Why Mature Companies "Fail"?
Hundred’s of articles have been written regarding why small businesses fail:
Lack of cash
Wrong business model
Lack of talent
No experience, etc.
Very little is written about why mature, middle-size companies “fail”. In a capitalistic environment and for purposes of this post, my definition of “failure” is when a company can’t seem to find the next growth curve; or is stuck in a mature cycle; or it cannot transform itself due to lack of technological advances; or simply when the owners have become complacent with the current returns.Why does this happen? 1. The business has outgrown the leader
Visualize this common scenario, the company has gone through a rapid initial growth stage, it has beaten the odds of real failure during the first 5 years and now is in its 15th year making decent money and the owner has lost its passion for the business. In this case, a new leader is needed to revamp the business and ignite the creative thoughts within the company. Another common scenario, the young entrepreneur with a new idea starts the company out of his/her garage, then raises several million dollars through external sources and now after 3 years he is facing the everyday challenges of running a $20 million company with 100 employees. In this situation the CEO hasn’t had enough time at the helm to learn what does it take to manage a company this size.
In both of these scenarios and many others, it is the responsibility of the owner/founder to understand their own limitations as the company grows and to accept that at some point in time the loss of passion or lack of experience will become a growth barrier.2. Customer Delivery Process is not properly managed
Every company in every industry has a customer delivery process, which is the combination of activities that the company has to do in order to deliver value to the customer. Another way to look at this process is the sum of the activities that directly touch the customer, and the activities that touch the products/services that customers receive.
In a restaurant, the customer delivery process includes buying ingredients, taking orders from customers, preparing meals and serving them. In a manufacturing environment, the company needs to buy raw materials, manufacture/assemble the widgets, market the widgets and sell them.
The larger the company, the more difficult is to manage the customer delivery process because it usually involves several departments, several owners, several goals and metrics. For a retail bank is very challenging to align the goals of the compliance department and the goals of the relationship manager at the branch. Over time, process miss-alignment generates inefficiencies such as, longer wait times, bad services, and price increases. This obviously translates in customer complaints, dissatisfaction, and eventually customer flight.
For instance, a customer delivery process for a doctor’s office starts with the reservation activities, the check-in, the actual doctor visit and the check out. How many times have you had to wait for hours in the waiting room? What if you find another office where the wait time is 5 minutes (everything else being equal)? Not surprising that in Florida we see hospitals advertising their wait time in the ER room as a way to differentiate themselves from other hospitals.3. What you don’t measure you don’t manage
This old saying is true more than ever. In today’s world there are technologies to measure and manage just about anything on real time. Inventory can be measured and managed real time anywhere in the world, wait times in an ER can be measured any day of the week, voice recognition allows you to manage customer service personnel, etc. See previous post on KPI.
Even more important is not being able to measure, customer success/satisfaction. In my personal experience, the two most important metrics for a restaurant is the quality of the food and the level of service relative to the price that you are paying for the experience. How many restaurants actually measure these two things? Do they measure satisfaction at every customer touch point, the hostess, the server, the food? Not surprising that restaurants have one of the largest failure rates than any other business.4. The business model is outdated
There are hundreds of examples of how companies that embraced technology to scale have crushed their brick and mortar competitors. An example close to my heart is the fine paper stationery business, which has suffered tremendously over the past 10 years with the introduction and proliferation of smart phones, tablets, and faster computers, the result: less people send letters, or cards every year. The amount of mail that is sent via post office has decreased consistently every year over the past 10 years (USPS). Those stationery companies that embraced technology early-on are going to be the winners in whatever is left of this industry few years from now, and unfortunately those that haven't changed their business model through innovation and technology as a way to scale and survive, will probably not be around more than 10 years from now. Another example is Blockbuster, they had the opportunity to partner with Netflix and they passed on that opportunity. Blockbuster went out of business a few years thereafter and today, Netflix is a $7 billion company.
Technology is not the only innovation that CEO's should consider in order to scale and revive growth. A $75 million company probably has a full team of experts at the "C" level (CFO, CMO, CTO, etc), but those companies in the $30 million range may not have the size to have those assets yet. Today, you can find consultants in everyone of these fields, surround yourself and invest today in order to remain a relevant player tomorrow.
Taking a mature company to the next level requires the right mixture of leadership, experience, desire and vision. This doesn’t mean that companies have to have the super founder/owner at the helm. It means that early-on before companies reach maturity, CEO's need to surround themselves with the best team that complements their experiences. To avoid "failure" and take a business to a new curve, means to reinvent your existing business model by having a scalable process with scalable people and technology.
Ricardo Lowe, B2B CFO Partner (954) 632 3939 ricardolowe@B2BCFO.com
About B2B CFO Founded in 1987, B2B CFO is the largest CFO and Exit Transition Services company in the nation. We have a nationwide presence with more than 225 CFO and Transition experts that serve privately-held companies. Contact Ricardo Lowe for a complimentary Discovery Analysis at (954) 632 3939 or via email at: ricardolowe@B2BCFO.com