How to Turnaround a Business & Prevent The Business Closing Down

Major Points of the Article

• 97% of Australian businesses fail

• The are many indicators that let us know we need to turnaround a business.

• Even with some growth, changes in the market could force a business to close down.

• There are 13 potential growth barriers that are affecting your business.

• A transformative turnaround strategy could save your business.

Every year thousands of businesses shut down because they were not sustainable. New and old, more than 97% of Australian businesses fail. This is to be expected in new businesses as they generally lack assets, brand history, capital, and backing, but we should not expect this in older businesses as they are more established. However, we do see this in older businesses because as the years move on the business starts to slip backwards to a point where it requires a transformative turnaround strategy.

Why Do I Need A Transformative Turnaround Strategy

Before we get into how, we first have to establish if the business requires a transformative turnaround strategy. Some indicators might be

• the annual financial growth rate has gone backwards, plateaued or slowed

• your best workers are leaving for another or better job

• sales volumes are decreasing

• you are losing market share

• the supply of your accessible products/components is decreasing

• you are losing customers

• your competitors provide the product or service faster than you

If any of these indicators have arisen for you, then you need a transformative turnaround strategy, because if it continues for too long you will face the business closing down.

What Could Be Creating These Business Growth Barriers

When we consider why a business needs a turnaround strategy we have to consider the elements within it that are inhibiting its growth. This can be any of the 12 factors or more listed below.

1. Lack of a Sustainable Business Model - The only way to grow a business without relying on raising capital from investors or borrowing capital is to have a sustainable business model. One that generates enough cash to fund its continued growth. Let's consider the example of a stationary supply company such as Officeworks. At Officeworks, they sell a lined A4 notebook for $8.95 (at the time of writing this). That means all of their supply costs, warehousing, staffing, utilities, marketing, and more has to be less than the $8.95 to make a profit. But by how much? And what should they do with those retained earnings? How do they encourage the customer to make a repeat purchase or buy additional products?

2. Misread Market Dynamics - Is the market ready to buy, does it exist, or even is it too small to make a profit? Every business needs to acquire new customers or clients while retaining existing ones because that's how a business makes money.

A good example of misread market dynamics is Frito-Lay's Cheetos flavoured lip balm. Competing against Chapstick, Blistex and more, consumers expected flavours of cherry, mint, vanilla and alike, not cheese. So while the lip balm market did exist, the cheese flavoured lip balm market did not. Essentially the consumers went ewww instead of the company's expectation of "Oh that looks great, I'll buy that".

3. Weak or unclear Value Proposition/Brand Promise - Why should the consumer buy your product or service over your competitors? What problem do you solve that the consumer is having? Once these are answered they affect the business strategy, pricing, positioning, sales strategy, and messaging.

Most businesses that have this problem usually say "we are the best", "we provide the best price", or "we have exceptional customer service". While these are all good to have within a business the consumer does not value these high enough in regards to their route problem. For example a fitness brand; "we can help you lose weight" is weaker than "we can help you lose weight for your wedding in 90 days".

4. Weak or Unclear Positioning - Is this product or service high-end or low-end? Essentially, the same product can position itself with a high price or low price with the perception being high quality or low quality. In this situation the costs are the same, however, it greatly affects the customer adoption and profit margin. Having strong positioning helps your business to grow (also consider our white wings article on quality features and how that affects profit margins).

Where are you on a Positioning Perceptual Map and where are your competitors?

5. Lack of an Effective Growth Strategy - Who you are targeting is critical to business growth and if the business is targeting the wrong market or the market doesn't understand the offer, this could be why you need a business turnaround strategy or worse your business is closing down. This is a common problem we see as most businesses have trouble pre-qualifying prospects that are ready and happy to buy.

6. Dysfunctional Team Dynamics - A cohesive team can achieve more than a disjointed team that does not understand the end goals, what they are selling, what the consumer wants, and more. Adding to this, the cohesive team can help the business become more efficient if a learning environment is encouraged too. In turn, a more efficient business means a shorter sales cycle, fewer costs, and faster growth.

7. Insufficient Pipeline - What is your end of year revenue target? How far along are you in that target and how many qualified leads will that require to get you there?

8. Ineffective Sales Process or Sales Productivity - This follows on from the insufficient pipeline as once the lead has come through, how effective is that process or sales team at converting that lead? And how quickly can they do it? In other words, if your business receives 1000 leads what percentage of that turns into sales and how quickly can they be processed. Optimally a high sales conversion rate with a short time frame to purchase is the goal.

9. Poor Cash Flow - This is separate to profit margins as poor cash flow is when the incoming cash flow is insufficient to meet the outgoing cash flow needs of your business. This ultimately leads to stressed businesses that have trouble paying their monthly costs and start to cut them such as reducing staff, reducing advertising spend, and more. With this growth barrier, the business can spiral out of control as it suffocates the operational viability of the business (i.e. this can lead to the business closing down).

What we also see with this growth barrier is the capital availability is strangled, meaning the business starts to tap into its retained earnings. Over time the banked cash/retained earnings dwindle away to nothing leaving no rainy day account or worse the business has a huge debt. Fortunately, it can recover with the right advice, changes and updates, but needs to be done before it's too late (i.e. insolvent).

10. The Lack of Transformation to Meet Customer Behaviour - The customer that exists today is very different to 20 years, 10 years, 1 year, 1 month ago as we have the internet that informs us of product/service alternatives that could be cheaper, faster, better, etc... The customer is the expert and the business needs to become their "first choice" in order to grow.

If the customer is not satisfied then there will be no repeat purchase, no referrals to other prospects, and no feedback to guide improvements.

11. Scaling and Delegation Issues - $1m to $10m, $10m to $100m, $100m to $1b, they all have the same issues of scaling and delegation that prevents growth. When scaling a business if a particular process is manually performed by an employee then it has a time and throughput limitation (e.g. 40hrs a week and possibly it takes 2hrs to complete the process). Whereas if it can be automated there is no time limitation or throughput limitation as it can operate 24/7 and the automation can process tasks simultaneously. Additionally, the automated process is very likely to be cheap in comparison to a full waged staff member, saving on costs.

12. Poor Infrastructure/Systems - Similarly to above, an infrastructure that is clunky (bottlenecks a particular steps) or over-processed (too many steps), creates too much complexity and inhibits growth. Simplifying, the HR structure, training, sales processes and more through removing steps or implementing automation can have a dramatic improvement on the business.

13. Industry Shrinkage - The world's demand for certain products and services goes up and down. You might need to consider if there is still a demand for what you are offering and if not what can you do. Sell? Pivot? Create a new venture? But in doing so, you will need to determine the value of your assets and what they can be used for. These assets can be tangible: machinery, property, stock or intangible: email lists, people, intellectual property. The point here is to be prepared.

SO NOW WE HAVE IDENTIFIED WHAT COULD BE WRONG... WHAT NEXT?

The next part to prevent the business closing down is to determine precisely which ones out of the 12 is the problem, how many are the problem, and how to address them. They each require a different way of tackling them and some will take longer to correct than others. The point here is speed... The faster they can be corrected the quicker you will start to see returns.

In going through this transformative process, we highly recommend bringing in an expert who can determine these problems for you as they are "fresh eyes" that will see the business differently and prevent myopic thinking. Myopic thinking is when one is too involved to see the true picture and it is common in leaders, CEOs, General Managers and Managing Directors who are experiencing high levels of stress. Even if you don't feel stressed, an external business strategist could bring cross-industry experience that is new to your market and accelerates your growth. They will also be up to date with the latest trends, technology, and markets to aid in the transformation speed.

Within Paradelta Strategy, we provide a tailored business growth strategy to accelerate your business growth or turnaround a business within a year. As part of this strategy, we can also determine viable new ventures that you can create by leveraging current assets. We complement this business growth strategy with our business growth services; we assist with the implementation to guarantee success. To get assistance with your business, simply email us at hello@paradeltastrategy.com.au or schedule a no-obligation discovery call here.