Wayne Wilson on Companies in Transition

Finding Opportunity in Economic Adversity

The old saying about stock market volatility creating opportunity reminds me of a story from one of my law firm clients. During a steady economy, he complained about the lack of revenue growth at his firm. I ask, “How can that be when times are reasonably good?” His response, “We make our money during times of boom and bust, and we struggle in the middle. Boom times generate lots of capital raising activity and bust times result in workout and bankruptcy work.”

Opportunity indeed abounds when times get tough. For market leaders, tough times enable you to:

• Focus on key customers and associates – they are critical to your current success and will be less likely to desert you when the economy booms again.
• Consolidate your position – every company over-extends a bit when times are good. Now is the time to trim weak performing operations and consolidate overhead spending. Companies that move quickly will be better positioned than competitors who delay taking action.
• Stake out new territory for future growth – calculated bets now could well disadvantage competitors later. Invest aggressively for the future.

For market laggards, the handwriting is on the wall:

• Streamline operations while there is still time – many market watchers are predicting an extended period of economic difficulty.
• Recognize reality by re-tooling your business model – for many businesses, there is an opportunity to better match your products and services to current market conditions.
• Look for greener pastures – as competitors react to a slowing economy, the number of market spaces with under served customers will increase. Re-position your business now for future success.

Carpe deum (seize the day).

The Perfect is the Enemy of the Possible

Most of us are living dichotomies. For example, earlier in my career, I was often criticized for being a perfectionist. And yet, a valued colleague when pressed to offer a critique of my management style commented, “you often settle for less than you want.”

In more recent years, I have become a firm proponent of the 80/20 rule as in 80% of your revenue comes from 20% of your customers. Personal effort works the same way: 80% of your success will often result from only 20% of the things you do.

When it comes to perfection, the 80/20 rule translates into the just good enough rule. Your performance need not be perfect; it just needs to be good enough to make the sale, win the account, or accomplish your goal. Use the balance of your time and energy to expand your awareness of the possibilities available to you.

A hundred years ago, even the very best buggy whip manufacturers went out of business with the advent of the automobile.

Business is a Balancing Act

The average life of a business is often quite short; I have seen estimates ranging from 5 to 8 years for small businesses up to 15 - 20 years for larger companies in the S&P 500. 100+-year-old companies like GE are clearly in the minority. Why is that?

Fast Strategy, a new book by Yves Doz and Mikko Kosonen, offers a few clues:

• Today’s clear vision may become tomorrow’s tunnel vision – Vision is useful, even essential, but it may turn out to be a mirage: appealing to the eye but not grounded in reality.
• Proven leaders may become overconfident and resistant to new ideas – Lost wars frequently result from generals fighting the last war, whereas the enemy is constantly testing your defenses looking for vulnerabilities.
• Strong customer relationships may blind you to a coming market upheaval – In the stock market, one of the best ways to ensure a poor portfolio performance is to buy last year’s top performing companies.
• Clear targets closely linked to compensation may inhibit cooperation – People are really good at doing what they are incented to do.
• Robust business systems and processes become inflexible – So-called enterprise resource planning (ERP) systems are a great example: industrial strength in scale and efficiency, but very difficult to modify.

Successful owner/CEOs pro actively apply Schumpeter’s [i] creative destruction to their own businesses. They do not wait for competitors or other market forces to up end their companies.

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[i] Joseph Schumpeter, Capitalism, Socialism and Democracy, Routledge, 2006.

What are your odds of success?

Would be entrepreneurs frequently fail because they:

• Lack experience in their chosen business

• Underestimate the time (and money) it will take to become successful

• Speculate rather than research what customers might want

• Compete head to head with industry veterans

Successful owner/CEOs on the other hand:

• Play to their own strengths

• Carefully weigh the risks and calculate the costs

• Study their markets relentlessly

• Look for niches, which they can dominate

If you don’t like your odds, change your formula.

Copying Kinko’s

Stories about entrepreneurs overcoming great obstacles to achieve success offer useful role models as well as hope that you too may become successful. Paul Orfalea’s recent book [i] about the building of Kinko’s is a testament to the power of such stories.

Orfalea’s lessons could boost the fortunes of most owner/CEOs. They include:

1. Take care of your people – happy employees are more likely to produce satisfied customers. While Orfalea talks up employee benefit packages, other factors (flexibility, autonomy, incentive pay, etc.) may be more important to the success of your business. Figure out what your employees want and give it to them!
2. Don’t take yourself too seriously – this is a key corollary of lesson number 1. Businesses rarely succeed because of the efforts of one person. Success usually requires a team. Younger people especially shy away from stuffy or controlling environments. You as the owner/CEO must provide vision and direction, but don’t get carried away.
3. Make do with what you have – few people have all of the skills or resources necessary for success. But everyone has some unique talent or attribute on which to build or some handicap, which leads to outsized effort. Orfalea’s was hyperactive dyslexia. In a fight, you pick up whatever weapon (stick, rock, etc) is available. Business is no different.
   

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[i] Paul Orfalea, Copy This! Workman Publishing Company, 2007.

“Never mistake a clear view for a short distance.”

– Paul Saffo

Vision is a wonderful thing. It gives us purpose and life meaning. We are enthralled and energized by it. Which is fortunate because the path down the hill, through the valley and up the mountain to our goal is often winding, hidden, and sometimes treacherous.

Business transitions suffer from the same maladies. Things always seem to take twice as long and cost twice as much as you had thought they would.

Owner/CEOs of companies in transition can improve their odds of success by:

• Planning for extended delays

• Conserving cash or raising extra funding

• Practicing patience

Effective action requires a sense of urgency, but the results only come with patience.