Enterprise Life Cycle - Managing The Downturn
Managing an enterprise life cycle especially the downturn is a difficult journey. The difficulty level depends on the severity of problems plaguing the enterprise. If the entrepreneur fails to successfully manage this particular life cycle phase, the enterprise will die a natural death and the only recourse is to file for bankruptcy to secure a reprieve from creditors and suppliers.
The entrepreneur has to decide and act on two nagging questions as it goes through the downturn. First, should the entrepreneur increase business volume? Second, should the entrepreneur reduce business volume and costs?
The entrepreneur has to decide and act on two nagging questions as it goes through the downturn. First, should the entrepreneur increase business volume? Second, should the entrepreneur reduce business volume and costs?
Decision making is like a fork in the road with the entrepreneur deciding on which road to take in the fork. Decision making also involves instinct. Humans and animals alike react in two ways when faced with danger - fight or flight. But before taking a particular road the entrepreneur should consider many things. Regarding fight or flight, it will depend entirely on which instinct will prevail in the entrepreneur's mind while considering options as the enterprise goes through the downturn.
In increasing business volume, the entrepreneur should try to find out if volume increase can be financed from other sources and if it can turn-around the enterprise and give a new lease on life.
Bad publicity and image will naturally come along with a downturn. The enterprise will be suffering from a lack of credibility with creditors and business partners. In this case, the enterprise partners must be constantly updated with improvements that are being done to turn-around the enterprise. Any programs on re-imaging, restructuring, re-engineering, etc. should be communicated and small success should be resonated through the enterprise communications channels with its partners and customers. Effective public relations should be done to minimize the bad publicity and improve perception towards the enterprise. The enterprise's public relations is not only limited to outside partners but to the employees as well.
The enterprise during the downturn phase will find it very difficult to source new funds from existing creditors and new creditors. The negative financial position will be the primary drawback of attempts to secure fresh financing. The remaining credibility of the entrepreneur should be preserved to entice the creditors to fund the enterprise again or the entrepreneur should be able to come up with a very strong business turnaround plan, otherwise, the only available option left for the entrepreneur is to find a white knight or angel investor to bail-out the enterprise.
While the turn-around program is in play the entrepreneur should keep a close tab on a host of important matters crucial for the enterprise's survival - the operating expenses and debt servicing. Monitoring and improvement of the enterprise cash conversion cycle. Preservation of remaining working capital by reducing losses in its business process, expenditures on operations, and capital. Examining contribution margins per product, area, customers, and deciding on whether to discontinue unprofitable products or services. Lastly, the entrepreneur can ask the creditors for a restructuring of its debt so that it can function properly.
An entrepreneur should hire a consultant whose expertise revolves around effecting a turn-around of enterprises that are in the downturn phase. A consultant on marketing and sales would be inadequate to answer critical actions on other facets of the enterprise that would require a holistic approach. The consultant would prove valuable because of the infusion of ideas and the consultant would also serve as an alter-ego while going through the motions of improving the enterprise. It is also highly likely that the entrepreneur's mindset should be re-directed by the consultant. The entrepreneur should be open to recommendations and not be bull-headed about the changes.
The increased volume will also result in increased sales and costs at the same time. The trick here is to increase the volume and reduce cost as much as possible. But if the volume will only result in further loss and cost, it would prove fatal for the enterprise.
Critical questions should be asked before taking the increase in volume path like - Was there a market shift to another emerging product or alternative, or competition? Are consumers of the enterprise product or service still interested? Did price and quality drove away customers and was capitalized by competitors? These are serious questions that should be answered fast. Each question answered should be addressed with a specific response and immediately effect cost-cutting measures, while addressing the identified concerns.
Bad publicity and image will naturally come along with a downturn. The enterprise will be suffering from a lack of credibility with creditors and business partners. In this case, the enterprise partners must be constantly updated with improvements that are being done to turn-around the enterprise. Any programs on re-imaging, restructuring, re-engineering, etc. should be communicated and small success should be resonated through the enterprise communications channels with its partners and customers. Effective public relations should be done to minimize the bad publicity and improve perception towards the enterprise. The enterprise's public relations is not only limited to outside partners but to the employees as well.
The enterprise during the downturn phase will find it very difficult to source new funds from existing creditors and new creditors. The negative financial position will be the primary drawback of attempts to secure fresh financing. The remaining credibility of the entrepreneur should be preserved to entice the creditors to fund the enterprise again or the entrepreneur should be able to come up with a very strong business turnaround plan, otherwise, the only available option left for the entrepreneur is to find a white knight or angel investor to bail-out the enterprise.
While the turn-around program is in play the entrepreneur should keep a close tab on a host of important matters crucial for the enterprise's survival - the operating expenses and debt servicing. Monitoring and improvement of the enterprise cash conversion cycle. Preservation of remaining working capital by reducing losses in its business process, expenditures on operations, and capital. Examining contribution margins per product, area, customers, and deciding on whether to discontinue unprofitable products or services. Lastly, the entrepreneur can ask the creditors for a restructuring of its debt so that it can function properly.
An entrepreneur should hire a consultant whose expertise revolves around effecting a turn-around of enterprises that are in the downturn phase. A consultant on marketing and sales would be inadequate to answer critical actions on other facets of the enterprise that would require a holistic approach. The consultant would prove valuable because of the infusion of ideas and the consultant would also serve as an alter-ego while going through the motions of improving the enterprise. It is also highly likely that the entrepreneur's mindset should be re-directed by the consultant. The entrepreneur should be open to recommendations and not be bull-headed about the changes.
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