My dear wife (who by the way is also my Editor-in-Chief) and I were discussing stressed and distressed businesses. She works as a banker by day with problem business loans, so she gets to see lots of business stress as do I. She asked me, “So John, what percent of stressed businesses are suffering mainly because of the economy and what percent are suffering from self-inflicted wounds?” I replied, “Oh… about 100%.” Shocked, my dear banker wife gasped, “100% due to the economy?” to which I replied, “It’s not the economy stupid!” This explains why I am writing this from the Baymont Inn in Grafton.
Now, I tried to tell her I was making a reference to Bill Clinton’s famous 1992 campaign slogan. I think I’ll have her convinced by kickoff time of the Packers game.
So do I really believe 100% of business stress is caused by management and NOT the economy? Maybe not 100%, but very, very close. What are the main causes of stressed businesses? There are hundreds, but here the ones I see frequently.
1. People. People that end up in the wrong roles. This happens for all sorts of reasons. 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. (See last month’s blog.)
2. Leadership. As much as I hate to say it, many leaders are letting their companies down. Whether it’s boredom, ADD, hubris, laziness or something else, stressed and distressed organizations often suffer from leaders failing to lead. I have had to chastise clients in the past that the first thing they need to do to start their corporate turnaround is to work harder AND work smarter. I’m not a Spartan, but a struggling company needs more than a 20 hour per week CEO. And when you factor in golf, vacations, vendor boondoggles, shopping online, etc., you’d be amazed how many CEO’s work less than 20 hours per week.
3. Customer concentration. In the old days I used to love to come to work in the morning. Johnson Controls in Milwaukee was our biggest customer. The fax machine (sorry, you will not relate to this if you are under 30) would be buzzing, and it would be filled with orders. It was awesome and JCI was 85% of our business. One day, my partner, a former auditor from KPMG, asked me what I would do if JCI stopped filling the fax machine every day? I got my ass out the door later that morning! If you are getting more than 25% of your revenue from any single customer, you have a very serious issue that needs to be addressed. NOW!
4. Your marketing stinks. On the radio, 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, really great products and services, surrounded by incredibly lousy marketing. And I am not talking brochures, websites, and tradeshow displays. I mean strategic marketing like strategic pricing, prospect identification, product roadmaps, etc. If this rings a bell, check out the website of Mitch Gooze who runs a business called the Customer Manufacturing Group. And if you have a Marketing Director that isn’t part of the strategic planning group, you have the wrong Marketing Director.
5. Too much focus on expenses and not enough focus on margin. Believe it or not, it is often MUCH easier to increase Gross Profit by 10% than reduce SG&A by 10%. And less painful. And less destructive. Obviously a business losing lots of money, in trouble with their 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 “How can we increase our margin?” at every management meeting.
6. Abdicating responsibility. Don’t rely solely on your professional advisors to know and understand what you should really know and understand. My wife used to tell me (when she worked as lender for a non-profit organization which focused on financing start-ups) stories about how she would review projections or business plans in detail and 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….you get the idea….and not just rely on their professional advisors in such matters.
7. 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 internet article about the recently-announced layoff of 2,000 (11%) of RIM’s (as in RIM Blackberry) workforce: “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.”
Now this is not a comprehensive list of every reason businesses come under stress. But it’s not a bad place to start. And while I am writing this, I’ve discovered the Baymont has pretty good WIFI and it’s quiet here. But the beds are too soft. So hopefully, my Editor-in-Chief will take me back so I can watch the Packers kickoff!