Mitch Levin & Lee Rust, CEOs, Corporate Finance Solutions
When I was a kid (a long time ago), the Great Atlantic & Pacific Tea Company, also known as A&P, was by far the largest grocery chain in the United States. I also recall when Xerox dominated the office copier market, IBM overtook Apple in the personal computer market (yes, it did, until it didn’t any longer) and the U.S. Federal Trade Commission’s antitrust division discussed breaking up General Motors into smaller competing companies due to its dominant market share in auto sales. General Electric was the longest standing company in the Dow Jones Industrial Average. What happened to these previous market leaders?
They refused or were unable to adapt to a constantly changing market. Grocery stores with a smaller footprint than A&P added deli counters, lowered prices, updated store layouts and expanded product offerings. As Xerox’s patents expired, foreign manufacturers developed less expensive copiers that were better, faster and more advanced than Xerox’s. In a similar fashion, IBM ceded its personal computer leadership and then sold its entire PC business to a Chinese competitor. General Motors was unable to match the Japanese manufacturers’ automotive quality or use of robots and other advanced techniques on their production lines in a timely manner. GE suffered decades of bad leadership.
In each of these cases, the company executives were too emotionally invested in their product lines, production methods, people, suppliers, customers or business practices. Do something, even if it’s wrong because taking action matters. Version One is better than Version None. The message is simple: If you don’t make at least one mistake, you aren’t doing enough.
I’ve seen far too many businesses struggle and even fail due to a simple inability to change. The treatment is simple: avoid becoming overly attached to any aspect of your business. Inquire about everything, especially things that reflect how “we’ve always done it.”
Having to fire or demote a low-performing employee is one of the most difficult, yet necessary tasks a manager faces. When faced with that task, it’s far easier to give the person another chance than it is to tell them they must find another job or accept a lower position. Is that decision to postpone the termination of the employee, however, the right one? “You can’t fire or demote John because he’s been with us for twenty years,” someone might say in response to that question. You can and, in many cases, should do so. As soon as you recognize it, you must. The length of service does not always imply optimal performance. Furthermore, keeping under-performing employees could put the jobs of many more people at your company in jeopardy.
Performance and productivity are more closely linked to the ability to change, adapt, question and act than the number of years a person has worked for a company. Those qualities have nothing to do with age; a younger employee may find it much more difficult to change his or her work patterns than someone much older who has seen and experienced more changes in their career.
Lee Rust’s father was a minority shareholder in two brick manufacturing companies many years ago. One company used beehive kilns to cure the bricks, which is similar to the ancient Egyptians’ original curing methods. The other had upgraded to a modern continuous tunnel kiln system. The beehive kiln plant owners talked for years about investing in a tunnel kiln but they could never justify the cost to themselves. Long ago, that old beehive plant was shut down and liquidated. The tunnel kiln plant is still in use and it has been modernized and virtually rebuilt several times since then.
It’s possible that the way you’ve always done it isn’t the best way to do it today. If you’re having trouble competing with lower-cost goods from overseas suppliers, shut down your manufacturing operations, buy from overseas suppliers and turn your business into a sales and marketing operation. Isn’t it better to have all of those manufacturing jobs shipped overseas than to have all of your employees lose their jobs in bankruptcy?
During the 1950s, Howard Johnson’s had a chance to compete with McDonald’s in the convenience food market. It didn’t work out. They had the potential to become the Cracker Barrel of the highways in the 1980s. McDonald’s offered food that was both cheaper and faster than Howard Johnson’s. Cracker Barrel became the first to combine down-home cooking with a country store concept. Meanwhile, Howard Johnson’s allowed its restaurants to deteriorate to the point that the slogan “Where the ice cream comes in 28 flavors and the food comes in one” was coined.
A good manager examines every aspect of his or her company on a regular basis, comparing its operations to changing market tastes, procedures, price points and any other function that may need to be modified, updated or eliminated. The best managers try to predict market and other changes that might have an impact on their business, then change their operations before the effects become apparent. Those who excel at this are usually at the top of their fields. They also tend to produce the highest profit margins.
Don’t be enamored with the past, the way your company has always operated or the items that have contributed to its success in the past. They might not be able to contribute in the future.
Mitch Levin & Lee Rust, CEOs, Corporate Finance Solutions, specializing in mergers and acquisitions, succession planning, strategic planning and financing. For more information, visit www.cofinsol.com or call 888-885-5656.
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