My mind is increasingly focused on the issues faces businesses in tough times, whether there will be a recession and in particular if any recession will see an increase in the demand for business turnaround specialists and turnaround coaching services.
A Generation Since The Last Recession
In my working life I have had to confront two recessions:
- 1981-82 when I was just starting as a trainee accountant and I saw clients struggling one year and out of business the following year and
- 1990-92 when I was Finance Director of an engineering business selling products into the building industry. Ouch!
I have told the story before but it is worth telling again quickly
Business Profit Plummets During A Recession
For about nine months my company ignored all the talk of recession and we continued to generate profits of £100k or more every month. Other businesses in the group were seeing profits fall sharply but not us.
With hindsight we were protected by the lead times in our industry. Buildings started had to be finished but developers didn't need to start new projects.
When the recession hit, it hit us hard. I had never seen such a sudden swing in profitability which equated to about 15% of sales value, from big monthly profits to substantial losses. It only took three months.
We were caught in a pincer movement of rising costs (from productivity issues and production managers who thought it would be a good time to overhaul machines while they were quiet) and falling sales volumes and prices.
It was the classic break even point squeeze as shown in the graphic above. The break even point shifted from BEP1 to BEP2 as our economics moved from the solid lines to the lines of dashes. Each hurt the business and our volume slid leftwards as well to compound our problems.
Our sales volumes were suddenly below the new break even point when previously they were comfortably above.
I have explained in the Beer Game, how businesses need to be seen as an integrated system but they also operate in a much bigger system. Sudden changes throw the whole industry system out of balance and take months to settle back down to a stable level.
Fortunately we were able to turnaround the situation quickly by decisive action on our costs and by having a strong position in the market.
Three Types Of Company In Recessions & Tough Times
I see three types of companies and how they will face up to the economic pressures of the recession and times of tough trading:
- Company A - prepares carefully for the recession. Uses this time to re-focus the business and comes out the other side leaner, fitter and much stronger.
- Company B - ignores the warnings until the business is in trouble (like my employer in the early nineties, we didn't believe anything we couldn't see in our own results and thought that we were a special case.) Company B will suffer a lot of pain adapting to the tough times but will come out the other side as a profitable business.
- Company C - ignores the warnings and doesn't have the necessary control systems in place to keep the managers up-to-date with what is happening to profit and cash flow. "Sales are down a bit but things can't be that bad can they?" Many of the C type companies will not survive.
In my chart I have started company A, B and C from the same profit position to make the comparison easier. In reality, company A has proactive management and is likely to be starting from a higher profit position.
As the economy improves, the company As of the world can start buying up the better company Bs on the cheap. Owners of Bs will be exhausted from the struggle and just grateful to have something left from all their efforts.
The critical factors that will determine whether a company is type B or type C are:
- The skills of the managers, their willingness to seek outside advice and assistance and the desire and ability to make the right decisions backed up with successful implemention of purposeful actions.
- The size of the business problems. A company losing money at the rate of 3% of sales has more chance than one losing money equivalent to 10% of its sales each month.
- The surplus funds available at the start.
- The degree of crisis within the business and the extent to which any decline is clear to outside stakeholders - customers, suppliers and the bank.
- The extent of any competitive advantages the business has and the actions of competitors.
Business Decline: The First Step is Seeing The Problem
Two academics Weitzel & Jonsson researched business decline and developed a stages of decline model.
- The first stage is that managers are blind to the problems,
- The second stage is a period of inaction as they assess what is happening,
- Third is a faulty action stage where actions are taken but they fail because of inadequate diagnosis,
- The fourth stage is crisis, by which time it may be too late to recover. A firm cannot sustain losses indefinitely and
- In the fifth stage, dissolution occurs and the business is declared bankrupt.
So do you have the performance measures in place to tell you if there is a problem?
Can you see that leads and orders are down? Can you learn what is happening further along your customer supply chain?
Back to my experience in 1990-2, we had official construction industry forecasts which indicated that expenditure was expected to fall year on year by say 10%. But in 1990 we didn't see any reduction and we weren't looking at the fall off in new projects starting.
We were lulled into a false sense of security but at least we had the control systems in place to tell us when things started going wrong.
This was in pre-Internet days when market information and news was more difficult to find. Now there is even less excuse.
The third stage is interesting - faulty diagnosis.
It is easy to become confused between causes and effects, problems and symptoms.
Waste time treating the symptoms and the problem can get much worse, especially if there is temporary relief in the symptoms caused by other factors. The turnaround appears to be working but it isn't.
How Do You Decide What is Happening?
During the assessment stage, the business owners and managers must make causal attributions of the problem to identify where and how to apply a turnaround solution.
According to another academic researcher into business decline and failure, Weiner, these attributions will be along three dimensions:
- Are the problems arising from causes internal or external to the firm?
- Are the problems controllable or uncontrollable?
- Are the problems temporary or permanent?
Using this model yet another academic, Ford argues that the initial attributions are usually external, controllable and temporary.
So here we have the business owner thinking "The problem is caused by the recession but if we just work harder and make more sales calls we can pick up enough business over the next few months while the economy recovers from this short term recession."
Business owners and managers will therefore increase their commitment to their normal business methods.
If the problem is not resolved, Ford argues that the attribution will switch to external, uncontrollable and temporary.
Now the business owner is thinking "It's still the recession doing all this damage but there is nothing else anyone can do. If we just sit this out, the recession will be over soon."
So No One Needs A Business Turnaround Specialist Or Coach In A Recession?
This "external, uncontrollable and temporary" diagnosis is the exact opposite to the attribution needed to start a business coaching or turnaround consultancy assignment.
For business owners and managers to be motivated to bring in specialist outside help for their turnaround, they must believe that the problem is internal (we must change), controllable (something can be done) and permanent (something must be done).
Let's just go back to the three possible outcomes of companies A, B and C and to save you having to go back up to the top, I'll repeat the graphic.
For company A, who continues to generate profit and cash throughout the recession, this attribution makes sense.
Profits may be lower than the business would like but the survival of the business and everything the owners and managers have worked for over the years is not threatened. Good management skills are needed but specialist turnaround actions are not required.
This common attribution doesn't make sense for Company B and Company C who are losing money.
How temporary is temporary?
Is the underlying industry strong and sure to recover or are industry forces moving against your business? For example is the Internet an increasing force where you are weak (eg music, books)?
The decline from the recession is permanent for any Company Cs. All the spare resources ran out, there was no cash left to pay employees and suppliers and the clock stopped ticking.
Are you sure that the problem is external rather than internal?
Are your competitors faring better or worse than you during the tough times?
I am a big believer in competitor analysis and benchmarking studies wherever possible. If you know that a competitor is more profitable than you and is growing faster than you, even if the information is a year out of date, it forces you to accept that better performance is achievable.
Unfortunately it is often impossible to get the underlying results because in the UK and many other countries, small businesses do not have to file detailed accounts in the public records.
But you may be lucky.
You may belong to a trade association which runs a benchmarking scheme where you can compare your performance in key performance metrics against the best, average and worst performers (by number not name).
This information is very valuable if you then feedback the information into your business review and take action to close any gaps or to strengthen your existing advantages.
Controllable not uncontrollable
Finally I challenge the idea that any performance problem is uncontrollable rather than controllable and I urge you to do so as well.
As an entrepreneur, you know that you can make a difference. The strong beat the weak and the best win again and again.
I believe that there is always scope for new ideas and that there are always opportunities for improvement and turnaround of performance.
Performance Problems Are Controllable, Based On Internal Issues And May Be Long Term
Now we are in the right mood for business advice and I'd like to talk to you about the basic three levels of support that are available to help you survive the recession, trade successfully during tough times and come out the other side a stronger business.
The key issue is what you need and when you need it.
The three categories of support for you to turnaround your business and restore it to profitability are:
- Self help - there is a vast range of books, audio and video programs and training courses where you can learn new ideas to turnaround your business.
- Business coaching and consultancy - this is the traditional adviser relationship where you either learn with the help of a business coach and put the plans into action yourself or you turn to a business consultant who will do the improvement activities for you.
- Business turnaround specialists and turnaround managers - these are professionals who specialise in turning around companies outside of an insolvency/bankruptcy procedure and are sometimes called Company Doctors.
Specialist turnaround managers will take control of your company and working to your overall brief, make all the difficult decisions for you and then implement them.
It is the second of these that I will concentrate on but I will give you some pointers to the self help guides.
Self Help Guides To Turnaround Your Business And Restore Your Profits
First three books
Turning Around Your Business - Mark Blayney - a good introduction to business turnaround for a smaller business.
Getting Everything You Can - Jay Abraham - this book could open your eyes to many other opportunities for profit (I would have recommended his Mr X book but I believe it will be taken off the market imminently and replaced by a new, much more expensive version.)
Guerrilla Marketing During Tough Times - Jay Conrad Levinson - the title says it all.
Business Turnaround and Improvement Programs
Small Business Growth Club (affiliate link) - Scott Hallman's excellent business growth training with the emphasis firmly on implementation (see the start of my reviews Scott Hallman Business Growth Coaching). This is my favourite general business development program.
Business Coaching During A Recession Or Tough Times
Working with a business coach to improve your performance during tough trading can be extremely effective for a number of reasons:
- You receive an independent and objective assessment of your position from your business coach.
Sometimes it is hard to see what is really happening in a business when you are living with it 24 hours per day. In fact the mind plays tricks on you. It is so effective at protecting you from contradictory information, that you just don't see anything that challenges the way you think, creating the first stage identified in the business decline model.
To help with this assessment, your business coach will have a business health check or diagnostic process. My health check is based on the Four Pathways To Success Or Failure (depending which way you are heading).
- Through your business coach you will gain access to new skills or higher level skills which are backed up with extensive experience of different types of businesses - large or small, manufacturing or service, very profitable or losing money.
- You will be introduced to a business coaching improvement methodology which will focus your efforts. I have my Eight Pillars Of Business Prosperity, E Myth Worldwide have their E Myth Mastery Program, ActionCOACH have their business chassis and improvement program.
- You will prepare and agree with your business coach an improvement action plan which lays out what will be happening in the foreseeable future.
- You will be required to implement performance measures around the main drivers of performance so that you are up-to-date with what is happening and no longer have to rely on gut feeling, instinct and guesswork. Your business coach will need to see this feedback from your actions through the performance indicators.
- You will be challenged and held accountable. An invaluable element in the coach / client relationship is that you will be expected to have taken the agreed actions between weekly coaching sessions or you will have to explain why. Don't expect an easy ride if you fail to meet your commitments because the coach is committed to helping you to reach your business objectives.
- Your business coach may agree to perform certain duties so that you can have a limited "done for you" service although in the main, business coaching works through changing your actions.
- You have a confidante and a sounding board. It can be lonely running any business but particularly lonely when you own a struggling business and face some very tough decisions. Your business coach becomes your business best friend.
As you can see, there are some big advantages to working with a business coach during a recession or tough times.
The Potential Problems Of Working With A Business Coach During Tough Times
There are three potential problems with working with a business coach during a recession.
The first problem is the cost. You will be asked to incur an additional expense when you need to be reducing costs. I understand that and can understand why people prefer the self help route if possible.
I ask you to look at what it would mean to you if your business didn't survive. The loss in income, the loss in wealth (Is your home locked up in a bank guarantee and would be lost if the business collapses?) and the stigma that attaches to a business failure.
The second problem is that business coaches like to work with successful businesses who are making money.
It sounds better to say that a client's business has improved from profits of £50k per year to £150k (i.e. a £100k improvement) than the business has reduced its losses from £150k per year to £50k (the same £100k improvement but the percentage improvements don't look as good (200% v 67%) and the second business is still losing money.
This means that the later you leave it in the decline stage and the worse your performance, the less interested most business coaches will be in helping you to improve your business.
On top of this is the fact that the market could be extremely busy in the next couple of years and the best business coaches will be booked solid, or at least to the extent to which they want to fill their diary with one to one coaching.
Yes you will find the inexperienced business coach with spare capacity and the business coaches without solid management experience but is that what you want for your struggling business?
The third potential problem with business coaches is the fact that they work through you but you still have to do the work. You have to find the time for the business coaching sessions, complete the agreed actions and do all your other work.
Your business coach will teach you how to manage your time and prioritise your activities. I would hope that you are able to delegate some tasks that you shouldn't be doing and stop doing some altogether because the payback doesn't exist.
But if you want a "done for you" service then you need a business consultant or interim manager.
Working With A Business Consultant Or Interim Manager In A Recession
If you need to bring someone into your business to do things then you need to find a business consultant or interim manager.
An interim manager is an experienced, usually self employed professional who has made a career out of short term, high intensity assignments. These people are usually over-qualified and experienced for the role so that they can hit the ground running.
Taking this "done for you" option is more expensive but it will be faster and speed can be critical in a turnaround situation.
The person you need will depend on the issues in your business and the skills available.
Do you remember I said that one of the stages of decline was faulty action that came from a wrong diagnosis? This is a problem with bringing in a functional specialist who is bound to find things in your business which can be improved. You may find that you are treating symptoms and not the underlying problem.
A business coach is a generalist, just like you, and will look at your entire business. You know that your sales are not high enough but perhaps the real issue is in your marketing, your sales process, your customer service or your purchasing which brings in poor quality products at too high a cost.
One functional specialist I do urge you to involve is a finance specialist. If your business is very small, you need to work closely with your accountant but depending on business complexity, if you have ten or more people, you should consider a part time finance director.
Bringing your finances under control and keeping them under control is essential and I can't imagine a better solution for most business owners than working with a part time finance director.
Working With A Business Turnaround Specialist & Manager
A turnaround manager specialises in rescuing companies from failure
The situation may be very serious and you need to take urgent decisive action. When you appoint a turnaround manager, you will be handing over the control of your business.
While I have worked in turnaround situations I know that by nature I am a business improver rather than a surgeon ready to cut away 60% of a business to save the profitable core.
There are various professional turnaround specialists organisations
Turnaround Management Association - North America, Australia, the Czech Republic, Finland, France, Germany, India, Japan, the Netherlands, Southern Africa, Spain, Taiwan, and the UK.
Throughout this very long blog post about business turnaround I have tried to be fair about the difficulties companies face in a recession or tough times (if the economic definition of a recession isn't met) and the issues of looking for business advice.
I believe that this is probably the most important posting I have written on my Business Coaching blog.
I urge you to look at your business very closely and consider what the future holds. Do you need to be taking business turnaround advice?
The simple fact is that the sooner you act, the more successful any intervention will be.
Let me know what you think. Do you agree with me or do I need to be corrected?
Disclosure - I have used affiliate links for programs I have recommended. This means that if you click through and then buy, I will be paid a commission. I was given a copy of the 7 Day Business Turnaround Kit to review.