Failure in business does not happen overnight and is usually preceded by a number of early warning signals and symptoms. If sufficient and timely attention is paid to these symptoms, instituting corrective mechanisms becomes much easier and the business would be in a much better position to deal with possible failure.
While the causes of business failure may be same, the impact and strategy to deal with the causes depends on the size of the company and scale of the business. A large business may be in a better position to deal with the causes of business failure, as it has the ability to lay off a large number of employees, access financing from banks or financial institutions, dispose of some of their assets to ease cash flows or downscale the operations.
In contrast, an enterprise in the SME sector may not have ability to lay-off a large number of employees or obtain access to lines of credit from banks or dispose of its assets.
Any business revival strategy has to consider the scale of business and what works for a large business need not necessarily work for a small business. Unlike a large business, a small business owner may not have the required bandwidth and expertise to manage both the day-to-day business as well as business revival efforts. Any business revival strategy related to a SME business needs to factor in these variables.
Before dealing with the strategies to revive a failing business, one needs to understand the causes and symptoms of business failure. Typically failing businesses are characterised by deteriorating cash flows, inability to increase sales volume or market share in a growing market, increasing levels of customer dissatisfaction, loss of customers due to product or service quality issues, decreasing profitability levels, time and cost overruns with respect to delivery of products or services, high level of employee turnover and the absence of a clearly defined and articulated business plan.
Evaluation of the internal and external business environment is a pre-requisite for identifying the causes and symptoms of business failure and development of the appropriate strategies. This requires an objective analysis of all the internal factors such as management, finance, quality of people, operations, customer service, etc and external factors such as general economic environment, nature of competition, growth levels, etc. At the evaluation stage, business owners should be as objective as possible in their assessment of business prospects and the possibility of business being rescued.
In this context, a small business may consider the involvement of outside experts as they bring in the required objectivity and experience. At the end of the evaluation phase, the business owners need to decide if the business is worth saving. If there is a reasonable prospect of reviving the business, the business owners should focus on surviving in the short term while a revival strategy is formulated and implemented. Broadly, business revival strategies can be classified into retrenchment strategies, repositioning strategies, reorganisa-tion strategies and realisation strategies.
Retrenchment strategies involve moving out of difficult or less-profitable markets, deleting unprofitable product or service lines, selling assets, outsourcing and downsizing. All of these strategies are designed to minimise financial losses and conserve resources. In a business revival scenario, managing the cash flows becomes critical and the retrenchment strategy is often the first step as it has a direct bearing on cash flows. While following retrenchment strategy, business owners need to pay attention to soft issues related to the whole process by being open and transparent with their employees and customers. Communication with various sta-
keholders should be open and clearly spell out the rationale for steps being undertaken and should be aimed at obtaining their buy-in.
Repositioning strategies involve moving or expanding into new markets or geo-graphies, seeking new sources of revenue, developing new products or services, and changing the market perception and image of a company. A business can attempt a repositioning strategy only after it has stabilised its cash flows.
Reorganisation strategies involve changes in the internal management of a failing company, which may include new reporting structures, new business model, process redesign and induction of fresh management talent. The reorganisation strategy can be employed in the long-term and needs considerable change management at the business level.
Realisation strategies come into play if all of the above strategies fail to deliver results. In realisation strategy, the focus is realising as much value as possible through liquidation or sale. In this scenario, the business has no choice left but to close down its business and recoup whatever value it can.
Reviving a failing business is not an easy task as it needs a continuous and coordinated effort. A business revival strategy to succeed requires a saleable product or service, an established market, capable management team and the support of all stakeholders. There is no one size fits all approach and business owners should evolve their own approach which is appropriate in their context.
