- Owner - You have to fix the business because it’s a mess: the revenue disappeared from my hands within a few months…
- Me - What percentage of revenue is generated by your new products?
- Owner - What new products… we sell the same thing for 20 years!
- Me - Then you’re in a very safe spot…
Business failures happen suddenly: they don’t give warnings, there are no early hints. Everything ends at once.
The process is so stable and standardized that it follows precise rules that can be predicted with a wide lead time.
THE 5 SIGNS OF FAILURE
The strategic support we provide to many companies, and the careful analysis of case studies around the world, have made it possible to catalog the main causes of failures.
The 5 signs are:
1) Day-to-day management of constant emergencies
If every day you solve problems, your eyes will always be looking downward. It’s like driving while looking only a few inches past the hood: crashing into a wall will be inevitable.
This endless loop doesn’t leave room to innovate—or, more simply, to think.
2) Lack of a process to develop the future
Jeff Bezos plans today what the Amazon group will do in 3 years. Many entrepreneurs, instead, are moving the goods from one truck to another. A limited vision doesn’t allow innovation in their business model: this leads to potential revenue today, but certainly not tomorrow.
3) Relying on vanity metrics
Vanity metrics are nice—for example, revenue—but they’re shallow: useful for the status quo battle among entrepreneurs (a fight over prestige), but useless for the company’s longevity.
Vanity metrics, like sales and revenue, cancel themselves out in just a few months as soon as the product/service life cycle is running out, even though they may have been great just a short time before.
The sudden decline leaves everyone stunned. However, other indicators had already signaled the problem for a long time, but generally they’re neither measured nor considered.
4) Deteriorated company climate
If there are 2 fronts inside the company (operations versus everyone else), the company has probably entered its third phase, meaning the final stage of decline. Recovering in this phase is often very difficult, if not impossible.
The signs are many: quiet quitting, unions, strikes, no developed improvement ideas, poor communication, low regard for leadership, etc.
5) Decreasing cash flow
Very often, revenue increases while cash flow decreases (or even turns negative). Then you could also look at margin and ROI, but by then you would already have all the numbers you need to identify that there’s a problem.
Measure your cash flow and if you see a continuous decline for at least 1 year, then the company has entered its decline phase.
SOLUTION
The only hands-off solution key to the business to ensure the longevity of your company is the use of an Excellence Model as the Socrates Program®. By creating specific processes (if they don’t exist) and aligning the existing ones with the best practices of the best business management in the world, you can:
1) Orient the entire organization toward the market
Your company survives if it is synchronized with the market—meaning with customers. It may seem obvious, but many companies still work in push, while the correct logic is the pull.
Alignment of process, people, and objectives makes it possible to always focus resources in the right direction and avoid wasted effort.
2) Ensure long-term profitability
A simple, tested, standardized, and consolidated system for measuring business profitability makes it possible to set up a governance process that is easy and accessible to any company, of any size.
You don’t need 2000 KPIs: just 4 economic-financial indicators and the 4 related operational indicators that influence them.
3) Continuously innovate the product/service and internal processes
The long-term survival of any company depends exclusively on its innovation process for the business model. Important note: innovation is NOT technological, and you don’t need capital to invest—as is instead constantly being promoted every day through various communication channels.
Innovation focuses on improving the value proposition and all the other aspects of the business model.
Continuous innovation makes it possible to maintain stable revenue over the long term and keep it renewed, without stagnation or surprises.
CONCLUSION
The economic fabric is severely weakened, and forecasts point to a sharp increase in business failures. It’s our (and your) responsibility to prevent this economic decline.
Act as soon as possible to improve your company, to prevent disaster and ensure well-being for your family, your employees, and for the entire country.