How can we increase our margin?”
- Abdicating responsibility. Don’t rely only on your professional advisors to know and understand what you should really know and understand. When my banker wife used to work as a lender for a nonprofit organization that focused on financing start-ups, she told stories about how she would review projections or business plans in detail. She’d ask, on a line-item basis, how the start-up entrepreneur came up with a revenue or expense line. Too often, the person would respond, “My accountant did these projections.” To which my wife would reply, “Then will your accountant be repaying this loan?” Business owners need to read and understand their financial statements, their loan documents, their insurance coverage, and not just rely on their professional advisors in such matters.
- Believing in forever. Products and services will not always stay young, vibrant, wanted and needed. Companies are not Peter Pan, and we sure aren’t in Never Never Land. The most recent example which comes to my mind are these excerpts from an article about the layoff of 2,000 employees at Research in Motion, maker of the BlackBerry: “Analysts pointed to Research In Motion’s sluggish response to Apple and Android technology…RIM wasn’t aware of or reactive enough to changes in the market…This entire chapter in RIM’s history is being driven by its lack of agility…It’s always a danger with any one-trick pony strategy, what you consider to be a distinctive feature, which is going to keep you apart from everybody else, but you ignore everything else people might want.” RIM’s stock has fallen 75 percent in the last 12 months.
This isn’t a comprehensive list of every reason businesses come under stress. But it’s not a bad place to start.