By: Michael Salach – November, 2011
One day a business will be sold, acquired, merged or transferred, and therefor, (unfortunately), according to a joint study (by McKinsey Consulting and The London School of Economics), approximately one third (1/3) of its value is lost as the firm declines in performance from performing to Turnaround.
What’s worse, most Presidents, CEO’s and Owners of SM Businesses don’t realize what the overall value of their business is; what its performance level (or more importantly its overall health) is. In many cases they lack the vision or strategies to grow their businesses profitably or insure that their businesses perform at an optimal level.
Is your business in decline? I have a fundamental question to ask. If you don’t know, why don’t you know?
After all this is one of, if not your greatest asset and you should not only protect it, but position it for extraordinary returns. The more obvious and perhaps the more important questions are how did this happen? Why didn’t you see this coming? And if you saw it coming why didn’t you take action?
In this environment of economic crisis, intense competition and restrictive funding, more and more companies are quietly slipping into decline. In fact, if your business was healthy, you could not only “weather the economic storm”, but would have been in a position to have taken advantage of it.
As you might have expected owners in the small, medium and large markets in particular are excellent practitioners, but as their businesses grow their businesses outpace the managerial skills required to manage and larger more complex business. In an ever changing and more complex economy – they simply “lost control” of their companies and in many cases didn’t realize that it was happening. To quote that great philosopher Pogo “we have met the enemy and it is us”
In some cases, owners have intentionally or unintentionally chosen to ignore the symptoms and hope that things will change – a family member(s) will assume managerial responsibility or infuse additional capital, an acquisition is on the horizon, new products are going to be introduced that would increase both revenue and profitability – all of which will cure the ills of the business – unfortunately, with structural issues these options rarely work and hope is not a successful strategy.
So you might ask is this SM market phenomenon? The answer is not really, but he SM market business owners are much more vulnerable, primarily because they do not have the power of “big” and therefore a single large mistake or series of smaller mistakes can be fatal.
But regardless of the industry, market, market segment or size of a business each company migrates through five (5) stages of a business life cycle – start-up, early stage, growth, mature and decline, as well as, three phases of performance, performing & profitable, underperforming & unprofitable and finally turnaround (potential bankruptcy). Understanding the stage of the business cycle and developing or acquiring the skills that are necessary to successfully navigate through that stage is often times the difference between success and failure.
In addition to understanding the stage of the business life cycle there are also internal sign i.e. symptoms of problems within the business that are warning the owners that the business is headed in the wrong direction and “generators of performance that can prevent the decline of a business, if the owners are aware of them and are willing to make change.
These symptoms include events such as poor cash management, violation of bank covenants, turnover of key employees, undercapitalization, loss of critical clients or late introduction of new products to name a few. Finally, there are “generators of performance”. The generators of performance can not only improve the performance of the business, but also act as a report card on the management capabilities of the business. The symptoms and generators of performance are easily identified and implemented and more importantly prevents the loss of “economic value” and crisis management if acted upon.
Most owners do not understand what stage of the business life cycle their businesses are in nor do not recognize the symptoms that are shouting at them that their business in trouble and as a result their business quietly slip into decline and clearly they don’t understand the generators of performance. If they did the business would have been healthier. However, most of them do recognize that they need help and some are willing to ask for assistance.
If would like to understand or gain some additional insight as to what you should do to in both the short and long term to address the needs of your business or identify the high impact issues that will begin to increase the “economic value” of your company, please join me at The Presidents Roundtable to discuss strategies and operational issues or visit my website at www.michaelsalach.com or call me at 508-523-8300. We will help you to understand more about business life cycles, identify the symptoms of a business in decline, as well as, describe and apply the generators of performance.
How many of them know who their profitable customers are or conversely who is who their unprofitable customers are? Do they know how their customer buying patterns or behaviors have changed
Michael Salach, President of The Bay State Consulting Group, Inc., has recently introduced The Presidents Roundtable a Forum targeting Presidents, CEO’s and Owners of the Merrimack Valley to identify, share and assist each other to improve the overall performance of their businesses while increasing the “total economic value” of their businesses.
The focus of the group is not only identifying strategies, but more importantly assisting in executing the very initiatives that make an difference. Businesses like products move through cycles