Fuzzy Direction Kills Business
by Gary Sutton

My Grandpa, a coal miner, taught me more than the Harvard Business School.

"If you spread the support beams farther apart," he said, "you get coal out faster. But it's just like adding debt to quickly expand a business. The risk increases."

So after my three decades as a turnaround CEO, taking over bleeding businesses in printing, software, retail advertising, garbage, aerospace, burglar alarms, satellite telecom and data storage…that skinny old grandpa began to look smarter and smarter.

These troubled businesses all stumbled in one of five ways. Even the college I chaired through its recovery had fallen into a common trap. Stranger yet, these same errors were also the ones that caused grandpa problems a century ago, when he struggled to make a living from coal mining.

One of the everyday problems, now as then, comes when a business fails to recognize what it does well and what it does poorly. "Full service business" simply means you're not special at anything. Worse yet, those added products increase overhead and your true expertise becomes less special as prices rise. Those kinds of turnarounds are bliss because the fix is so easy. Just toss out the "full service" stuff and concentrate on the specialty. Where there's less competition. And a chance to re-establish a reputation.

You see it everywhere. Trying to be all things to all people. Enron decides they're also good at trading energy contracts. Tyco is "a diversified manufacturing and service company," and even today you'll have to read through the first two or three pages of their web site before discovering a single product. Sears bought Dean Witter, tried to sell "socks and stocks" in the same building and never recovered. Time-Life joined Warner, magazines and movies, becoming Time Warner. Then they went into online entertainment by merging with AOL and shareholders have never lost so much money. American Express bought Lehman Brothers to become a "full service financial center" which bombed, they split and the process goes on and on.

"Strip miners made money," Grandpa said, "and so did those who tunneled. It was just those the ones trying to be both that got confused, expert at nothing and faded away."

You see it working both ways today. Citicorp, once again trying to become the "financial supermarket," gets caught with embarrassing conflicts of interest and despite the company's growth, the stock muddles. But Merrill Lynch tossed out half the stuff they were doing just a few years ago. Sales growth flattened. But guess what? Merrill Lynch's profits and stock soared. They became special again.

Dominos Pizza never claimed the best ingredients. They didn't talk about lowest price. Dominos doesn't claim to have the most variety. Dominos did one thing. They promised to deliver your pizza in thirty minutes. And be being so clear about what they did, became the largest food delivery system in the world.

What are the five ways businesses fall into trouble?

  1. Fuzzy direction creates bad results: Smiley Industries made $48,000 guidance system housings, for missiles, and $17 cargo door hinges, for airliners. Yes, all metal parts, but way too big a spread in both price and technology to become good at either. We salvaged it by dropping the "blacksmith" work and concentrated on the exotic metals and high precision work.

  2. Chasing sales more than profits: Graphic Arts Center rebounded into record profits, after those managers became selective about the work accepted. This followed a heart-stopping loss one quarter, a bit of upheaval but the business went on to become the largest commercial printer on the west coast of the U. S.

  3. Market changes…here's a toughie. If I were Chairman of Kodak, watching digital photography explode and destroy my franchise, I'm clueless as to what to do. But with some luck, we turned around Knight Protective Industries just when the residential burglar alarm business suddenly got competitive. And profited. Strangely enough, loss of a market offers some opportunities, but only for the stout-hearted.

  4. Poor controls: Checks To-Go suffered 53 straight quarters of losses when I took over. It was easy to nail the first profit in our first quarter and set records the following year, simply be straightening out the accounting. Then we learned what made sense and what didn't.

  5. Excessive debt: I'm guilty of experiencing this first-hand. We borrowed big to roll up printing businesses. With luck, we didn't tank, but our results were scary everytime the economy softened.

Those remain as the mistakes that can drop any business to its knees. I've seen no other causes. After decades of turnaround work, managers began to write, call and email with questions. They're nervous. They should be. Major corporations have fired more employees than they've hired for three decades. Job growth has come from small business, but those little outfits are risky. That's why workers are nervous.

So I wrote the book. "Corporate Canaries…Avoid Business Disasters with a Coalminer's Secrets" explains these errors. It tells managers how to recognize them. The stories suggest what a manager can and cannot do. This reduces confusion and worry over irrelevant things, turning fear into productivity. And when things are tougher, "Corporate Canaries" explains how to behave appropriately.

Gary Sutton is the author of Corporate Canaries: Avoid Business Disasters with a Coalminer's Secrets .

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Copyright 2005 by Gary Sutton. All rights reserved.

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