Your business is already in trouble, you just haven’t noticed it yet

It’s always astonishing in hindsight, looking at a business that got itself into deep, dark, trouble, how many warning signs there were.

‘Tis the season, it seems for the retail apocalypse to shutter once-beloved brands and end old traditions forever.  Bankruptcies hit their highest rate in a decade and experts are warning that we are far from bottoming out.  Ann Taylor, Brooks Brothers, Lord and Taylor, Neiman Marcus and Sur La Table all ran out of money in 2020.  While it might be convenient to blame the pandemic, these businesses were already struggling, having missed major inflection points in consumer preference, shopping habits and changing cost structures.   Retail, though is just a microcosm of a larger phenomenon, in which early warnings of a fading competitive advantage are not heeded.  

Many of the difficulties facing these organizations and their leadership teams could have been anticipated, given a number of straightforward early warning signs that are clear signals that things are potentially taking a turn for the worse.  Here’s a handy checklist.  

I don’t buy my own company’s products or services

In an ideal world, employees are the most enthusiastic ambassadors for a company’s brand. So if they aren’t literally bought in, that’s an early warning that something about the “job” they want to get done isn’t happening at your organization.  It’s even worse if your people are hiding the fact that competitors are doing a better job than you are, because that can create a real blind spot.  

We are investing at the same levels or even more and not getting margins or growth in return

It’s been called “escalation of commitment to a failing course of action” and it’s very human.  Even when the evidence suggests otherwise, we continue to invest time and resources into a business that is flat-lining or even going into decline.  

Customers are finding cheaper or simpler solutions that are “good enough”

It is incredibly common in business to overshoot what customers really need – to put too much tech, too many features, too much ‘stuff’ into your offerings and expect customers to pay more.  At some point, they stop being interested in more of the same.  That’s one reason why Dollar Shave Club’s hilarious on-line ad went viral – “stop paying for shave tech you don’t need” struck a real chord.  

Competition is emerging from places we didn’t expect

A trap of thinking of your competition in terms of industry is that it can create blind spots about ‘competitors’ who emerge from places you weren’t paying attention to. Pity, for instance, the makers of digital cameras and video recorders who got sideswiped by the smartphone revolution.

Customers are no longer excited about what we have to offer

Customers can be a pain – what was once an exciting shiny new object eventually becomes taken for granted, something all competitors in a field need to offer.   Or new technologies offer up a better solution – for instance, streaming content has replaced content stored on physical devices like CD’s and DVD’s for many users, though not all!

We are not considered a top place to work by the people we would like to hire

The reality is that top talent is smart enough to go where they feel the best opportunities are, and will shun places that they feel are a waste of time.  This is one reason why companies so often fail to attract the talent they would like, and are confused as to the best way to get those people in the door.

Some of our very best people are leaving

This is a major red flag that things are not progressing in a positive way! While its inevitable that there will be some churn if your organization is going through a major change, if you’re losing the people you were counting on to get you through it, that’s dangerous.

Our stock is perpetually undervalued

Any publicly traded company can go through bad patches, particularly in the midst of a wrenching change or reorganization.  But if this goes on for quarter after quarter, year after year, it doesn’t take a genius to recognize that investors will eventually run out of patience.  Our concept of the Imagination Premium is a useful idea here.

Our technical people (scientists and engineers, for instance) are predicting that a new technology will change our business

In a sad irony, most of the time when a business is facing an existential shift – an inflection point – people within the company clearly understood what the challenge would bring. Unfortunately, they are often not party to significant strategic decisions and their warnings go un-heeded.      

We are not being targeted by headhunters for talent

Ironically, when headhunters are circling your organization to try to poach talent, that is a good thing.  It’s an even better thing if they are not successful!

The growth trajectory has slowed or reversed

Slowing growth is often a harbinger of long-term problems.  Buffalo Wild Wings, for instance, experienced an activist investor, competition for Board representation and an eventual “hail Mary” sale as a consequence of consumers cutting back on visits to the fast food outlet.

Very few innovations have made it successfully to market in the last two years

This issue is one of the dirty little secrets of being very successful.  In light of high performance in the base business, it can be all too easy for new businesses to be starved of oxygen and never see the light of day.  Nokia’s prescient invention of a device very like today’s table computers is a cautionary tale – risk averse senior management didn’t see the need to commercialize it.    

The company is cutting back on benefits or pushing more risk to employees

This is often a sign that company leaders are starting to get concerned about cash flow or long-term expenses.  It’s a sure way to get tossed off the various “best companies to work for” lists, and indicates that company management has elected to focus on matters other than their people – which is often an early warning of problems to come.

Management is denying the importance of potential bad news

Richard Tedlow, a business historian, defines denial as “the unwillingness to see or admit a truth that ought to be apparent and is in fact apparent to many others."  In his book, Denial, Tedlow cites many examples of leadership reluctance to face the truth, including Henry Ford’s insistence that customers wouldn’t be interested in cars colored other than black.

What next?

The more of these indicators you see, the more likely it is that your business is on the cusp or well into the erosion phase of a competitive advantage.   This is a signal that you need to stop whatever you’re doing and take a hard-nosed look at the health of your business.  By the time the trouble is obvious to everyone, the inflection point has passed and it’s too late.

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