“It’s even worse than I thought it would be,” I told Steve. “Everything is completely broken. Revenue is cratering. Product quality is horrible. The strategy sucks. And I think the team needs be completely replaced….
“Besides that, everything’s great,” I laughed.
I had taken over one of three divisions the company had three months prior. I spent the previous three months assessing what needed to be fixed.
I knew going in that there would be problems. However, I never thought there were going to be this many problems.
You can feel like you’re overwhelmed when your business is faltering.
It can feel like you don’t know where to start when your business starts dropping. I’ve been there, so I know what you’re going through.
You can follow the same three-step process I followed when the business I was running was dropping. What You Should Do To Save Your Business When It Falters. But I’m going to start with an important pre-step you can take BEFORE your business happens to drop:
Pre Step: Develop A Worst Case Plan
Far too few people develop a downside plan, but you shouldn’t be one of them. You’re clear headed when your business is going well, so now is a great time think about the what-ifs. Here are some you should be actively thinking about:
- What if you’re revenue suddenly drops?
- What if the competition suddenly drops prices by 30%? How will you respond?
- What if your costs suddenly shoot up?
- What if your key marketing channel stops working?
- What if your key manufacturing partner goes out of business?
- What if your accounts receivables suddenly shoot up by $16M?
I’ve seen all of these things happen during my business career. The smart thing to do is developing contingencies.
Some of the contingencies are logistical such as always having two manufacturers for any product you build. Other contingencies are of the planning variety such as developing a worst-case financial plan.
You may or may not be able to figure all the possible contingencies, but you can definitely develop a worst-case financial plan.
A worst-case plan is critical, especially for bootstrapped startups because you can’t to afford to run out of money. It’s not hard to do. I even have a simple financial spreadsheet you can use:
Now, at least you have a financial plan that you can follow just in case things go bad. And you can refer back to that plan that you developed just in case the bottom falls out of your business.
Let’s talk about the four-step plan I referenced above about what to do when your business is failing. I’m going to present these steps in a serial fashion, but the reality is you may do one or all three steps at the same time.
Many of these steps are really painful to take. Think of this process like having to amputate a limb to save the body. Okay, here we go.
Step 1: Where Are You Losing Business?
This first step is the beginning of peeling the onion on where your problem is. Here are the things to look for:
If you have a business focused on a few customers, then it should be pretty easy to figure out which customer isn’t buying anymore. But if you’re not so lucky then you’ll have to look a little harder. Look by:
Check your numbers by region to see if a certain region has dropped off. For example, years ago a business I was running dominated the Japanese market.
Then our business dropped off in Japan. Then we knew where we needed to investigate why. This leads me to the next possible cause:
B. Marketing channel.
Sometimes one issue can lead you to another issue. And you need to look at your marketing channels as part of your initial analysis.
In the case of the business we were losing in Japan, it turned out that we were losing business at one particular distributor out of the three major Japanese distributors we had. It turned out to be a pretty wild story that I will get back to in a bit.
Now that you’ve figured out where you are losing business, we’ll get to the next step…
Step 2: Why Are You Losing Business?
Now the detective work begins.
Let me give you some possibilities from my experience turning businesses around:
A. The end market for your product has suddenly stopped buying.
I’ve lived this nightmare during the communications bubble. That was one of the many problems I inherited at the company I joined years ago. It was ugly. The whole market stopped buying at the same time.
B. A competitor entered the market and is eating your lunch.
Sometimes you can get complacent because of your success. It’s a competitive world out there. If you’re successful, someone is likely trying to find a way to knock you down.
Make sure you are always reviewing what your competitors are doing. And make sure you are taking the pulse of your customers too. If you’re losing business, you need to know who you’re losing business to.
C. The market needs have changed and you didn’t notice.
Markets are dynamic. Sometimes the market needs can be slowly changing without your business taking a hit. Then suddenly your business drops.
That’s why, as I said above, you need to monitoring what your competitors are doing. Plus you need to understand how the dynamics of your specific market are changing.
D. The quality of your product has changed.
Product quality is a big issue for manufacturers of physical products. Maybe you changed suppliers, and, even though your product is passing your quality tests, the product is failing in the field.
The good news is many times your angry customers will tell you about your problems.
E. Your marketing channel isn’t working the way it once did.
This is a very common problem especially if you’re using a social media channel like Facebook to promote your products. The algorithms are constantly changing, so you have to continually monitor the ROI on your marketing.
Or it could be what we faced in Japan where one of our distributors was marking up the prices on our products by 3X what they should have. We caught the mistake because someone that worked for me had studied in Japan during High School and read Japanese script.
E. A major customer stopped buying.
Your revenue is a perfect place to start especially if you have a few customers that dominate your revenue. In fact, going back to the pre-planning concept I spoke about earlier, always have a contingency plan if you have revenue concentration.
Too many businesses have died because one large customer stopped buying or reduced their buying. You don’t want to be one of them.
Now that you’ve identified where and why you’re losing business, it’s time to…
Step 3: Stop The Bleeding By Reducing Your Focus And Doubling Down.
I will not say that every turnaround I’ve seen involves reducing your focus, but well over 90% of the turnarounds I’ve seen involve reducing your focus. The reducing can take many different forms including:
A. Reducing your marketing channels.
There’s a part of your marketing that’s working and there’s a part of your marketing that isn’t working. Eliminate the part that isn’t working and double down on the part that is working.
Let’s say that Facebook advertising is failing, but your Adwords ROI is positive. The solution is obvious: Double down on Adwords.
B. Reducing your customer focus.
You’ve lost your big customers, but your small customers are grown or vice-versa. The solution is obvious: Stop trying to get the big customers and double down on growing your small customer business.
C. Reducing your product focus.
Trying to be all things to all people is a classic mistake that happens all too often. You start out your business growing in market A. Then you decide you’d like to be in market’s B, C, and D.
And you’re doing okay but not great in these new markets until the bottom falls out. Your strategy is simply to get out of businesses B, C, and D and double down on business A.
Step 4: Come Back Stronger.
Now that you’ve reduced your focus, and you’ve doubled down on your core competencies, you’re ready to come back stronger. There is one more painful step left to take.
You are likely going to have let some people go. This is the hardest part of turning a business around.
Make no mistake the people you are letting go have done nothing wrong. They were just doing their jobs.
You did something wrong by making the bad investments in the wrong places. And now someone else will likely have to pay for your mistakes with their job.
So have some humility as you undertake the changes you are about to make.
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– Bret J. Fox