The book, ‘Business Risk Factors Evaluation & Guidelines for Entrepreneurs’ is an essential book that would help Entrepreneurs to carry out effective business engagement practices. Entrepreneurs are in the best position to assess the risk factors facing their businesses. Not only does the book help Entrepreneurs keep an eye on the forces affecting any existing investment; the book also show Entrepreneurs where they could be spending more and where less.
It help Entrepreneurs identify risky people and risky clients and enables them to align their business engagements practices with international Business Engagements Best Practices. The book has further advantages such as mergers and acquisitions or leverage buyout. Every portion shares a common but various business format. This allows Entrepreneurs to obtain, the information they need from their clients very quickly.
EXCERPT PART 1:
WHY ENTREPRENEURS FAIL
According to an entrepreneur, “every corporate disaster has its own useful story yet most debacles are the result of entrepreneurs making one (or more) of six big mistakes. Company Xy a boisterous and well to do corporate turn- around firm took over to run completely financially crumpled bank, and one of his priorities is to unload the bank’s stylish corporate headquarters. “ The problems all started at the top with the senior people going through the motions and the board accepting the statuesque. They hire consultants and draw up plan after plan-but somebody got to execute somebody got to ‘manage’. easy enough to say; but difficult to do.
About 50,000 U.S. companies reached the point of ultimate failure in 1989. They ended their business, leaving behind unpaid creditors. By 1992 the number of failures had nearly doubled, to some 97%00. Each year many thousands move head down the path to failure by losing ground to competitors or watching a key piece of business disappear. As salvage operators like company Xy are quick to point out, Entrepreneurs at fallen business must take the hit for those plummets from glory. But a close look at specific reasons for corporate failure is far more useful than finger pointing; you might even keep bad thing from happening to your company. Why do corporations fall short of objectives, even when the suits on top aren’t all that empty? Why do strategies that seemed eminently sensible turn out to be disaster? Why do successful organizations, suddenly begin to lose their way?
Ask these questions of corporate executives, management consultants, venture capitalists, investment bankers, turnaround specialists, equity analyst, and portfolio managers, and you‘ll get a cautionary tale for anyone who hopes to keep a business clear of trouble. Below, by consensus team of experts, are the six key chasms to avoid.
IDENTITY CRISIS
If failure has one overarching cause, aside from patently inept management, it is the nearly incredible reality that entrepreneurs too often don’t understand the fundamentals of their business. They neglect to ask central question, such as what precisely is their business core expertise, what are reasonable long and short-term goals, what are the key drivers of profitability in their competitive situation? “it is a stunning if not disturbing fact of corporate life in the 1990s. A lot of entrepreneurs of very large businesses have no idea what made their organization successful”. Says Stephen Fraiden.
Without an essential understanding of what the enterprise is all about, some management consultants call it a “Mental Model” Where decision-making becomes capricious and the business drifts. For instance, standard Breweries top bosses, failing to understand that regional market share was the key to profits, close scores of stores in areas of the country the business once dominated revenues; and earnings plunge. Just like what took place in Minnesota in United State of America. A based purveyor that sales class rings, year books and other products to schools, boasts of a 34-year record of consecutive sales and earnings increase, until in the late 1980s when it failed to identify the crisis, it diversifies into computer systems a field foreign to its senior executives. By 1993 the business was reporting a $12 million annual loss. Many companies in Nigeria and in developing countries in general today tend to fail because of similar mistakes. Most corporate organizations are performing below 80% expectation. This is as a result of inability of the Entrepreneurs of these organizations taking a hard look at what was going on; they don’t seemed to be asking the right questions; they seemed to have lost the mental model.
One sign that a business is clueless is that top management succumbs easily to management failures. If you don’t know where you’re going, as suggested by the Buddhist aphorism, any road will get you there. Management by walking around is followed by matrix management, and several rounds of re-engineering. The workforce can become faded in the process and suffer from change fatigue. The eventual result is often widespread worker resistance to new initiative which frustrates management further and can spiral into ever more draconian, equally unsuccessful efforts to motivate the employees says Scott Morgan. “There is no evidence anywhere that ramming something down people’s throats is an effective management tool”
Another sign of cluelessness: a tendency on the part of management to diversify into fields far from the organization’s essential core, frequently through unwise mergers or acquisitions. The underlying psychology is often clear enough. Says a prominent New York lawyer and dealmaker. The guys running big businesses know they have a limited time to make an impact, and they can be tempted to look for a panacea. M & A can be loaded with unanticipated mysteries no one around the place knows how to solve. Eastman Kodak thrived for decades in its camera and film business and then unaccountably moved into pharmaceuticals and consumer health products, with dismissal results.
Another niche player that failed to recognize and to, its proper role: Subaru, the subsiding of foreign heavy industries that delighted customers through the late 1970 and early 1980s with cheap, study, four wheel-drive vehicles. Identify problems set in during the late 1980s when management decided to expand into the mainstream with a line of nude size family sedans. Their efforts barely dented their new market, while Jeep and Ford are into Subaru’s primary four wheel-drive business. Recently, management finally got the hint. After seven straight years of losses in the U.S, Subaru is slinking back to its original niche. But a considerable damage has been done, much of it in sales forgone. Says Subaru chief operating officer George Muller. “Because of the way we positioned ourselves, de-emphasizing our strength, we gave back at least $30 million to the market.”
Taking a look at typical example of what is being experience in Nigerian industries. This is a beverage food industry that is valued for the sum of 200 million Naira, but decided to shop for a likely buyer, a company that forgot its raison d’etre.
CAUTION: FAILURE OF VISION:
With perfect hindsight one can argue that the U.S. airline industry at the eve of deregulation 40 years ago, should have anticipated rampant fare wars and begun getting cost under control. Tobacco companies should have foreseen a breakout of antismoking fervor, and the Big Three automakers should early on have detected the rise of Japan as a competitive threat. But senior managers lacked the vision to see and plan for obstacles down the road. The problems, say the experts, is that too many business are content to prepare their organizations only for the likely snags.
It’s easier on the brain after all. But to survive, top managers must stretch their imaginations and work up wide-ranging creative paranoia. Says Tamara Erickson, and Arthur D. Little Managing Director: You should ask yourself if your strategy is flexible enough to deal with the wildest case scenario. “You should contemplate the absurd and include it in your planning.
In recent years one of the most common disasters steaming from management short sightedness is getting stuck with yesterday’s technology. The vacuum cleaner manufacturer contemplating a new product line should be pondering new manual that his customers will be using ten years from now and how they will be most efficiently cleaned. The steel maker that fails to buy new equipment knows a few Dollars off per-ton costs will almost surely surrender business to cheaper imports.
Anteing up for R&D can help lower the risk of technology obsolescence, but at many failing business such long-term investment doesn’t quicken the pulse of short attention-span executives. “It’s like being a mayor or a governor of a large city, you don’t get much credit for repairing the roads and bridges”.
The price of not paying attention to such matters can be steep. A Newspaper publishing company was a Kakawa street highflier in the 80’s and among the ten leading Newspaper Publishing Company with reasonable earnings per share and return on equity. But management failed to foresee that the accounting and law firms making up the bulk of its customers would turn to a newly established Post Express for much needed information and prompt services: Like what one executives vice president one time said. “It’s like we were sitting there with our feet stuck in concrete.” Similarly, Deserve Bank’s Quadroon Systems once owned the stock-price data business on Broad Street using proprietary hardware.
The advent of powerful desktop PCs rapidly made many of its services irrelevant. Even if they avoid being trampled galloping technological change, myopic managers run the risk of a hatful of other potential problems. A one time chairman of the Boston Consulting firm Bain & Co, warns entrepreneurs to watch for what she calls “latent competitors”, stealthy opponents who appear to be operating in a wholly different area but could move into news turf at any time; example: Cable T.V companies are taking on the baby bell’s head-to-head and vice versa.
THE BIG SQUEEZE
The seduction scenario perfected in the 1980 and still a winner often begins with a deft of flattery. Broad street Nakery. A shows up and lavished praise on the organization- its high-quality management, its marketing wizardly, its stellar customer relations. This is an enterprise that could easily handle some added leverage, he says. Then Bakery B arrives. Besides, he adds, a heavy debt load actually makes a business more efficient because management has to focus and work harder. By now the entrepreneur is getting plenty nervous but Bakery C comes on the scene armed with cash flow projections and premises of an upward spiraling stock price. Everyone’s goanna get rich-rich. The boss can’t sign the papers fast enough.
But after the lawyers and bankers are long gone, the proprietors of enterprises suddenly carrying a heavy debt load find out some awful truths about their new condition. Their deal may have brought a new price or two to the business, a big dose of cash or a nity acquisition, but it may also have robbed the organization of two of its most essential attributes: the strength to weather market downturns and the flexibility to respond to competitive challenges. The situations worsen in cases where lenders based their estimate of the organization’s creditworthiness on assets values that plunge in tough times. Says Triangle Wire & Cable boss. “So many of these deals are based on the premise that the music will just keep on playing but it never does”.
The band packed up abruptly for Gernard’s own business, which specializes in electrical wire and cable products for the construction industry. The commercial real estate market tanked not long after an investment group had taken the company private in a $90 million leveraged buyout. Over capacity and price-cutting were everywhere in the industry and Triangle, facing huge tank bond payment, soon began to bleed. Losses totaled about $70 million during 1992 and 1993 before Gernard, what was a workout specialist; at Citibank for more than a decade before coming to Triangle, stanched the flow by restructuring the debt and shutting down some peripheral businesses.
Many entrepreneurs have fallen into debt trouble by over reacting to the predations of corporate raiders. That was the story of Chrisleb; the huge Nigeria based Biscuit/Trebor Sweet Company.
Chrisleb was badly heat during the economic recession in 1980s. Highly profitable, low-cost leader in a number of key marks sitting on more that 150 million Naira in cash. Today Chrisleb can no longer find his feet in confesionaries. So many business went down the drain the same way including banks. In Chicago in United State of America, USG was a pretty obvious target during the rapacious 1980s but gang of buccaneers from Texas began eyeing the company management decided to respond with a $3billion, highly leveraged recapitalization that tore up the balance sheet. When recession led to slack demand for the company’s product the debt bomb went off. Losses in 1991 and 1992 totaled more than $350 million.
Restructuring of long-term debt by new management at USG has begun to turn things around. But the business has gone through the sort of crucible many organizations don’t survive. Entrepreneurs should cultivate the culture of going into leverage that they are familiar with. Says a chief Executive “with leverage, which was completely foreign to us, sheer financial survival becomes the story of your business. You find out who produce and whether your employees believe in you.
Another sure-fire way to get into heel is to over pay for an acquisition. Some Entrepreneurs have had their fare in doing this. (i.e. fell from grace). May-tag an appliance manufacturing company in Chicago had a sad experience when he hopes to diversify its product line and gain market share overseas. Maytag’s managers in 1989 paid $1 billion for Chicago Pacific, owner of the Hooverbrand, among other assets. Troubles merging the two operations have hurt, but the biggest problem is that Maytag simply paid too much. According to the Chief Executive of a Concedes company. “In the long view, it was correct to invest in these business. But the timing of the deal and the price of the deal made the debt a heavy burden to carry.
THE GLUE STICKS AND STICKS
Very many Entrepreneurs are complacent. They either stick to their decisions or carry out suggestions when things are already late. A major cause of such passive management is pure nature. Most of us have big trouble rejecting or seeing the need to move beyond a technique or strategy that worked well in the past.
As a Senior Vice President of an American company puts it: “your success can often be the seed of your future failure.” The management attitude that lets this happen is highly contagious. “When management suffers from this particular disease the inability to abandon strategies that no longer work- you can usually predict that it will spread quickly all through ranks.” Complacency and bloat seem to afflict large business almost in proportion to their size. General Motor had a horrible model under a complacent Chief Executive Officer.
According to auto Guru, Maryann Keller, GM’s top bosses recognized the need to shake up operations but over many years had built up an intricate bureaucracy with so many internal needs that progress seemingly and took an eternity. “GM’s story in the 1970s and 1980s, is not about corporate stupidity or self-serving leaders but rather about a company finding itself hopelessly tangled in a complex corporate future that resisted change.”
THE VISION THING
Readers should not see the instances as too related to American method of doing business. Lots more need to be known why American economy is a viable economy and why entrepreneurs fail and how they survive. The Entrepreneurs or Board of directors of companies will always state clearly the vision and mission statements of their business but why do these Entrepreneurs fail?
Management was asleep at the Forex Clearing House (FCH), a leader in publishing reports for accountants, lawyers, government agencies, and corporations to the happy tune of $55 million in earnings in 1987. With the third-best return on equity among 22 U.S. publishers, FCH hugged tight to its print products and mainframes-which led to a dramatic 1992 lose of $64 million.
Management organization and our legacy computer systems were major impediments to our response to the markets”. Say an Entrepreneur, 47, fourth generation of a family that has controlled FCH since 1982 and still controls 56% of the stock. In search of a turnaround, he led a dramatic shift to electronic publishing over the past three years to win back customers. “We were so wedded to the great revenue we were getting, we did not migrate to being a PC software company “say Brown. Also, instead of competing on our quality of product, our competitors were emphasizing of price at a time when the market was very receptive”. Again a leader in its high-tech market.
FCH is a warning to companies that relax into success. Cautions Brown, slated to think become CEO next April. “If you’ve been through adversity before, you don’t thing the storm will be upon you”.
ANYBODY OUT THERE
Stay close to the customers. Many entrepreneurs continue to fail precisely because they have lost touch with their most important customers. Cases in point: BM was still pushing giant mainframes that required holds of white- jacketed technique to keep them humming, when the whole world was cutting costs with desktops. Sears tried modest discounts to capture middle-classes shoppers who had become beady eyed bargain at the likes of wall-mart. A.T cross to be pen maker, continued to turn out skimming little writing instruments and lost hefty market share to Mont Blanc’s fashionably chunky offerings.
Entrepreneurs that turn out products or services with a traditionally short life cycle high tech, retailing, fashion, entertainment-are particularly vulnerable when they fail to detect and bend with shifting consumer winds. Another case in point: Clothing-store chain Merry Go-Round Enterprises.
A flashy fast-grousing out fit during the 1970s and 1980s. merry Go-Round began to falter in recent years when management failed to stay on top of fast changing fashion trends among young men, who make up about 75% of its customers. All the really cool dudes had moved on to lumberjack shifts and blue jeans, but Merry-Go-Round featured the hip-hop look-baggy pants and hooded sweatshirts. Inventories piled up, operating profits tumbled, and losses went up to the tune of $40 million and the company went into the serious recession.
Whatever the business, really staying in touch with customers often involves a lot more than merely running marketing surveys and the odd focus group. Smart managers increasingly zero in on key customers who no longer want their product or service.
The theory behind such exist polling is that you can learn from your mistakes than from your successes “GM would have known that it was failing 15 years before it did if it had tracked customer defections “agues, a director at Bain & co. In Boston another customer tracking techniques: Consider the needs of customers all along the value chain not just the end user. Every business must please a whole series of customers depending on the business-whole sellers, shipper, retailers, and consumers’ independent distributors. Only by meeting the needs of each group, management stay in the Know.
According to a retired former chairman, says that many entrepreneurs fail customers because management simply hasn’t trained or utilized its sales force properly. He contends that sales people should be allowed to focus on a specific category of customers. High Tech manufacturers believe that losing business often make-sale-people peddle a broad line of products to all customers in all markets or in a particular geographic territory.
For effective business engagement practices, the entrepreneurs must always assess the sales force of the organization concern vigorously. “You can’t stop solving customers’ needs until you find out how many players you’ve got and how many cheer leaders”.
ENEMIES WITHIN
The foundations of most organizations deteriorates; organization politics remain the order of the day. As one American Entrepreneur puts it. Why is it that I always get a whole person when what I really want is a pair of hands? It is obvious that hostile workers rip apart and sink many a business whose top managers, whatever their public declarations, take that sort of narrow view of their employees. Strikes and hostilities are obvious signs where top management tends to turn deaf ears to workers demands.
Less blatant but no less fatal are the cynical and resentments that build when management or governments preaches one doctrine and practices another. This brand of managerial hypocrisy goes well beyond pay and perks, and insidiously. Many top entrepreneurs ignore the human dimension of day-to-day operations, taking actions that unwritten rules as well as their stated intentions. They preach the importance of teamwork-then reward individual also who work at standing out from the crowd. They announce a preference for workers with broad experience then denounce job jumpers within the organization. They encourage business risk taking then punish good-faith failures. According to an American CEO: “It tantamount to managerial malpractice.”
An Entrepreneur, believes many futures may take place because of the so called new deal between workers and employers in which traditional bonds of loyalty may loosen or disappear. He, thoughts on labor relations run counter to the prevailing wisdom. As he puts it, “It has become a radical point of view to suggest that employee loyalty might still have some value”. He says wryly. But he may be touching on the most crucial reason of all for why entrepreneurs fail. They follow the crowd instead of leading it.
About the Author(s):
McDavis Associates was established in 1999 with stable Board with men of high Integrity. Apart from being key player in Human Capital, Legal Practitioners and Property Development Consulting, it offers services in Risk Management, Business Reengineering, Investment portfolio management; simple and bureaucracy free processing of professional services.
McDavis Associates enjoys the patronage of clients spanning all the major industries and has honoured its professional practice commitments and has earned its reputation of excellence in consultancy.
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