The nightly news is full of reports on companies going out of business or struggling during this difficult economic period. Its natural and convenient to place the blame for what has transpired on the recession we are now (hopefully) beginning to climb out of. However, digging a little deeper into the operations of some of these firms and the management decisions made, one gets the sense that there is something else going on:
- A major catalog retailer sends out its Spring catalog, but fails to load that new inventory into its web back-end in a timely manner, so thousands of prospective buyers get errors when entering new product numbers. This occurred for the prior catalog run as well. Thousands of catalogs get thrown out with no purchases made, and the retailer is soon operating in bankruptcy, citing the recession.
- A popular restaurant has long lines for a table every night, and its waiting patrons remark that it must be immune to the economic downturn. A few months later it is closed – the combination of high lease rates and bad expense management required a booking rate beyond anything possible with the actual physical space.
- A clothing store chain is sold to investment firm after investment firm, each taking out cash, resulting in an organizational structure that is so highly leveraged it would need a hockey-stick growth curve to meet its new debt obligations going forward. In short order all the stores are boarded up and thousands of long-term employees are laid off. Loyal customers drive by and remark that it must have been another victim of the recession.
Certainly there are thousands of cases of otherwise healthy, well-managed businesses that have fallen victim to this downturn. How many others though, are really stories of bad management that was finally exposed; bad management that could not be glossed over anymore by a rapidly growing economy and loose credit? How many of these business ventures never ‘penciled out’ to begin with?
A 50% drop in revenue would be a major challenge to any business, and many would not be able to restructure their operating costs to make it through. That said, if your business can’t handle a 5% drop in orders without going under, was it ever really viable?
Each of us have firms we regularly interact with, while scratching our heads as to how they manage to stay open – terrible service, faulty logistics, outdated technology or other failings. Eventually the music stops (a recession) and they find they have no chair.
How many business ‘recession victims’ over the last year are really significant management failures coming home to roost? One wonders if the new normal after the recession ends will include more realistic expectations for company growth and revenue, with greater accountability for management.
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