Young Upstarts

All about entrepreneurship, intrapreneurship, ideas, innovation, and small business.

What A Failing Business Looks Like

Crown_factory_tour

by Robert Bethel, author of “Strengthen Your Business: Fail-Proof Strategies from the Man Who Has Rescued 77 Businesses

One company I took over was a large manufacturing facility. The company was seven years old, had over one hundred employees, and produced about fifteen products.

It was also $6 million in debt. The two men who owned it had never made a profit. When I walked into the facility for the first time, it was like you could smell failure in the air. Every employee I walked past looked scared and beaten down. Their demeanors reflected the tension and anxiety that permeates most failing businesses. The few I talked to had a general sense the business was struggling, but none of them knew just how bad things had gotten.

Welding was the primary focus of this manufacturing facility. I signed on, because I had owned a world-class engineering company. My company had once produced 3,000 miles of weld without a defect while working on the manufacturing of nuclear reactors and nuclear steam generators for the nuclear division of Westinghouse Electric. Coming into this company, I knew what proper welding looked like. We worked for Westinghouse for seven years and quickly learned perfection is required in the nuclear industry.

The minute I stepped foot in the welding shop, I knew none of the welders had been properly trained. Their collective performance was poor and indicated to me they’d learned on the job. Something as simple as the gas coverage of the welding process was all screwed up. Rather than setting the gas level correctly, which is essential for a good weld, every welding station had the gas wide open. I got in touch with a welding expert I’d worked with before, and he immediately trained them.

A lack of proper training is a hallmark of failing businesses. Where there should be precision, you find a disorganized mess. The welding shop was just the first example in this facility.

After visiting the welding shop, I walked into the bookkeeping office and asked to see the pricing book. When I opened the three-inch thick binder the bookkeeper handed me, my jaw nearly hit the floor. The couple hundred customers in that book each had their own price list! I took that binder straight into the office of the owner in charge of sales and asked him to explain this madness. His response blew my mind:

“Well, we all know you’ve got to beat your competition.” As he explained it, the company’s sales strategy was to meet with business owners who were buying from our competitors, find out what they paid for the products our facility sold, and undercut the prices the competition was charging. Now I understood why every customer had their own price list. I did some back-of-the-napkin accounting as I sat there and realized they were losing money on 75% of their sales. The owner who worked offsite had no idea

pricing was being handled this way. Both owners loved to beat their chests about gross sales but were stumped as to why they kept losing money. When I explained they were essentially selling $5 bills for $4, their confusion ended, and I eliminated their wacky pricing strategy.

What I found in that facility reinforced the notion failing businesses are rarely profit-minded. The owners I purchased the facility from had no grasp of accounting or sales strategy. Their collective ignorance started the company down a path that sounded smart but pushed them toward bankruptcy. They didn’t run the business off the cliff on purpose; they just didn’t know any better.

Most failing businesses are the same way. The next rock I turned over in the facility revealed another staple of failure: dysfunction. At the first meeting I called, I told the staff I would now be signing off on all purchases. Yet, when I walked past the purchase manager’s office an hour later, I overheard him discussing shipment of $300,000 worth of steel he’d just purchased.

It was all I could do to keep from yelling. I calmly asked him if he understood what I said in the meeting about wanting to sign off on all purchases. A red tinge crept across his face as he explained, “I thought you were talking about office supplies.”

My favorite part of his explanation came when he told me he bought $300,000 worth of steel instead of a smaller amount, because buying that much was easier for the tow motor drivers to unload. If I hadn’t been so angry, I’d have laughed. God bless him, the man’s heart was in the right place. His brain? Not so much.

I’d taken over a broke company, whose employees spent $300,000 without approval on more steel than we needed for the next three weeks, yet couldn’t buy purchase order books without approval from the owner’s wife who managed office supplies. I don’t say this to make fun of anybody, but rather to show you why businesses suffer. When owners are out of touch with reality, employees are kept in the dark, and the entire operation is riddled with inefficiencies and dysfunction—the business is headed for disaster.

Don’t let arrogance submarine your company’s growth. I thought my automobile dealership was going to stay in business forever, then a recession hit, which I was unprepared to deal with, and I lost everything. Things turn on a dime in the business world. If you want to safeguard against failure, keep an open mind to the strategies we’re discussing. I didn’t sit down to write a book after five years and a few successful turnarounds. I’ve been at this for five decades and have learned through trial and error across multiple industries what works and what doesn’t.

* excerpted from “Strengthen Your Business: Fail-Proof Strategies from the Man Who Has Rescued 77 Businesses

 

robert bethel

Author of “Strengthen Your Business: Fail-Proof Strategies from the Man Who Has Rescued 77 Businesses“, Robert Thomas Bethel is the orchestrator of seventy-seven business turnarounds over the past fifty years. Early successes and troubles in his own professional career inspired his passion for taking over struggling businesses and guiding them towards the road of profitability. Bethel has turned around companies in various industries — from restaurant chains to engineering firms — and has helped save over ten thousand jobs as a result of his strategic business counsel.


This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.

Tagged as: , ,