Tag Archives: planning

Early Warning Signals (External) of Business Decline

Early warning signals companies should look for in the external environment include all legal, political, competitive, technological, economic, and social changes that affect them. Regular review of social media, trade periodicals, business publications, and newspapers will help to keep you current. A technological advance, for example, often affects buyer attitudes and expectations, thereby causing social changes that need to be addressed in product/service design and delivery/sales. If your organization is uninformed with regard to the changes–either that they occur or the extent to which they occur–company performance may lag behind competitors. 

Early Warning Signals – External

Management often tends to dismiss the external signals of decline as elements beyond their control. They believe that a downward trend will end when external elements (e.g. economic conditions) improve. Problematic external elements can include the following:

  • increased competition
  • rapidly changing technology
  • unpredictable economic fluctuations
  • cultural/social changes
  • legal/political swings

Within these external elements are market changes, customer preference changes, foreign competition, capital and commodity market movements, legal precedents, and unresponsive political solutions. While these elements cannot be controlled, they can be influenced. Also, since all businesses in an industry are similarly affected by external elements, management’s ability to survive these changes will determine future  viability. Some businesses weather external changes and emerge with increased market share and profitability; others fail.

Two major problems with these elements are their uncontrollable nature as well as their interaction with each other. Upon close scrutiny, it becomes apparent that factors affecting one of them can have a secondary effect upon another. For example, a cultural/social shift can result in a legal/political change. This change can affect the economic environment, which will interact with technological development. the rate of technological development consequently affects the status of competition. This process of action and reaction comes full circle when we realize that the status of competition then affects the economy and cultural/social change.

Businesses fail to realize that they can plan for external changes and safeguard their hard work. Their management teams have the ability to influence the external elements if they can predict their occurrence. Such foresight allows the executive team to influence the elements through the use of promotion, persuasion, buyer education, accelerated product development, process improvements or elimination, unit growth plans, new markets, and adjusted sales practices. 

Adaptation to the change is the result. For example, construction companies that build prefabricated residences have known for years about the external changes affecting the prefab sector of the home building industry. They have been affected by  cultural/social and legal/political changes for the last several decades. In response, they developed new products, such as modular multifamily housing, to offset their declining mobile home product sales. They invested in additional research to determine the number of potential single-family and multifamily buyers who preferred the cost savings that their construction process generates. They invested in new manufacturing capabilities, which would use material specifications offering a competitive advantage. These companies understood the early warning signals of the external elements and acted to offset them through:

  1. promotion and persuasion to keep their customers,
  2. additional market research about market size and buyer profiles,
  3. buyer education based on research findings,
  4. product improvements, and
  5. product elimination.

These tools allowed this segment  of the building industry to adapt to changes in the market. What are you doing in your business to a.) study the external environment, b.) adapt to the changes, and c.) position yourself in the eyes of prospects and existing customers to become more competitive? You can influence your own outcome!

 

Recognizing a Declining Business

In the past week, we have taken the time to look at characteristics of successful companies. In case you missed one of the posts, feel free to catch up by reading them in order (links below):

  1. How Successful Businesses Plan For Growth
  2. How Successful Companies Market
  3. How Successful Businesses Manage Their Finances
  4. How Successful Businesses Manage Their Operations
  5. How Successful Businesses Create Positive Cash Flow
  6. Revenue, Cost & Capital In Your Business
  7. How Successful Businesses Maintain Organizational Morale

This week, we are “flipping the equation” on you and examining what a business in decline looks like. As you track with the principles shared and lessons learned, you may find yourself to closely resemble a declining business in one way or another. Don’t despair! Knowing what needs to be fixed is important. You are that much closer to success than someone who doesn’t even realize that crisis is around the next corner because of ignorance.

No one is consistently successful. When things start to go wrong, however, the shrewd executive must recognize those events that are catastrophic and those that are not. Early warning signals of imminent business decline can occur both inside and outside a business. Changes in the operating environment due to external and internal elements may signal the beginning of decline. Once an executive team determines that the business is showing some symptoms of decline, the next step is to determine whether the decline is shaping up to be a twenty-four-hour bug or a terminal disease. Can it be treated? Can it be cured?

The Stages of Decline

Stages of decline include early, mid-term, and late periods, and recognition of these stages has an impact on the steps to reverse the decline. In early decline, it is very probable that the business can be totally saved and profitability restored quickly–often within a matter of months. In mid-term decline, the business has been suffering some erosion of value, and it may take a year or more to restore the value and resume profitable operations. Finally, there is a late decline. Sadly, fewer that one-third of companies in this type of serious trouble are able to reverse their decline and emerge on the other side “whole”–with existing management, ownership, and operations intact.

Before examining the warning signals of decline, we should look at the root causes leading to those signals. The earlier these causes of decline are observed, the easier it is to resolve them. The most common causes of decline–from both internal and external elements–are as follows:

The Causes of Decline

  • management by exception rather than by flexible planning
  • delegation without inspection or control–no feedback, review, or reinforcement
  • vertical organization chart with little if any interaction between departments (silos)
  • managers with responsibility for more than five direct reports
  • employees with more than one boss
  • chain of command broken when employees think necessary
  • breakdown in formal communications
  • overreliance on strategic plan
  • overreliance on management by objectives
  • senior managers’ abuse of outside activities and company benefits
  • marketing the wrong products
  • marketing in the wrong locations
  • aging workflow management techniques
  • inadequate research
  • inadequate staffing
  • inappropriate sales methods
  • unresponsive financial information systems
  • loss of competitive advantage
  • displacement by competition
  • changing technology
  • buyer preference changes
  • regulatory changes
  • economic changes
  • inadequate understanding of buyer needs
  • inadequate information flows, both between business functions and between company and customer
  • one department or business function dictating the mission, goals, and objectives of the company

All of the above causes for business decline are valid, and any one of them can precipitate the downfall of even an experienced team. Recognizing the warning signals of decline is the next step in righting the ship…

How Do Successful Businesses Manage Their Operations?

After working hard on the marketing plan and the financial plan, successful executive teams develop operating plans to implement them. These are the plans that ultimately result in successfully bringing one’s idea into the marketplace–and profits into the owner’s pocket. Staffing, office administration, and work flow supervision are the primary needs. Successful businesses anticipate problems and take steps immediately to improve workflow efficiency. Supervisors and budgets are assigned to control costs. If necessary, outside fractional help is secured to make sure that appropriate resources are allocated to the best potential outcomes. In addition, the top executive may recommend steps financial and marketing teams can take to enhance overall productivity–and, by extension, profitability. For example, organizations that offer and sell the same or similar goods or services over and over usually see fewer cost overruns and therefore generate more profit per unit of sale.

Staffing a business with the correct number and types of employees makes your workplace both productive and more enjoyable. Sprinkle in some training and development and you demonstrate care and concern for your people. Create feedback loops and engagement will soar. Successful organizations increase or decrease staff levels as operating plans require. Outsourced human resources–whether through independent contractors, fractional professional staff, or subcontracting–allows your company to optimize human resources for any level of work necessary. Making preparations to finish existing projects while beginning new ones and documenting how the work will be accomplished will focus your efforts.

Administering a variety of initiatives simultaneously places certain demands on office staff as well. A successful executive team thinks through the documentation needs of the organization and assigns responsibilities to appropriate personnel. Institutional knowledge is thereby captured for the benefit of all and adjustments become easier to make. Well-organized files–physical and electronic–are another vital component to smooth business operations and can eliminate wasted time and effort, as well as reinforce best practices!

Successful supervision of field (or plant or billable or development) personnel involves more than simply the “management by walking around” approach of yore. Think about technology as a means to do more with less. Creatively brainstorm as to how to maximize the benefits of being face-to-face versus virtual–it’s a trade-off of time, money, and precious additional resources. Recruiting and hiring should reflect an effort to add to the team those who are the best cultural fit rather than simply strong technicians who may undermine the esprit de corps. Compensation and performance management systems should reinforce your value system–not stand separate from it. Think of processes like equipping, quality management, customer service, coaching, mentoring, motivating as key factors in your success. When you do, plans can be made to enable your organization’s operations to become efficient and profitable.

How Do Successful Businesses Manage Their Finances?

Once the marketing plan has been developed and the product (service) mix defined, successful executive teams develop a financial plan to determine whether their offerings are economically feasible. Such financial considerations as sources of funding, cash availability, and marketing investment need to be evaluated.

Again, no department or manager can operate in a vacuum during this planning process; it is highly likely that staff in the marketing, finance and operations areas will collaborate on the development of plans for their respective areas, as well as on all aspects of an overall business plan. When a new project, product, or service is contemplated, the finance and accounting staff, in conjunction with the business owner(s), head of marketing, and head of operations should evaluate the company’s ability to:

  • get the initiative off the ground,
  • fund it during development and launch, and
  • continue to support it through sales process and beyond.

Successful businesses are always careful to perform all necessary analysis of these three aspects of innovation. They never assume the financial capability to launch a new idea guarantees success; rather, it is understood that the ability to begin a project is of no value if momentum cannot be sustained through the point of post-sale customer service and satisfaction. The cash required to pay overhead and ongoing obligations when no revenues are coming in from the new initiative can put a company into bankruptcy if not anticipated beforehand.

Securing capital sources is another step in sound business financial planning. The timing and amounts of cash infusions are critical considerations within the overall plan. Sometimes, the lure of a large project or contract can cloud judgment. Without adequate preparation for the cash impact of “ramping up” for new scopes of work, sales volume can become a curse. In fact, some businesses become specific in their growth goals so as to not outstrip precious capital reserve allocation guidelines. (This is not to say, however, that financial instruments such as contract financing are not a way to “have one’s cake and eat it too.”)

Making sure that the business has the wherewithal to “scale” to fit customer demand is important. There will invariably be times when the requirements to pay down payables balances will be instituted by lenders or investors. Likewise, receivables balances cannot become too large too quickly without causing alarm as to the liquidity of the business to meet obligations. Creating a working capital account that is adequately funded to weather fluctuations in business volume–in either direction–is wisdom. How one goes about pre-funding it is “science!”

Businesses that plan for their monetary requirements at every stage of innovation will consistently make more money than those that “fly by the seat of their pants.”  Developing financial plans that support marketing and operational plans is essential for profit maximization. The results of this planning are recommendations to either scrap, revise, or move forward speedily with exciting projects that can lead to increased brand awareness, market share, revenues, and profitability. However, one would do well to remember that no going concern has ever gone broke because its executive team did not start a new project. 

How Do Successful Companies Market?

 

Businesses on the leading edge of industry trends and developments are market-driven. Thus is not to say they manage their financial and operating efforts poorly; rather, the financial and operating efforts serve as strong support bases for the marketing power from which they derive most of their profits. Possessing a thorough understanding of the various markets in which a business competes, top companies are able to identify which exact product offerings, features and characteristics are most desirable for their target customers in each market sought. Having identified these key characteristics, top performers direct aggressive marketing campaigns at the universe of prospects who meet the general description, letting them know what they plan to offer, when, how and where. Further marketing efforts are focused on developing consultative conversations to entice this target market to purchase, usually including a solid follow-up process for keeping in touch with potential buyers.

Continual market research is essential for small business success, helping the successful executive team to develop a feel for the target markets. You need to know who your ideal client will be–and create corresponding prospective buyer profiles. By studying the types of prospects who visit your website and those of your competitors, it is not hard to get a feel for who your prospects are. What other constituencies should be studied?

  • Competitors
  • Distributors or referral networks
  • Sales channels–online and other
  • Demographic groups and their buying patterns
  • Prior customers and their feedback

Knowing as much as possible about the purchaser of your offering helps successful companies design aspects of the offering that fulfill unique needs (think about how Starbucks creates an environment in which we pay three times as much for a hot beverage as the prior source). By thinking through the offering thoroughly, savvy companies gain a competitive advantage over the competition through informed development decisions. From the same marketing information gathered about prospective buyers and their habits, a business can determine pricing and sales techniques that should lead to higher revenues and profitability. This research process gives you a distinct leg up on those who do not put in adequate effort to understand customer needs.

Putting information to the best possible use is a skill that further distinguishes the successful enterprise from its competition. Selective–and effective–advertising and promotional campaigns can be carried out on even the smallest budget. Social media outsourcing companies will do a phenomenal job for you for as little as $500/month. Other forms of promotion should not be ignored, however, as many traditional approaches are still valid, perhaps none more so that one-to-one networking with the right people. Successful executive teams realize that marketing is all about building a conversation–online and in person. Good information sets the stage for the conversation, but we still must create an open two-way dialogue with people who matter. 

Successful businesses also develop marketing plans that lure prospects into asking to be contacted. For example, if your company can offer better terms than the competition, that needs to be promoted. Sales or promotions can drive short-term traffic, but are not your best long-term tactic for profitable growth. Better, think about bundling and cross selling opportunities to entice a customer to sample more of your wares. The intent is to create a symbiotic relationship wherein they see you as a trusted provider of multiple things they need and value. There are more ways to attract and optimize customer interactions, the common thread being that you need to think through how you make your offering “sticky” enough to hold someone’s attention in a day when so many other messages are competing for it. Motivate prospects to buy your offering over the competition’s!