Business turnaround: 3 steps to success
Let’s set the scene. Perhaps the management team has executed the business plan but not with enough rigour. Maybe a couple of executives look a bit weak. Perhaps board meetings have become repetitive – too focused on why the business didn’t deliver last month.
Malaise has started to creep in. So you are looking for advice on what to do when your business is failing, and on turnaround management.
Here are three key business turnaround strategy steps that you should take.
1. Diagnose the problem
Diagnosing the problem is essential in business turnaround strategy. This will determine the approach you take to fix it.
Why do businesses fail? Market conditions are rarely the problem – although, in this age of digital disruption, they are to blame more than they used to be.
More often, poor execution of the business plan is the cause. Is your business clear about its proposition to customers? Does it execute its plans well? Is it trying to do too much?
In some cases, often where a business has been stalled for a long time, its financing structure can affect its performance. Perhaps arrangements between investors and management are not well-designed. Then the management team can find itself short of money on a regular basis, regardless of how well it performs.
Case in point: The Works
Ten years ago discount retailer The Works was in administration. But this summer it was listed on the London Stock Exchange with a valuation of £100m. How did it make this happen?
The business and its main investor, business turnaround specialist Endless, realised that The Works was suffering by limiting its offer to selling discounted books. Today it has broadened its range and also sells other discounted products, including stationery, art materials, and gifts.
2. Engage the people leading the business
The second of the key business turnaround strategy steps is to seek change from the business’s key people.
This doesn’t necessarily mean bringing in new people. But it does mean bringing in new thinking. A stalled situation needs fresh perspectives – from the management team, investors, or non-executive directors.
Don’t worry if there are disagreements at this stage. Nothing will change if there is no creative tension. Disagreement is a natural part of the process of finding solutions when you’re turning a failing business around. In fact, if you are in a boardroom full of people agreeing with each other, expect to see the problems in the business continue.
The key thing is to create a case for change. Then the whole management team needs to fully buy in to the need for change – or move on from the business.
Case in point: Aspen Pumps
When Aspen Pumps, an air conditioning and refrigerator component business, was backed by private equity firm Inflexion, its founder agreed to a big change. He agreed to pass over management duties to a new chair and chief executive.
He then spent more time on product development. The business went on to create hugely successful “Internet-of-things”-enabled pumps that automatically report faults to engineers. These helped spur double-digit growth in the business’s value.
3. Make a decision and implement it
Take a decision about what to do. If you know what the problem is and what to change to fix it, be brave and explain this to all stakeholders. And once a decision has been made, don’t delay in executing it.
When you put your decision into action, prioritisation is important. Choose the three or four steps that will have the biggest impact and focus all your effort on these.
Rigour is also important. You and your team will need to put energy into the process. Measure your progress daily and weekly. This will create momentum and motivate people.
Finally, make sure the transformation is sustainable. Otherwise, the business will eventually stall again.
Case in point: Gaucho
High-end steak restaurant group Gaucho went into administration recently. The main cause of its troubles was clear: its more affordable spin-out Cau. Issues including poor branding and high costs meant Cau had become a burden on the rest of the group.
It’s not easy to close a restaurant chain that employs hundreds of people and serves thousands of customers. Nonetheless, Gaucho and its administrators shut Cau quickly. This gives the healthier parts of the business the best chance of recovery.
Come to Real Deals Mid-Market 2019 to find out more about turning around a failing business.