This is part of a series — Five Things to Do When Your Business is Failing
- Grow the Top Line With Quick Sales
- Aggressively Triage and Cut to Focus on the Core Business
- Don’t Let Your Business Fail Alone-Ask for Help
- Think About the Worst Case Situation and Prepare for It
- Keep Your Personal Core Protected So You Can Do It Again
When business is good or cash is readily available, businesses can grow in many different and unprofitable directions. There is a temptation on management’s part to think that they are good at everything and the company should expand into adjacent lines of business or geography. Then when times get tough, all of a sudden this expanded operation becomes like a lead weight around the neck of the business. It is important to recognize when this is happening and take a serious look at what parts of the business are profitable and which ones are just unnecessary costs.
A friend of mine was put in charge of a venture capital funded Internet based business that had a breathtaking cash burn rate that gave them about 5 months to live. He took immediate yet measured action to identify what parts of the operation were profitable and which were just speculative. Furthermore, he identified which people were a fundamental part of the success for the things that were working.
After the assessment, he laid off 100 of his friends and co-workers to get the business down to 50 people, dropped the unlimited free plans that were sucking up bandwidth and processing power, and rallied everyone remaining into servicing the profitable customers properly and introducing much needed features. He got the company back on the right track quickly, although I am sure it was a very difficult and stressful time for him. A year later the owners sold the company for a great price.
If this is done quickly, almost even ruthlessly, then the business can be turned around while there is still cash and credit lines available. It is much better to make this change in one fell swoop, like my friend did, instead of making changes in dribs and drabs. If the changes are piecemealed out over a period of time, bad things will happen. The good people will start looking for jobs and depart. The people that are unsure they can do well at other places will hunker down scared, and be a heck of a lot less productive. And everyone will be waiting for the ax to fall again. Far better to make the changes, announce a new day, and move forward again.
It can be difficult to figure out when aggressive action needs to be taken. But at some point the owners and managers have to recognize when to shift into crisis mode and put all options on the table for getting things stabilized.
Author: Rolf Versluis
Published at Priority Queue