How to diagnose and treat a struggling business
There’s a fine line between a struggling business and one that may just need a little more time to find its feet. How can you tell the difference, and what should you do if your business is struggling? With Covid in our midst, this question is more relevant than ever.
What’s the definition of a successful business? We think there’s two answers to that. It’s a business that:
- meets the goals that you set for it
- meets the bottom-line definition of success, and that is of course, a profit.
If your business has no goals, it has no path and if it has no path then there’s no way to know if it is in good health. When we started the Catch Group, we set out to create a cash flow positive business, and for the most part, we have achieved this, so we could call our business successful.
In contrast, a struggling business is one that has no foreseeable path to being profitable. Irrespective of how good the idea is or how much you love the concept, ultimately a business must pay for itself or it cannot continue to exist. If that’s the case, maybe it’s better to call the business a project or a hobby. At least that will take the pressure off you feeling it has to make a profit.
So, what if the future profitability of your business is looking grim? What do you do?
You need to take action. We’ve spent years building businesses from scratch, or building upon existing businesses, so when it comes to turning businesses around, we’ve learnt some very powerful techniques to move the dial.
Here’s a few things to consider:
a) Examine your business goals
From the start, and throughout the entire journey, it is important to set high but fair expectations for your business. When things are not going to plan you need to recognise there’s a problem and then assess what’s possible to make the business healthy again. If you’re not meeting those goals, you may need to tweak or pivot to see if the business responds to the changes.
b) Examine your effort
Pareto’s Rule says that ‘20% of your effort should generate 80% of your results’.
So, if you are spending 80% of effort to generate 20% of the result, you have a problem and this suggests you are either wasting resources, missing big opportunities or both. If the numbers however are a little more balanced (40% of effort generates 60% of your result), you may be in luck and some incremental improvements could help turn it around.
The goal is to maximise efficiency and effectiveness so look closely at where you can reduce your effort without affecting the results. Conversely, look at how you can increase the results for the same amount of effort.
The Catch Group faced significant challenges over the years that forced us to rethink our strategies. For example, when we launched Scoopon and had 80 competitors pop up within a few months —many with deep pockets and heavy artillery, which dramatically affected our initial sales and profit performance. We had to think long, hard and quickly about what to do next.
c) Examine your offering
While our competitors invested heavily in marketing, we pivoted and decided to invest in quality and service delivery to distinguish ourselves. This decision paid off in the end and left us in a very strong position, while the weaker competitors fell away. As they say, what doesn’t kill you only makes you stronger.
If, after trying all this, the business still does not respond, you need to confront some hard questions:
1. Is the business worth the additional effort and costs of learning?
2. Do you think the business will ever be as strong as you want it to be?
If the answer to both 1 and 2 is no, then you should definitely pull the plug on the business, turn the business into a hobby and focus on other activities. Or get a job. Or just read our book and find out what you need to do next to relaunch it.
We’ve had lots of successes, but we’ve had lots of failures too and we’ve probably learnt as much from what hasn’t worked, as we have from what did work. Our book shares all the highlights of our journey, but plenty of the lowlights too. We leave nothing in the tank. It’s all there for you to learn from.