You Can't Shrink Into Greatness
View PDF | Print View
by: Tuning
I hate writing about negative situations. It is much more fun writing about great things and great accomplishments. However, sometimes we as business people and entrepreneurs run into difficult situations. So what to do? How does a person lead a company through tough financial times?
Let's look at an example company so that we can illustrate what can be done in order for that company to achieve greatness again. Our example company was profitable and moving a long just fine until it got hit by the recent recession. The company had a few very large customers that did not pay their bills and therefore through the company into a cash flow crunch. Worse yet the company's credit line is maxed out and it is out of compliance on its bank line of credit. The customers have disappeared so that chances for collection are very slim. The debt is very high. Sales are also much lower there have been a 40% drop from 2007 to 2009 in revenue and 2010 looks like another decline year. The company has four shareholders. Two of the shareholders are also operators of the business and they have taken pay cuts in order for the company to survive. The other two shareholders have decided to move on to other interests. They are interested in selling their shares.
The current management is seeking a concretionary strategy. Under this strategy they are shading any kind of access in such areas as employees, rent, and marketing investment. They are leaving a skeleton crew in order to attain profitability again and hope to attract investment which will then allow enough financial resources to move the company forward. There is a sense of negativity throughout the organization since the two shareholders are worried and stressed. Also employees keep seeing cuts and they are not seeing success. There is a feeling of no way out.
I believe the management is pursuing a rout they feel is the safe approach, but it will be their slow spiral in to bankruptcy. Unless other changes are made they will never see that illusive light at the end of the tunnel. "Going Small" will assure that they will forever function under the pressure of the debt. Furthermore, investores are not interested in investing in shrinking organizations, they are looking for growth opportunities. It is very hard for a small company to pay the debt of a big company. And while trimming the fat is good, cutting into muscle is dangerous and may leave you cripple or dead for the rest of your life.
The following approach need to be taken:
The management team needs to take a long hard look at the reality they are in and figure out what are the opportunities. What is the business that they are in? How is the business making money? What really makes that business tick? What are the external factors of the industry and the economy? What are the marketing sales efforts look like and how can they improve? How can the company function with lack of financial resources and what could be done about it so that growth can be achieved again? Finally what is it that the share holders and managers of the organization want to accomplish with the business?
After examining the above factors the management team can come to the following conclusions:
1. They are in the wholesale / IT Asset recovery business.
2. In this business profits are earned when the equipment is bought at low prices and the cash is collected when the sale is completed.
3. The life blood of the business the engine that makes it move is the purchasing and sale of equipment. The business can generate above average margins when product is bought at low price points do to additional services being provided.
4. The external factors have a tremendous impact on this business. The company is a small organization in a fairly large industry. The main constant of this industry is change. Prices change, demand changes, technology changes and finally the world economies are cyclical which causes a change as well. Therefore, the company needs to have buisness systems to protect from negative changes.
5. As far as marketing, an inexpensive multi channel marketing approach should be built so that potential customers are exposed to the products and services the company has to offer. A true marketing plan has to be built and executed upon so that success can be achieved.
6. As far as the lack of financial resources there a few options and since the industry presents a nice growth possibility investors should be approached so that additional opportunities can be explored.
It is not a bad idea for the company to trim the fat and shrink in order to regain profitability. But this needs to be a mean to an end. There needs to be plans in place and goals set so that the organization has a chance to succeed in the long run.
About the Author
Pat Suavel is an artist and freelance journalist for blogs and magazines that feature editorials on both classical oil paintings and modern day paintings.
Rating: Not yet rated
Login to vote