Not all startups are created equal and most, often than not, fail rather than have outstanding success.
The serious founder experiencing trouble and fearing ruin may bring in a seasoned professional to clean up the structure of the company and turn around the failing business by bringing the P&L into line.
I usually work with the CEO to determine the problems. What is the root cause of the trouble in the business?Someone has to know. Rather than ask why is the business not making money the question is why people are not buying the product or service. There are lots of obvious reason including it costs too much to produce, it’s too expensive to buy, not wanted or needed, or the volume is not enough to support the operation. They are all considerations.
Most may immediately assume that a business fails because of lack of funds. Sure, access to enough funds to run the company correctly will result in employees and suppliers leaving and early investors feeling overwhelmed as the company tries to grow.
I tend to think that many of the problems with the company can be found in the management of the company. Whether it’s poor management skills, inexperience or even nepotism there’s many reasons why a turnaround specialist, coach or management consultant will look at trimming the workforce. All things being equal it’s a good place to start.
I consulted with a company that with a great idea had leveraged money to make a real go of the start-up. The inexperienced CEO felt he needed to surround himself with powerful leaders at the top of their game. His thinking was by putting all of his money into talent he would be on the road to a fantastic success.
He had hired top heavy, spending too much money on the talent leaving nothing for expansion. He also forgot that the talent had expectations, their own vision of what their job was and without challenges they were soon bored.
He took a possibly supercharged company to a point where the business could not deliver and soon the high priced talent left because the company couldn’t manage the burn rate.
When governments are changed they automatically replace all the appointed positions in the upper echelons so they can begin their management of the government with a fresh approach and new ideas. It’s simply a matter of a new vision; a new direction and everyone being on the same page.
It was never clearer when President Trump took over that many positions in cabinet and the civil service needed to be replaced to reflect his inimitable style. Of course, the comparison to governments is an obvious one to illustrate how management needs to manage employees to be on the same wavelength as the leader. It’s not so clear in business.
If the company has any principles they will look at the leadership first. Does the CEO need to step down? Often it’s a matter of the CEO reaching his level of incompetence and being unwilling to replace himself at the helm for someone more experienced.
One of the things an outsider needs to find out is who are the real knowledge based employees in the organization – the ones that shouldn’t be replaced. These people are usually the quiet ones who do their job well and rarely make waves. They are committed to the start-up for more than a job. They see all evils, know the solutions but keep it to themselves. Unfortunately they know their place.
I’ve also seen a scenario where the key people left the struggling company over a couple of months and their exit was obviously based on their lack of faith in the CEO and the future of the company. What I wouldn’t give to go after those former employees, do a complete exit interview and then offer them their jobs back with added responsibilities and benefits.
I’ve recently analysed a large company that had fabulous food developed by a world class chef, presented by outstanding wait staff that was falling flat by untalented and poorly trained hosting staff that seemed to be still in high school – Seriously?
I’m reminded of Planet Hollywood, a company that had it all, celebrity owners, a cool décor and ok food. It debuted in 1991 but by 1998 had recorded $244 million in losses. It came down to talented people and lots of capital with terrible management skills.
Quite often a company suffers a downturn for a variety and multitude of reasons. A reduction in workforce in the non-performing areas is a start but a careful analysis of the issues will give you the best formula to turnaround a business.
Gary is CEO of Bizzo Management Group Inc. in Vancouver. He has mentored over 1000 business leaders, investors and entrepreneurs. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018.