How to Avoid Going Out of Business in 2012


goingoutofbusinessLet me ask you something. How long is the average for-profit company supposed to last; 50 years, 100 years? What if in 2012, it all ended?

Okay, maybe a bit far fetched, since you survived the Great Recession, right? Well, at least up until now. But what if things don’t turn around for your business? Should you sell? Or maybe worse, close up shop? Depending on which study you look at according to Business Week the average lifespan of all companies in the world is between 12.5 and 40 years. Sure, some companies can claim to have been around for hundreds of years like Sumitomo (400yrs), or Stora in Sweden (700yrs). But smaller firms tend to last no more than 10 years on average; they either fail, get acquired, merged, or broken up.

As a business consultant and investment banker in Los Angeles, I hear a lot more about why a business needs to exist in the first place, and how to avoid a failure these days. I hear from CEOs and CFOs who are simply frozen in place, slouched in their chairs, exhausted from the choices and challenges of the last 18 months, and those still ahead. These execs are pulling out all the stops, trying one thing and then another, and still 2012 looks tough, and in need of something new.

Or maybe not. You see, what distinguishes long term success from failure is buried deep in the lifespan of each company’s DNA, especially family businesses. It seems as though Western companies focus too much on the pure economics of the business, rather than as a clan of like-minded humans seeking to act together for a purpose. And the secret for long term success, ie: surviving the ups and downs as a CEO and a company is to create a learning culture. If you can do that, they say, profits will follow. So, are the seeds to success already in place at your company to survive the next wave of the Great Recession, and beyond?

In my view, 2012 is looking more like the perfect time for an “old” idea.

What we learned in the last 18-24 months of this Great Recession could fill volumes at Harvard, or UCLA, my alma mater. But while companies clearly recognize that our economy is still re-adjusting to the ‘new normal,’ at the same time, they seem fixated on waiting for the next big Dot Com, Internet, Real Estate, Renewable Energy “catalyst” to lift and propel our animal spirits (and profits) skyward once more. But what if there is no catalyst? What if this time is different?

In their 2009 book; ‘This Time is Different:’ authors Reinhart & Rogoff look at centuries of economic cycles and they say this time is not different; it just always seems that way because the time and players are different. Well then, even if this time is not different, it seems the reaction is; meaning you better not make the wrong move or else. So maybe CEOs are right, maybe it is better to just stand still, and wait for a sign. After all, isn’t it better to wait than to make things worse? Who wants that on their resume?

Still, it sounds like another animal instinct to me. As business owners and leaders already took the big haircut, they are naturally scared to move in any direction right now. Should they expand, or hunker down? What’s the right answer? What if this time there is no catalyst hiding in my industry they ask?

So I suggest business leaders take a step back to an old school method that just may do the trick. I don’t mean to throw out the baby with the bath water, meaning you should still do your Strat analysis: SWOT, BCG Matrix, any of Michael Porter’s 5 Forces should help. Continue what works. But if you’re like me, and you think this time really is different, then why not think different. Recall author Clayton Christensen of Harvard who writes a lot about “disruptive innovation.” But instead of just expanding the pool of innovation, we expand the pool of innovators to include everyone who works at the company. Imagine if a CEO could then instantly call on all divisions, branches and employees to help innovate a solution to a critical issue of survival? Let’s say your cost structure (profit margin for example) this year is trailing industry benchmarks, why not inspire the whole team to internally innovate a 20% cost reduction program? If you need a sales kick in the pants; ask your sales team to innovate a 20% increase in new market customers by resetting their focus across state lines, or offshore in emerging markets. Why not crack the ice and let your staff innovate the solution to the big picture? As a leader you can start by aligning what incentivizes people to innovate in the first place. And what better time than now is there to conjure the old possibilities? It need not be a fat bonus check, or stock option. Why not appeal to pride and understanding the stakes? After every fall, we naturally look for better people and better paths to help us recover and thrive once again. The animal spirits to innovate come from those incentives we seek that inspire us deeply. We are after all the same in this way. As a company, as a person, as a consumer, as parents, as children, we work, live and thrive on incentives that inspire and compel us to act and achieve. It’s not always about money, is it?

In the mid 1990s, when I was at UCLA business school, we studied a time back in the 1980s when the Japanese economy was firing on all cylinders, and why academics and business owners from all over the world dispatched themselves to Japan to ask the Japanese how they were able to create such efficiency, innovation, and low product cost structures. Remember JIT, Kanban, TQM, QMC and a dozen others? The answer became the foundation for the “Learning Organization,” a term popularized by Peter Senge’s 1990 book; The Fifth Discipline where each employee was part of a data and idea sharing network with a singular mindset to improve and re-innovate each process from sales to accounting. Turns out the cumulative effort can save a corporate life and have lasting effects.

So if you’re running your family company’s future from inside the Suggestion Box, think about creating a learning organization that innovates together with a specific goal driven by a common incentive. Make these a part of your company DNA, and culture. As today’s competition for new customers is global, survival may depend on your ability to innovate and learn from as many as possible. So in my opinion, there’s no time like a Great Recession to do some truly out-of-the-box old thinking. Gather the troops next Monday morning and give it a try. You may be surprised how much more there is to count on. After all, why end it all now if you’re just getting started?

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About the author: Rick Andrade is a Los Angeles based investment banker focusing on helping middle market companies in finance, mergers, and acquisitions. He is a DRE Broker, a SBA/SCORE volunteer instructor counselor, has his BA and MBA from UCLA along with his Series 7 & 63 FINRA securities licenses. Rick blogs at www.RickAndrade.com and can be reached at rickandrade@earthlink.net

Featured Image Credit: https://www.flickr.com/photos/timetrax/376143268/

2 comments
  1. Rickandrade

    Rickandrade

    January 18, 2012 at 7:24 pm

    As the author of this article let me add that as reports of logistics and operational costs continued to climb in 2011 for US-based companies that produce products offshore and import back into the US, CEOs will need to reconsider and come to respect their corporate DNA as the new value driver that identifies more competitive ways to grow profitably in the USA. In other words, what works for innovative internet service companies can work for old-school American manufacturers given they advance quickly from a workforce physically together but intellectually separated — into a more cohesive team of innovators at every level, both intellectually adaptive and physically skilled. My clients recognize this today as their ‘trouble’ finding the ‘right’ skilled workers here in America, and collectively blame our American education system as being behind the demand curve. Maybe. But if outsourcing costs continue to make looking inward a potentially profitable kumbaya, we may just in fact see soon a time where education and skilled talent demand do meet up, and together provide a new Renaissance of the American Worker.
    Rick 

    Reply
  2. Payton_vege

    February 24, 2012 at 2:35 am

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    Reply

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