TURNAROUNDS and EXPANSIONS
Turnarounds and expansions are special cases in the arena of business problem solving that require a structured approach to succeed. A turnaround is defined as either a marginally profitable business or one facing imminent failure. An expansion is defined as a business with market opportunities and the resources to exploit them. Oddly both a turnaround and an expansion involve the same activities organized in the same order to bring them to a fruitful conclusion. This is because an expansion in many cases becomes a turnaround when executed poorly and with inadequate planning. In broad terms the sequence of tasks to accomplish in both a turnaround and an expansion are:
- Assessing Existing Resources and Capabilities, and Solving the Cash Crisis
- Building Information Resources
- Maximizing Cash Flow and Productivity
- Setting Strategic Goals
- Refocusing the Marketing
- Addressing the Influence of Behavioral Issues on Decision Makers
- Establishing Long-term Financing
Why is this the optimal sequence for success? Because a turnaround or an expansion accomplished in the wrong sequence creates inefficiencies and will actually hasten the failure of the business.
Consider a business that is experiencing insufficient cash flow. It would be tempting to create an all out marketing effort to improve sales but without building sales, inventory, and information systems first, the manager has only burdened their existing, and probably inefficient systems, with more work.
This typically forces the hiring of new employees that would have been unnecessary if the existing personnel were trained on new and more efficient systems. Implementing major marketing efforts before creating systems, overburdens existing systems and causes additional expenses, and ultimately lower cash flow, the opposite of the intended effect.
Recession Recovery is the special case of a turnaround occurring while the economy is operating at an overall lower level. The recession beginning in 2008 saw many businesses experiencing a 30% to 40% decline in sales, placing them below breakeven and automatically in a turnaround situation. The same method outlined above has a high rate of success for recession recovery, with some of our clients returning to pre-recession sales levels within twelve months.
Our strategic method was created by Douglas Hammel and has been taught both nationally and internationally in his six hour workshop Turnarounds and Expansions: Proven Strategies for Business Growth and has been used successfully to assist clients since 1998.