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Like a
Phoenix…Corporate Resurrections
by Jit Agarwal |
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Management
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Over the past
several months NetMinds has been asked to engage with a number of different
companies looking for restructuring assistance. Several of these companies
perceived their dilemma as caused primarily by changes in the market demand for
their product or service brought about by the current economic downturn. Some
acknowledged weakness in their competitive positioning, or their ability to
effectively compete due to internal organizational issues. Others simply
recognized that their current business model did not correctly anticipate the
market need or level of demand for their particular offering. While each of
these situations were unique and most retained outside help, there are steps
which management should take, on their own, before retaining outside
consultants and embarking upon a restructuring of the firms' product or
marketing strategy. A critical internal review of the five core areas below can
go a long way in helping management help themselves.
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 Critically
Review the Market Need: Identifying a core market need and satisfying
it, is the mainstay of every business. Some organizations lose sight of this
fact as they proceed from their original concept to market with a product or
service that may not address the current market need. Refocusing on how well
your product and your delivery strategy meets this need across all the
organizational functions (Marketing, Development, Sales, Support, etc.) can
often expose flaws and help you to recover from a misstep in your business
plan. This review should include surveys of your target customers to solicit
consumer input. Always keep in mind the ultimate need to provide consumers with
a unique differentiating value. Another commonly overlooked issue is whether
your organization is providing an easy and satisfying experience for customers
when they are interacting with your organization. Finally, examine what other
related products and services your customers need that you may not be
providing. Your customers may have shifted in their need and you may not have
shifted with them.
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Evaluate the Product Mix: Companies often launch products to market
based on perceived need, or simply an ability to create the product. Unless
this capability is matched with a differentiating ability to deliver the
product more effectively, or at a lower cost, your business will fail to
attract customers away from alternate sources. If you examine your
product/service mix in the context of how consumers use such a product, you may
identify related offerings that could increase your organization's value to the
consumer. A shift in consumer's habits can portend a new trend in your sector
or industry that can present opportunities to evolve your offering to cater to
this new need. The predictive value of gauging customer trends, based on an
analysis of response to current offerings, is often the key to anticipating
future opportunity. Alternatively, one can drive down the cost structure of
existing products by bundling with related products or services and in the
process move customers up the value chain to a higher margin purchase. Finally,
consider if some or all of your products can be reconstituted into a new
offering that offers a hybrid value set that is a more powerful draw for
customers.
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Investigate the Competency of Your Management Team: A company's success
can often be directly linked to the core management team's ability to execute.
The reality is that success is rare if your company cannot readily adapt to the
rapidly changing business environment (who could have predicted Sept 11th?) As
one VC commented to me, "That's what they get the big bucks for, right?
" The fact of the matter is that effective management is crucial to any
business enterprise, which validates the focus by most successful investors on
the management team as the primary consideration when evaluating portfolio
prospects. If management is not capable of responding to changing market
conditions in a decisive and proactive fashion, even the most compelling
product strategy will not sustain the company over time. The difficulty in this
situation is that the individuals who are most in need of critical evaluation
are usually the ones doing the evaluation. The best insight I can offer from
having repeated this review process for many different companies is to look
first to your own employees for the answer. They will invariably have the best
perspective on the organization - and on what you are doing right or wrong.
Whether you want to hear them or not, and heed their insight, is entirely up to
you.
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Examine the Balance Sheet: Solid financial management is the lifeblood
of any company. In the era of Enron, paying close attention to this side of the
business is not only the responsibility of the officers of the company, but the
board as well (that includes VC representatives on the board). Experience shows
us that a company's financials will often behave like a compass, pointing
directly to the key problem areas. An upside-down balance sheet or financial
ratios that are off the chart for example, are ignored at your own peril. Cost
of goods and margin ratios are like beacons in the dark, guiding management to
a company's strengths - and highlighting areas to avoid or re-tool. If
pre-established performance metrics and financial benchmarks are consistently
applied and reviewed by management, significant variances can portend negative
trends in time to apply remedies. While the initial pain of corrections, such
as additional capitalization, headcount adjustments, terminating obsolete
products or reducing services may be uncomfortable, waiting for the problem to
correct itself often results in an irreparably damaged business.
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Assess the Competitive Landscape: The competition can often be your
friend, guiding you to re-evaluate your own business practices and processes.
That is an unorthodox point of view, but I have seen it succeed too many times
to deny it. Given the inherent challenges that emerging companies face:
untested business models, new product development, evolving market trends,
etc., gleaning information from the experience of your peers in the sector is
often the best source of market intelligence. Performing a complete competitive
landscape analysis can help you identify underserved market needs and predict
the impact of proposed changes to your company's business model. If there are
several larger players in your space, perhaps a pre-emptive merger or
acquisition is a viable strategy for growth - or simply survival. Many small
complimentary players may suggest a consolidation strategy. Finally, perhaps
the convergence of several related companies via strategic sourcing or
marketing partnerships can lead to a stronger ecosystem for all related
players. These strategies, which at face value may seem counter-intuitive or
contrary to the initial intent of the company's founders, should at least be
considered, as they have saved more than a few companies from certain demise.
Even if your
organization is not presently in need of total restructuring, a deep
introspection may lead to identifying some "tweaking" that will
improve your viability in the marketplace. For those facing a challenging
turnaround situation, give us a call.
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