A Business in Crisis – A Company in Decline
by: Michael Salach, President, The Bay State Consulting Group, Inc.

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 “kick the can (their business) down the road 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 SML market phenomenon?  The answer is not really, but he SML market business owners are much more vulnerable, primarily because they do not have the power of “big” and therefore a single mistake could 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, under performing & 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, under capitalization, 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 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.

My next Article will address the steps necessary to Improve the Performance of your business.

Strategy, the Advisory Board and Expectations
by: Michael Salach , President, The Bay State Consulting Group, Inc.

It is surprising for me to find out just how often small businesses do not have an advisory board of well- rounded business people that serve as a sounding board to the business owner regarding the performance of his / her business.

It has been well documented that entrepreneurs are experts in what they do (products, services, technology), but often lack the business and organizational understanding about how to integrate the pieces of a business effectively to insure it’s long term success.  This is especially true, if this is their first business.

The advisory board is one way to help fill in the gaps in the entrepreneur’s knowledge and expertise and give the entrepreneur a better chance of success.

But how do you use your Advisory Board effectively and to your benefit?

First and foremost, you must understand that the Board meeting is not a meeting to meeting event, but rather a long term commitment by both yourself and Board members to improving the overall health of your business. You must take a long view of business. In order to do that you must present the long term view of your business to the Board, in order that they may understand the direction that you intend to take your business, as well as, the impediments that you are facing to achieve that end.  In this way,

Second, do not treat the Board meeting as a casual or an informal meeting.  You must prepare and be prepared for each meeting. The results you receive from each meeting will be proportionate to the quality of your preparation. 

Third, you must establish your own expectations (reasonable) of Board. You must understand exactly what you expect to receive from every Board meeting and also what you want and expect from each fellow Board member?

Fourth, you should seek out a Board member(s) that you believe can provide insight and solid alternatives to addressing business issues. Between meetings call, email or meet with other Board members to get additional assistance.

Now let’s say that you are getting ready for an Board meeting and you want advice on your strategy or operating plan for the upcoming year. What are some of the things that you may want to discuss with your Board? First of all, when you are preparing for a Board meeting, you should be thinking about all aspect of your business, as well as, at different levels.

Here is a checklist of some things to help you prepare.

The first question is, “Are you going to bring a plan for 6 months, 12 months or another time period? Regardless of the time period that you choose, your plan becomes the subject (center piece) of future meeting discussions, where you will report on plan execution actual versus the plan.

So, there are a number of things to think about:

1. What are your business objectives for the time period?

These may be expressed in financial terms (i.e. increase top line revenues by $X) or business terms (increase active clients by X, or increase sales to current clients by X %).

These objectives need to be SMART, specific so that they can be tracked.

Once you have your overall objectives,

2. You should analyze your objectives in terms of the effect on your business according to area:

Financials:
- What is the break even sales number for the business?
  - Annually, semi-annually, quarterly, monthly, weekly?
- Will you need additional working capital?
- What is the effect on the important factors such as Cost of Goods, Inventory, Labor,
  etc? -Given what you must do to make the change, will it be worth the final result?

Labor:
- What will be the demand on your labor force, increased productivity? New Hires?

Sales:
- How many new clients will you need?
- How much increase from current clients?

Pricing:
- Do you increase prices or not? Why not? If so how much?
- How will the market react to the increase in price? Will you lose customers? How Many?

General:
- What specific actions must you take to implement the new plans?
- What specific actions will other people need to take, in leadership roles to implement
   the plan.
- What must you do to support them?

This step involves detailed project planning, not just a check list for each group.

3. You should establish milestones, critical path activities and or metrics to gauge whether or not you are on schedule or on plan.

Based on the above, you can begin to formulate your plan and evaluate your results for the coming period.

You can establish your expectations for your advisory board and insist that they not only provide you with suggestions to execute the plan, but provide you with an honest appraisal of your strategy before you begin to execute that plan. Finally, you should encourage critical thinking about the results that are achieved during the execution of your strategy.